Paying someone for the first time

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Contents

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Terms and abbreviations used in this helpbook

Accounts Office

The office where you should send tax and National Insurance contributions.

Accounts Office reference

The reference number issued by the Accounts Office that you must quote on all forms or letters specifically relating to tax and National Insurance contributions payments you make to us.

Cumulative

A cumulative tax code takes into account an employee's previous pay and tax figures in the same tax year to find out the tax to deduct from their pay.

Earnings Threshold

Once an employee's earnings have reached this level, employee and employer National Insurance contributions are due.

EDI

Electronic Data Interchange - a means of sending large amounts of information to us using a private, secure phone line. It is best suited to large employers, typically those with thousands of employees or to employers with a high staff turnover.

Electronic payment

Electronic payment means sending your tax, National Insurance contributions and Student Loan deductions to us using an approved electronic service. Usual methods are Internet and Telephone Banking, BillPay (payment by debit card over the Internet), BACS, CHAPS and Paymaster payments.

Emergency tax code

Basic personal allowance depending on their circumstances, sometimes allocated to an employee when their tax code is unknown.

HMRC

Her Majesty's Revenue & Customs.

LEL

Lower Earnings Limit. This is the minimum amount of earnings that an employee must have to qualify for state benefits such as Retirement Pension or, for National Insurance purposes, to qualify for statutory payments. If an employee's earnings reach or exceed this level and do not exceed the earnings threshold, National Insurance contributions will not be due on the earnings but the employee will still qualify for state benefits.

Month 1 basis (non-cumulative)

Each pay day is treated as if it is the first month or first week of the year. Previous pay and tax details are not taken into account when calculating pay and tax deductions.

NICs

National Insurance contributions.

Class 1 NICs

Class 1 primary NICs (employee contributions) are contributions that you must calculate and deduct from payments you make to your employees once their earnings exceed the Earnings Threshold. Class 1 secondary NICs (employer contributions) are contributions that you must calculate and pay once your employee's earnings exceed the Earnings Threshold. You must keep records that show how you have calculated these deductions and send the contributions to your Accounts Office.

Online filing

The means of sending your Annual Returns and in-year forms to HMRC electronically using the Internet.

Online Services

Sending and receiving information to and from HMRC using the Internet or other online channels.

Payroll giving

Payroll giving is a simple, tax-effective, way for employees to make donations to charity through their pay.

PAYE

Pay As You Earn - income tax you deduct from an employee's earnings each time you pay them.

PAYE Online

The service that enables employers, agents and payroll bureaux, to send and receive a range of forms and Returns using the Internet or EDI.

PAYE Online for Employers

The service that enables employers to send and receive a range of forms and file Returns using the Internet or EDI.

PAYE Online for Agents

The service that enables agents and payroll bureaux to send and receive a range of forms and file Returns on behalf of employers using the Internet or EDI.

PAYE reference number

The number used by your HMRC office to identify a PAYE scheme. You must use this reference number if you phone our Helpline and always show it on all forms or letters that you send to your HMRC office.

P6

The notice we send to you that gives you the tax code, or amended tax code, that you must use to calculate tax deductions from an employee's pay.

P11

The form you must use to record your employees' earnings, tax, NICs, statutory payments and Student Loan deductions.

P11D

The form you must use to declare expenses and/or benefits paid to and on behalf of your employees.

P14

A form that summarises all PAYE tax, NICs and statutory deductions taken from an employee's earnings during the year - HMRC copy.

P35

A form that summarises an employer's PAYE tax, NICs and statutory deductions payments for the year.

P45

A form completed by an employer when an employee stops working for them. It states the tax code and provides details of earnings and tax deductions since the previous 6 April.

P46

A form used to tell HMRC about a new employee who does not have a P45.

P60

A form that summarises all PAYE tax, NICs and statutory deductions taken from an employee's earnings during the year.

SAP

Statutory Adoption Pay is a legal entitlement to a certain amount of earnings replacement to help an employee take time off around the adoption of a child.

SMP

Statutory Maternity Pay is a legal entitlement to a certain amount of earnings replacement to help a mother take time off around the birth of her baby.

