Payroll common questions
How do I work out my employee's tax and national insurance deductions?
An employee's tax code reflects the tax allowances due against that employee's pay.
You work out the PAYE due by using the employee's tax code and the Tax Tables to find out how much to deduct from, or refund to, that employee on each pay day.
How long do I have to keep payroll records?
You must keep all forms P11(PDF) and pay records for at least three years after the end of the tax year to which they relate. This applies even if an employee does not pay any PAYE or NICs in the tax year but you have completed a form P11(PDF) to keep records of earnings and/or tax credits.
If you operate a pension scheme for your employees that is contracted-out of the State Second Pension, previously known as State Earnings Related Pension Scheme (SERPS), the Inland Revenue suggest that it would be helpful if you kept these records for as long as the employment lasts and three years after that.
Some of my employees have benefits, such as a company car - what forms do I need to fill in?
You must complete forms P9D, P11D and P11D(b) at the end of each tax year by 19 July.
if there is a change that affects car benefits for an employee earning at the rate of £8,500 a year or more or a director for whom a car is made available for private use you must also complete a form P46(Car) and submit it to the Inland Revenue within 28 days of the end of the quarter to 5 July, 5 October, 5 January or 5 April in which the change takes place.
What do I do if an employee has to pay off a student loan?
At any time during the year the Inland Revenue may send you a Start notification to begin making Student Loan Deductions from an employee.
If you receive a Start notification:
1. Enter a tick in Box J, headed ‘Student Loan Deductions case' on the employee's form P11(PDF).
2. Keep the Start notification in your wages records.
3. Use the Student Loan Deduction Tables, SL3(PDF), to start making Student Loan Deductions, if appropriate, from the first pay day after the start date shown on the Start notification.
What do I do if an employee is adopting a child?
The employee may be entitled to statutory adoption leave and pay.
Adoption leave and pay is available to adoptive parents where they are notified by the adoption agency that they have been matched with a child for adoption on or after 6 April 2003.
Special arrangements apply for parents who are notified that they have been matched with a child before the first day of a tax year, but the child is placed on or after that date. Adoption leave and pay will be available in such circumstances, but special notification arrangements will apply - employees will be required to give their employer 28 days notice of their absence. This will mean that these employees will not automatically be entitled to leave or pay from the date the child is placed.
What do I do if an employee is claiming tax credits?
Working Tax Credit replaces, among other things, the adult elements of Working Families' Tax Credit (WFTC) and Disabled Person's Tax Credit (DPTC) from 6 April 2003. It is for working people, whether or not they have a child. Apart from the child care element (which is paid direct to the main carer of the children in the family) Working Tax Credit is normally paid to employees through the payroll with wages.
If you have to pay Working Tax Credit to an employee the Inland Revenue will send you a Start Notice (form TC700).
You are required by law to pay tax credits to the employee from the date shown on the TC700 unless:
(a) the employee stops working for you before the start date on the TC700,
(b) you do not expect to pay the employee for at least three consecutive pay periods starting with the pay period that includes the start date, or
(c) you are not currently required to complete form P11 for any of your employees.
What do I do if an employee is pregnant?
Women are entitled to Statutory Maternity Pay but they have to:
1. Be employed by you for at least 26 weeks into qualifying week.
2. Have average weekly earnings of no less than the lower earnings limit.
3. Be pregnant.
4. Give you medical evidence.
5. Give you at least 21 days notice of when she wants to stop work for you to start her maternity leave.
6. Stop work.
Continental shelf workers, agency workers, HM forces, part time workers and married women and widows paying reduced rate NICs can all get Statutory Maternity Pay, if they qualify under the normal rules.
What do I do if an employee is sick?
The majority of employees who are unfit for work through sickness may be entitled to Statutory Sick Pay but they must:
1. Be employed by you and have done some work for you under their contract.
2. Be aged 16 and under 65 on the first day of sickness in a Period of Incapacity for Work (PIW).
3. Be sick for 4 or more calendar days in a row (PIW).
4. Have average weekly earnings of equal to or more than the lower earnings limit.
5. Be a person whose earnings attract a liability for employer's Class 1 NICs or would if they were high enough.
The following are all entitled to Statutory Sick Pay if they qualify under the normal Statutory Sick Pay rules:
1. Continental shelf workers.
2. Agency workers.
3. Part time workers.
4. Married women and widows paying reduced rate NICs can all get Statutory Sick Pay.
Note that there may be exceptions to the rules above.
What do I do if an employee's tax code changes?
If your employee's tax code changes during the tax year your Inland Revenue office will send you a form P6.
When you receive form P6, use the new code from the first pay day after you receive it, unless your Inland Revenue office tells you otherwise.
If a refund of tax is due when you operate the code you should pay the refund unless the new code is NT. In this case, only make a refund if your Inland Revenue office asks you to do so.
In Box L of the P11(PDF) enter the new code and the week/month it is applied and cross out any previous code.
What do I do if I don't have a tax code for an employee?
If you take on a new employee who does not give you a form P45 from which you can take details of their tax code and gross pay/deductions to date you may need to complete a form P46. Details that you enter on the form P46 will help you to determine the code to be applied in calculating deductions.
What do I do when an employee leaves?
When an employee leaves you are likely to need to complete a form P45 showing their pay and deductions to the date of termination of their employment.
What do I do when I take on a new employee?
You should treat as an employee anyone you employ under a contract of service, including casual and part-time workers, and anyone who is an office holder, including directors.
If the employee does not give you a form P45 because they claim to be self-employed, look at the terms on which you took them on and refer to the Inland Revenue leaflet Employer or self-employed? - A Guide for Tax and National Insurance, IR56/NI39 for guidance.
If you are in any doubt ask your Inland Revenue office for help, and treat them as an employee in the meantime.
If your new employee tells you they have previously been claiming Jobseekers Allowance, tell them that to stop claiming they should contact their Jobcentre or send their UB40 back.
What is the latest date by which I have to file my end of year payroll?
Forms P35 and P14 must be filed by 19 May.
Forms P9D, P11D and P11D(b) must be filed if you have any employees who receive taxable benefits in kind by 6 July.
What payroll forms do I need to complete at the end of the tax year?
You must complete a form P35 which summarises payroll information for all employees, and a form P14 for each employee.
If any employees receive taxable benefits in kind you must also complete forms P9D, P11D and P11D(b).
What payroll records do I have to keep?
For each employee you must keep a record of:
1. gross pay
2. any tax deducted or refunded
3. any NICs deducted or refunded
4. student loan deductions
5. tax credits
6. your employee's sick absence, including any Statutory Sick Pay (SSP) paid
7. your employee's pregnancy, including any Statutory Maternity Pay (SMP) paid
8. your employee's paternity absence, including any Statutory Paternity Pay (SPP) paid
9. your employee's absence due to adoption, including any Statutory Adoption Pay (SAP) paid.
When do I have to pay the tax and national insurance I have deducted to the Inland Revenue?
If you account for deductions to the Inland Revenue monthly your payment must be made by the 19th of the following month. If you account to the Inland Revenue quarterly your payment for the preceding quarter must be made by 19 January, 19 April, 19 July and 19 October.
Further assistance
If you have specific questions about your payroll, you should contact the Inland Revenue or consult their payroll publications.
