Avoiding HMRC Penalties and Fines for PAYE
When employing staff you are responsible for the payment of their tax and national insurance (NI); this responsibility is not something HM Revenue and Customs (HMRC) takes lightly. As such, failure to comply can be very costly so it is important to understand your responsibilities otherwise you will incur penalties and fines when paying your employees’ tax.
How to register for PAYE and administer the scheme
You must register with HMRC as an employer; the easiest ways to do this is over the phone or ask your accountant. You will then receive the relevant paperwork within a few days. Once registered you can start to employ people. There are two main deductions that you must make to your employees’ wages, their tax and NI.
- 1. Tax deductions
Normally the first part of their wage is tax free – the current amount (2013/2014) for tax free income is £9,440 per year. The tax free amount is followed by increasing percentages of tax starting at 20% for earnings between £9,440 and £32,011, then 40% for earnings between £32,011 and £150,000 increasing to 45% for any earnings above £150,000.
- 2. National Insurance Contributions (NIC’s)
In addition to these tax bands you also have NIC’s to consider. There are two types of NI to be paid – the employee’s NI and the employer’s NI.
– The employee’s NI is a deduction from their wage. It has its own set of limits and thresholds that must also be strictly adhered to.
– The employer’s NI is an additional cost that is on top of the employee’s gross wage. The current standard rate is 13.8%, meaning that to pay an employee a gross wage of £300 will cost you £41.40.
Costs that reduce your PAYE
All employees’ falling under UK law are entitled to statutory sick pay (SSP), statutory maternity pay (SMP) and statutory paternity pay (SPP). Most of the SSP and the full cost of SMP and SPP can be offset against your PAYE liability.
Paying the tax and NIC’s to HMRC
All tax and NI deductions made, along with the additional employer’s NI has to be paid to HMRC every month. Tax months finish on the 5th; you then have until the 19th of the same month to have cleared funds with HMRC. If your deductibles (SSP etc.) are more than the amount you owe then you have two options, you can either ask HMRC to repay the amount to you or you can send in a nil return and keep the amount of credit on file to offset against the following months PAYE.
PAYE tax advice
Calculating an employee’s tax and national insurance is a complicated process and is quite often varied due to differing circumstances. There are many programs available designed just for this purpose it is recommended that you seek professional help when calculating your PAYE as the fines and penalties can be horrendous.
If you are considering starting up a company and employing people to work for you, Taxaccolega, a low fixed fee accountant, can offer professional advice about your tax liabilities and exemptions. There are ways of saving money on tax if you know the rules. We also offer advice with regards a business model that is proven to bring success so call us today on 08000 235 234 or email email@example.com.