SPP

Statutory Paternity Pay is a legal entitlement to a certain amount of earnings replacement to help a baby's father or mother's/adopter's partner care for the baby or support the mother/adopter around the birth of her baby or at the time a child is adopted.

SSP

Statutory Sick Pay is an earnings replacement for employees who are sick. Employers are liable to pay this to their employees who are off work due to sickness, provided they satisfy all the qualifying conditions.

Student Loan deductions

Payments an employer deducts from an employee's pay to repay their Student Loan.

Taxable pay

An employee's total gross pay less their personal allowances.

Tax month

A tax month runs from the 6th of one month to the 5th of the following month.

Tax year

A tax year runs from 6 April one year to 5 April of the next.

Upper Earnings Limit (UEL)

The level of earnings above which an employee's earnings are chargeable at 1%.

Week 1/Month 1 basis (non-cumulative)

Each pay day is treated as though it is the first week or month of the tax year for tax purposes. Previous pay and tax details are not taken into account.

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Introduction

This helpbook will help you to get started, and in most circumstances provide all the information that you will need to pay your employee(s).

As an employer, you are responsible for calculating and deducting Pay As You Earn (PAYE) tax and National Insurance contributions (NICs) from your employees' pay.

To help you, your New Employer Pack contains:

  • your Employer CD-ROM that has calculators to help with your payroll including the P11 Calculator to work out and record your employees' tax and National Insurance contributions (NICs), and
  • P11 Deductions Working Sheet for manual wages.

This helpbook gives you step-by-step guidance on how to:

  • set up your payroll using either your Employer CD-ROM or the manual P11 Deductions Working Sheet
  • calculate Pay As You Earn (PAYE) tax and National Insurance contributions (NICs)
  • issue a payslip to your employee
  • make payments to HM Revenue & Customs (HMRC), and
  • do business with us online.

First things first - operating your payroll

The first thing that you need to do is decide how you are going to keep and maintain your payroll records. There are different choices available to you.

You can:

  1. Ask a book-keeper, agent or a payroll bureau to operate your payroll for you.
  2. Use a payroll software package. These can be purchased off-the-shelf from most software retailers or from the Internet.

We have awarded a Payroll Standard accreditation to software products that meet our minimum standards.

Look for the payroll standard logo when buying payroll software and make sure that it is capable of sending information to HM Revenue & Customs (HMRC) online. See Do it Online.

3. Operate the payroll yourself using either:

  • the P11 Calculator on your Employer CD-ROM. If you are not using payroll software this is the easiest and quickest way to maintain your payroll
  • a manual wages record - P11 Deductions Working Sheet and the PAYE tax and National Insurance contributions (NICs) calculators on your Employer CD-ROM *
  • a manual wages record - P11 Deductions Working Sheet and the manual Pay As You Earn (PAYE) tax and National Insurance contributions (NICs) tables. If you wish to use a manual wages record it is much easier and quicker to use the PAYE tax and National Insurance contributions (NICs) calculators on your Employer CD-ROM to work out the Pay As You Earn (PAYE) tax and National Insurance contributions (NICs) due *

* Whilst you have the option of maintaining a manual payroll, under current Government Proposals, your end of year information must be submitted online. See Do It Online for further details.

Whatever option you choose it is important to remember that you, as the employer, are still responsible for your payroll, even if you don't prepare the records yourself.

We offer a range of help and support to help you with your payroll. See Help and further guidance.

Our Advice Teams have a range of workshops which are free of charge, designed specifically with new and small businesses in mind including 'Paying your employees' and 'Do it online for employers'.

or phone 0845 603 2691.

How to use this guidance

When you have decided how you are going to maintain your payroll, you must read the Introduction section then:

We recommend that you work your way through this helpbook in the order that it has been written. Returning to the appropriate page where you have carried out each task.

