Tax Legislation - PAYE (Pay As You Earn)
PAYE (Pay As You Earn) is the HMRC system for collecting income tax from the pay of employees, including directors, as they earn it.
As an employer, you need to deduct income tax and National Insurance Contributions (NIC) from your employees' pay and submit it to HMRC.
Employer's Responsibility for PAYE
If you employ people, including any directors of a limited company, you will need to deduct income tax and NIC from their pay before they receive it.
As an employer, you need to know how to calculate the correct income tax deductions, taking into account the various rates, allowances and limits that exist.
By the 19th of each month - or if you make electronic payments, by the 22nd of each month - you will have to send the most recent amounts you have deducted from all your employees' pay to HMRC. If your average monthly payments are likely to be less than £1,500 you may be able to pay them quarterly.
If you pay too little or too late, you may incur interest on these amounts or a fine. Employees and directors are also taxed on benefits in kind, such as a company car or medical insurance, and as an employer you will have to pay Class 1A NIC on these. You do not have to pay these contributions under the PAYE system - you do so at the year end.
You can also manage your PAYE online using PAYE Online for Employers. Once registered you can complete form P11D using either third-party software or the free HMRC "Online Return & Forms - PAYE" product.