Tell HMRC about a new employee
This blog provides an overview of what you should do as an employer to tell HMRC about a new employee and is based on information obtained from the HMRC web site https://www.gov.uk/new-employee.
You must tell HMRC when you take on a new employee and be registered as an employer. There are certain steps that you have to follow when you take on a new employee or start employing people for the first time.
Before you pay a new starter, you should follow the following 5 steps:-
1. Check you need to pay them through PAYE
2.Obtain employee information to work out their tax code. If you do not have their P45, use HMRC’s “starter kit” (which replaced the P46)
3. Find out if they need to repay a student loan
4. Use these details to set up your new employee in your payroll software
5. Register your employee with HMRC using a Full Payment Submission (FPS)
Check you need to pay someone through PAYE
You usually have to pay your employees through PAYE if they earn £113 or more per week (£490 per month or £5,876 per year). However, you do not need to pay self employed workers through PAYE. You must always check each worker’s employment status to make sure they are not self employed. Should you get this wrong, you may have to pay extra tax, National Insurance, interest and also a penalty.
Working out if someone is employed or self-employed
As a general rule, someone is:-
- Employed if they work for you and do not have any risks associated with running a business
- Self employed if they run their own business and are responsible for its success or failure
Temporary or Agency workers
You need to operate PAYE on temporary workers that you pay directly as long as they are classed as an employee. However, You do not need to operate PAYE if a worker is paid by an agency unless the agency is based abroad and does not have a trading address or representative in the UK.
Employees you only pay once
You operate PAYE differently for employees you only pay once. You should set up a payroll record with their full name and address. When you send your Full Payment Submission (FPS), you should:-
- Use tax code 0T on a Week 1 or Month 1 basis
- Put IO in the frequency field
- Do not put in a start or leaving date
Volunteers and Students
You do not need to operate PAYE on volunteers if they only receive expenses that are not subject to tax or National Insurance. You should operate PAYE on students in the same way as you do for other employees.
Obtaining employee information
You need to obtain certain information from your employee so you can set them up with the correct tax code and starter declaration on your payroll software. You can usually obtain most of this information from the employee’s P45 but they will have to fill in a “starter checklist” (which replaced the P46 form) if they do not have a recent P45.
In addition, you will need your employee’s date of birth, gender, full address and start date. From your employee’s P45, you will also need their:-
- Full name
- Leaving date from their last job
- Total pay and tax paid to date for the current tax year
- Student loan deduction status
- National Insurance number
- Existing tax code
If your employee has more than one P45
You should use the P45 with the latest date and give the other one back to your employee. If both P45s have the same leaving date then use the P45 with the highest tax free allowance (or least additional pay for a K code) and also give the other one back to your employee.
Student Loan repayments
You should make student loan deductions if any of the following apply:-
- Your new employee’s P45 shows that deductions should continue
- Your new employee tells you that they are repaying a student loan (e.g. on a starter checklist)
- HMRC sends you form SL1 and your employee earns over the income threshold for their repayment plan
If your new employee requires you to make student loan repayments, ask them which plan they are on and record this in your payroll software. It will automatically calculate and make deductions. You should also report these deductions to HMRC when you pay your employee.
Student Loan repayments – special rules
In some cases there are special rules for making student loan deductions. Examples are:-
- You are sent a court order to collect a debt directly from your employee’s earnings
- You change how often you pay your employee such as from weekly to monthly
- The employee has more than one job with you and you need to aggregate earnings
Student Loan repayments – stopping deductions
HMRC will send you form SL2 if you need to stop deducting student loan repayments from your employee’s pay. Do not stop making deductions if an employee asks you to.
Registering your new employee
Register your new employee with HMRC by including their details on a Full Payment Submission (FPS) the first time you pay them. On this FPS, you should include:-
- Information you have collected from them
- The tax code and starter declaration that you have worked out
- Pay and deductions since they started working for you (do not include figures from their previous job)
Giving your employee a payroll ID
You can assign payroll IDs to your employees. The ID must always be unique so use a different one if:-
- You re-employ someone – if you do this within the same tax year, restart their year to date information from £0.00
- An employee with more than one job in the same PAYE scheme
If you re-use a previous payroll ID you will create a duplicate record and report payroll incorrectly.
There are special rules for making deductions for:-
- Female employees entitled to reduced National Insurance
- Employees you only pay once
- Harvest workers and casual beaters
- Certain employees with more than one job
Late P45 or starter checklist
You may need to update your payroll records if your employee gives you a P45 or starter checklist after you have registered them with HMRC. You only require a starter checklist from your employee to work out their tax code if they do not have a P45 or if they left their last job before 6th April 2016.
If HMRC have sent you a tax code
Use the tax code that HMRC have sent you if your employee gives you a P45 or a starter checklist after you have first paid them. Deduct any student loan repayments from the date your employee started with you.
If HMRC have not sent you a tax code
Should your employee gives you a late P45, use should always use this to work out their tax code and update their details in the payroll software.
If your employee left their last job after 5th April 2017, you should also update both the “Total pay to date” and “Total tax to date” fields in your payroll software for the first week you included this information. Should your software finds errors, update the fields with the correct figures.
If your employee gives you a late starter checklist and HMRC have not sent you a tax code, you should use the employee’s starter checklist to update the starter declaration in your payroll records.
Whether it is the P45 or the starter checklist that your employee has given to you late, when you next pay your employee, you should not enter another start date on the Full Payment Submission (FPS) even if you have not reported a start date before.
For further information please contact Stallion Accountancy Services.