How do I get started

If you are:

  • using a bookkeeper, agent or a payroll bureau to operate your payroll you must pass details of your employees on to them
  • using your Employer CD-ROM to operate your payroll - find your CD-ROM in your New Employer Pack and install the CD-ROM on to your computer. The installation and systems requirement details are on the back of the CD-ROM cover. Finish reading the Introduction section of this helpbook then go to the section entitled Using the P11 Calculator on your Employer CD-ROM
  • operating a manual payroll you will need to use the P11 Deductions Working Sheet which you will find in your New Employer Pack. If you are not using your calculators on your Employer CD-ROM you will need to order the manual tables from the Employer Orderline. See the Order Form in your New Employer Pack for details or phone 08457 646 646.

Note: It is much easier and quicker to use the PAYE tax and National Insurance contributions (NICs) calculators on your Employer CD-ROM to work out the PAYE tax and National Insurance contributions (NICs).

Finish reading the Introduction section of this helpbook then go to the section entitled Using a paper form P11 Deductions Working Sheet.

National Insurance contributions Tables

There are many different types of National Insurance contributions (NICs) tables. For most men aged 16 to 59 you will use the CA38 National Insurance contributions Tables A and J.

However you will need to contact the New Employer Helpline to ask which tables you need to order if:

  • your employee is a married woman or widow who tells you that they are entitled to pay reduced rate National Insurance contributions (NICs)
  • your employee is State Pension age or over
  • you operate a company pension scheme.

The National Insurance contribution (NICs) tables work out how much National Insurance contributions (NICs) you and your employee have to pay.

Tables A Pay Adjustment Tables

Use these tables to work out how much of your employee's pay is tax free.

Taxable Pay Tables Calculator Method

Use these tables to work out how much tax is due.

You need a calculator to use these tables.

The flowchart on page 11 describes the first payroll tasks you must perform when you pay your employee for the first time, however, you will need to complete other payroll tasks throughout the year.

The following helpbooks will help you with these tasks. They can be found on your Employer CD-ROM or from the Employer Orderline on 08457 646 646.

E13 Day-to-day payroll

This helpbook provides guidance on day-to-day payroll tasks, for example:

  • what action to take when an employee leaves
  • what to do when you are notified of a change to an employee's tax code
  • how to identify the correct rate of National Insurance contributions (NICs) if there is a change in an employee's circumstances.

E12 PAYE and NICs rates and limits for 2009-10

This helpbook gives details of:

  • Pay As You Earn (PAYE) thresholds and rates
  • mileage payments
  • Class 1 National Insurance rates and earnings limits
  • Class 1A National Insurance rate
  • Statutory Sick Pay (SSP), Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP) and Statutory Adoption Pay (SAP) rates
  • National Minimum Wage rates
  • collection of Student Loans

E11 Starting the tax year from 6 April 2009

This helpbook tells you what you need to do to prepare for the start of 2009-10, for example:

  • what records you need to keep from 2009-10
  • how to change your employee's tax code from the start of 2009-10
  • how long to keep the records.

Once you have set up your payroll you may have to deal with Student Loan deductions, Statutory Sick Pay (SSP), Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP) and Statutory Adoption Pay (SAP) Stakeholder Pensions and Payroll Giving. If you come across any of these, phone the New Employer Helpline on 0845 60 70 143.

Quick guide for paying someone for the first time

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What you have to do

Once you take on an employee, you are responsible for calculating and deducting PAYE tax and NICs from their pay. Before you do this, you have to recognise who counts as an employee.

Who counts as an employee

An employee is anyone you employ under a contract of service, and includes full-time, part-time and casual workers. If someone working for you says they are self-employed you must check that this is actually the case. It is not a matter of choice. This is because the tax and National Insurance rules for self-employed people are different to the rules for employees.

It is your responsibility as an employer to ensure that you have the correct employment status for everyone working for you.

You can check whether a person is self-employed by either:

  • looking in the 'Payroll Basics' section of your CD-ROM, or
  • using the Employment Status Indicator Tool or
  • phone the New Employer Helpline for advice, on 0845 60 70 143.

Directors of limited companies are also employees of the company so you must deduct tax and NICs from their pay. There are special rules for directors - phone the New Employer Helpline for advice.

