PAYE (Pay As You Earn) is the system that HM Revenue & Customs (HMRC) uses to collect Income Tax and National Insurance contributions (NICs) from employees’ pay as they earn it. The term ’employee’ in this guide includes directors of limited companies.
As an employer, you’ll have to deduct tax and NICs from your employees’ pay each pay period and pay Employer’s Class 1 NICs if they earn above a certain threshold. You pay these amounts to HMRC monthly or quarterly. If you don’t send the correct amount, or if you send it in late, you may have to pay interest. Under the RTI system employers required to send real time information to HMRC on periodic basis.
Pay as you earn (PAYE) is a regular and important task for employers, if you are an employer and paying wages and salaries over certain limit you have some responsibilities and duties to fulfil on regular basis.
Being an employer, you have certain obligations to the Taxman, HM Revenue. If you do not follow the law and procedures and ignore these obligations and duties, this attracts penalties and interest towards your employment costs which will off course reduce your profit and cause unnecessary hassle! With the recent introduction of RTI (real time information) system HMRC expect more and quick information from employers.
Most penalties arise if you either:
- miss certain statutory deadlines for remitting tax and national insurance you have deducted from your employees and staff, or
- are late submitting your returns to the HM Revenue.
Unfortunately if you make a late payment or forget to send off a particular return and you will be penalized.
If you are providing some benefits to your employees, like company cars and health insurance etc you need to fulfil some more relevant requirements of law.
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