What counts as pay

The main things that count as pay are:

  • wages
  • salary
  • overtime payments
  • bonuses

But there are others. Please phone the New Employer Helpline for advice if you:

  • pay expenses to directors and/or your employee(s), or
  • supply extras, such as a car or private medical insurance

National minimum wage

Most people working in the UK for an employer are entitled to be paid a minimum amount defined by law. This is called the national minimum wage.

To find out more about the national minimum wage, including how much this is:

Identity checks

The Home Office recommends that employers conduct checks on entitlement to work for all new employees in order to prevent illegal migrant working and, by completing the checks, avoid liability for payment of a civil penalty.

For more information:

  • go to the Business Link website and then to the 'Ensuring your workers are eligible to work in the UK' pages and select the 'interactive tool to check if your workers are eligible to work in the UK', or
  • go to the 'Preventing illegal working' pages of the Home Office website or
  • contact the Sponsorship and Employer's Helpline.

Futher details are available on the Home Office website

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Information needed from your employee

You will need the following information from your employee:

Your employee's tax code, National Insurance number, date of birth and gender

Tax code

You will usually obtain this from item 6 of their form P45.

If your employee does not give you a form P45, you and your employee must complete a form P46 - see the example. You will be able to determine your employee's tax code from the details given on the completed P46.

If your new employee gives you a form P45, please see the example.

If your new employee does not have a form P45, please see the example.

National Insurance number

You will normally obtain this from item 2 of their form P45 - see the example.

If your employee does not give you a form P45, you may need to send us a form P46 - see the example. If you send us a form P46 we will automatically trace the National Insurance number and let you know what it is.

If the P45 does not show the National Insurance number, ask your employee if they can find the number on any other documentation they have, for example, their plastic National Insurance number card (RD3) or a form P60 End of Year certificate from their previous employer.

If you have been unable to obtain your employee's National Insurance number you will need to complete a form CA6855 Employee's National Insurance number trace to enable us to trace the number for you. The CA6855 Employee's National Insurance number trace is available on your Employer CD-ROM or from the Employer Orderline. You will find an Order Form in your New Employer Pack.

If your employee has never had a National Insurance number they must contact their Jobcentre Plus office on 0845 600 0643 and arrange to obtain one.

Date of birth and gender

You should always enter your employee's date of birth and gender on the form P11 Deductions Working Sheet (or equivalent record) - see Setting up your payroll and Preparing a form P11 Deductions Working Sheet for further information on completing the form P11 Deductions Working Sheet.

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P11 - Taking on an employee with a form P45

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P 11 - Taking on an employee without a form P45

There are various reasons why your employee may not be able to give you a form P45, for example:

  • they have lost their P45
  • this is their first job
  • they are continuing with their current job as well as working for you.

If your employee does not give you a P45 you and your employee must complete a form P46 unless your employee:

  • is a student working for you solely during their holidays, or
  • intends to work for you for one week or less, with no expectation of coming back in the current tax year.

If your employee falls into either of these categories call the New Employer Helpline for further advice.

A P46 is the form you use to tell us about an employee who does not have a form P45 to give you.

The form P46 is available from:

  • your New Employer Pack
  • the 'Forms & Helpbooks' section of your Employer CD-ROM
  • the Employer Orderline, see the Order Form in your pack or phone 08457 646 646.

If you are registered for PAYE Online for Employers you can complete the P46 online.

Filling in a P46

The P46 is divided into two sections.

Section one is for employee information and

Section two for employer information.

You must show the date of birth and gender on all forms P46.

Section one

If you are not sending your form P46 online.

Your employee must complete Section one.

Ask your employee to:

  • enter their personal details which must include their date of birth and gender. If your employee does not know their National Insurance number we will automatically trace their number and let you know what it is
  • read statements A, B and C and tick the one that applies
  • read the Student Loan section and tick box D if it applies
  • sign and date Section one
  • return the completed form P46 to you before their first pay day.

If you are sending your form P46 online.

Your employee does not necessarily have to complete Section one of our forms P46.

  • You can obtain the information needed to complete Section one from your employee, either by email or on your own stationery, and complete Section one on your employee's behalf.

You must include the employee's date of birth and gender on all forms P46 and keep an audit trail to confirm how this information was obtained. If your employee does not know their National Insurance number we will automatically trace their number and let you know what it is.

  • You can decide whether you need a signature with that information for your own purposes.
  • Your employee must provide you with this information before their first pay day.

  • P46 Section one (PDF 68K)

Section two

You must complete Section two.

  • Enter your employer and your employee's details.
  • In the Tax code used part, you should
    • tick box A, B or C in line with the box ticked in Section one
    • refer to the table below to find out what tax code to use.
On the form P46 Tax code to use
Box A ticked 647L cumulative
Box B ticked 647L week 1 or month 1
Box C ticked BR cumulative
No box ticked BR cumulative

- write the tax code you have used in the Tax code used box. You will use this tax code when you set up your payroll records - form P11 Deductions Working Sheet. (Don't worry if you don't understand the code numbers at the moment, these will be explained in detail later.)

Exceptionally, if your employee has not completed the form P46 or provided you with the information to fully complete Section one (if you send your P46s online) in time for their first pay day you must complete Section one to the best of your knowledge on their behalf and enter your details in Section two. You must show your employee's date of birth and gender on all forms P46. Use tax code BR on a cumulative basis and send the P46 to your HMRC office on the employee's first pay day, do not delay sending us the form.

  • Send the P46 to your HMRC office on the first pay day. However, if the employee has ticked box A or box B do not send the form until their earnings are equal to the National Insurance Lower Earnings Limit (LEL) of £95.00 per week or £412.00 per month.
  • If you need to make Student Loan deductions (see box D of form P46), phone the New Employer Helpline and they will tell you what you need to do.

Once you have determined your employee's tax code you are ready to set up your payroll and work out how much tax and NICs to deduct from their pay see Setting up your payroll.

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Do it Online

There are lots of ways you can do business with us online during the tax year. PAYE Online for Employers is a secure, onvenient and quick way to send and receive day to day information about your employees. It is more reliable and efficient than using paper, and can cut down on storage space, post and administration.

Doing it online can also bring benefits for your employees, such as reduced waiting times for the correct tax code and quicker updates to pensions and benefits records at the end of the tax year.

You can send and receive forms and Returns online using:

  • our PAYE Online for Employers - Internet service. You can choose either
    • our free 'Online Return and Form - PAYE' product (this is mainly for small employers or those with only a small number of forms to send)
    • third party (commercial) payroll software
  • Electronic Data Interchange (EDI) - more suitable for large employers.

An agent or payroll bureau can file online on your behalf using our 'PAYE Online for Agents' service.

Before you can file online you need to register with us.

For more information:

  • Visit our Online filing page and select 'Register for PAYE Online' for employers, or
  • refer to your Employer CD-ROM - it has a learning package giving step-by-step guidance on all aspects of PAYE Online.

Sending starter and leaver information online

Under Government proposals employers with fewer than 50 employees will have to send starter and leaver information (forms P45 and forms P46) online from 6 April 2011. For more information refer to your Employer CD-ROM or:

Sending end of year information online

Under Government proposals employers with fewer than 50 employees will have to file their Employer Annual Returns (forms P14 End of Year Summary and form P35 Employer Annual Return) online by 2010.

Our Revenue & Customs Advice Teams offer free presentations about sending employee starter and leaver forms and Employer Annual Returns online.

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Setting up your payroll

Whether you are using a form P45 or a form P46, you will now need to set up your payroll.

When you pay someone for the first time you must keep a record of all the payments you make and calculate the tax and NICs to deduct from these payments. You must record this information each time you make a payment.

If you are going to operate your payroll yourself you will need to prepare and maintain a P11 Deductions Working Sheet (or equivalent record) when either:

  • you pay your employee
    • *£95.00, or more in any week

      (NICs weekly Lower Earnings Limit (LEL))

    • *£412.00, or more in any month

      (NICs monthly Lower Earnings Limit (LEL)), or

  • your employee has given you a form P45 with a date of leaving in the current tax year, or
  • you have paid your employee and you have to operate tax code BR in accordance with the P46 procedures, see pages 18 to 20, or
  • you have paid your employee and HMRC has sent you a tax code.

*(If your pay period is other than weekly or monthly please phone the New Employer Helpline on 0845 60 70 143.)

If your employee has worked for you previously in the tax year you must complete a new form P11 Deductions Working Sheet for their latest spell of employment.

If you are not required to maintain a form P11 Deductions Working Sheet you must keep a record of the employee's name, address, and the amount of wages paid each pay period for example, weekly/monthly/four-weekly.

You will find a copy of a form P11 Deductions Working Sheet in your New Employer Pack.

The P11 Deductions Working Sheet is a double-sided form; the left-hand columns are used to record NICs and the right-hand columns to record tax deductions. You must use a separate form for each employee.

If you are going to operate the payroll yourself there are three ways to complete a form P11 Deductions Working Sheet.

Using your P11 Calculator on your Employer CD-ROM

This is the easiest and quickest way to complete a form P11 Deductions Working Sheet. The P11 Calculator will:

  • work out the tax deductions, Student Loan deductions and NICs for you
  • complete the on-screen equivalent of the paper P11 Deductions Working Sheet
  • allow you to save the details on your computer and update the P11 Deductions Working Sheet each time you pay your employee
  • allow you to send your employer Annual Return online if you have nine or less employees.

You must install your CD-ROM to use the P11 Calculator.

Using the PAYE tax and NICs calculators on your Employer CD-ROM and a paper form P11

If you are completing a paper form P11 Deductions Working Sheet, you can use the PAYE tax and NICs calculators and the Student Loan Calculator to work out the deductions for you. The calculators will tell you the figures you must enter in the tax and NICs columns on your P11 Deductions Working Sheet.

Using the manual tax and NICs tables and a paper form P11

If you are completing a paper form P11 Deductions Working Sheet and are not using your Employer CD-ROM, you will need to calculate the tax and NICs using the tax and NICs tables.

If you have decided to use the P11 Calculator on your Employer CD-ROM please see Using the P11 Calculator.

If you have decided to use either the:

  • tax and NICs calculators on your Employer CD-ROM, or
  • the manual tax and NICs tables

Please see Using a paper form P11 Deductions Working Sheet

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Using the P11 Calculator on your Employer CD-ROM

You can calculate and record PAYE tax and NICs using the P11 Calculator on the Employer CD-ROM.

What does the P11 Calculator do?

The P11 Calculator:

  • works out and records each employee's tax deductions, Student Loan deductions and if appropriate NICs
  • completes all relevant columns on the P11 Deductions Working Sheet for you
  • produces an up-to-date P11 summary
  • gives you the detail you will need to complete your end of year Returns
  • provides a summary of amounts of tax and National Insurance due to HMRC each month on the P32 Employer Payment Record
  • can save your payroll data to a spreadsheet.

Due to continuing improvements the screens on the CD-ROM may look different to those shown within this helpbook.

Before you can use the P11 Calculator you must first set up your Employer Database.

You may also need to use the P45 Checker if your employee is new and has given you a form P45.

You can access the following areas from the Employer CD-ROM Homepage.

  • The Employer Database.
  • The P45 Checker is in the Calculator section on the Homepage.
  • The P11 Calculator is in the Calculator section on the Homepage.

If your employee has given you a P45 follow the instructions below otherwise continue from the section entitled Employer Database.

P45 Checker

When you take on a new employee who gives you a P45, use the P45 Checker to help you work out whether the total tax to date figure on the P45 is correct.

Once you have entered details from the P45, select 'Calculate' and the P45 Checker will tell you if the tax deducted is correct and tell you what to do next.

Employer Database

Before you can use the P11 Calculator you must first set up your employer detail and the details of at least one employee. The P11 Calculator will then use this information to calculate your employee's deductions such as PAYE and NICs.

What details are needed?

You will need the following details to set up the database.

Employer details

  • Name and address.
  • PAYE reference.
  • Accounts Office reference.

Employee details

  • Name and address.
  • National Insurance number.
  • NI category letter (see National Insurance category for more on this).
  • Tax code.
  • Date of birth.
  • Their P45 or completed form P46.

You will also need to enter frequency of pay, (for example weekly or monthly paid), a works/payroll number (if applicable) and employment start date if they started on or after 6 April 2009, plus details of previous pay and tax if the new employee has given you a P45.

The following pages describe the process for setting up an employer and employee database. You can also view a demonstration on the CD-ROM. Select the 'Help' section then select 'How to use this CD-ROM'.

You can access the Employer Database from the main menu on the Homepage.

Select Employer Database.

When you enter the Employer Database for the first time you must enter your employer details by selecting 'Add an Employer'.

Select 'Next' to add your Employer and Accounts Office references.

You will find your Employer PAYE reference and Accounts Office reference on the letter that we sent you with your New Employer pack. Select 'Next' to save your details.

You now need to add your employee(s) to the database.

Select 'Add an employee'.

Once you have added name, gender and date of birth select 'Next'.

Now add the employee's National Insurance number and address and select 'Next'.

If applicable add a Scheme Contracted Out Number, works number and department and select 'Next'. If they don't apply to this employee leave these fields blank and select 'Next'.

You want to use the P11 Calculator for this employee so select Yes to 'Use this employee in the P11 Calculator' then select 'Next'.

You must now add the following details about your employee.

Tax code

If your employee has just started to work for you use the tax code:

  • on their P45 or the tax code given to you by the New Employer Helpline, see Illustration of P45 - Part 1 (PDF 75K)
  • from their P46, if your employee does not have a P45 see Taking on an employee without a form P45 onwards.

Week one/month one basis

If the tax code is followed by 'week 1', 'month 1' or 'X' you must select 'Yes' to this question. Otherwise leave as 'No'.

National Insurance category

There are several different NI categories. For most men aged 16 to 64 and most women aged 16 to 59 category A NICs apply. If you are unsure about which NI category letter applies, select the link below 'National Insurance Category'. If you are still unsure which letter applies phone the New Employer Helpline on 0845 60 70 143.

Please note the NI category letter is not the check character at the end of the employee's National Insurance number.

Is this employee a director?

Indicate whether the employee is a director and then select 'Next'.

Directors only

If you selected 'Yes' to the previous question 'Is this employee a director?' You will be asked for the following information.

National Insurance calculation method

Calculate as a normal employee.

This method calculates NICs as a normal employee(non-cumulatively) subject to the conditions set out on page 7 in the Employer Helpbook CA44 National Insurance for Company Directors. And if you use this method the P11 Calculator will carry out an Annual Earnings Period check when the last payment is made for the tax year, or when the directorship ceases. This is done to ensure the director has paid the correct amount of NICs for the year.

Directors Cumulative NICs.

This method calculates NICs cumulatively for the director throughout the year using an annual or pro-rata annual earnings period.

You can find more information about NICs for directors in the Employer Helpbook CA44 National Insurance for Company Directors.

Date appointed

If the employee was not a director at the start of the tax year enter the date appointed or joined the business here. Then select 'Next'.

Employee Pay Period

Select the pay period for your employee, either weekly paid, two-weekly, four-weekly or monthly.

Student Loan deductions

Select 'Yes' if you have received a form SL1 Start Notice, or for new employees who have given you a form P45 with an entry in box 5 'Student Loan deductions to continue'. If your new employee does not give you a form P45 they should complete a form P46. If they have ticked the Student Loan box select 'Yes'.

Start date

If your employee started on or after 6 April 2009 enter the date they started.

Now select 'Next'.

Details from previous employment

If your employee has given you a P45, use the P45 Checker to check the figures are correct, and enter the figures confirmed by the P45 Checker.

Now select 'Next'.

All the employees will now be displayed.

If you want to use the P11 Calculator for additional employees select '+' in the employee menu on the left hand side of the screen and work through the process from Add an employer (PDF 192K) again.

You are now ready to use the P11 Calculator.

P11 Calculator

Firstly select the employee you want to use the P11 Calculator for by selecting the down arrow next to the first employee name to expand your list.

Next select the P11 Calculator to expand this menu option

Next select 'Enter Pay Details'.

Pay details

You must now enter the:

  • payment date
  • Gross pay during this pay period
  • Gross pay for NICs if it is different. If you pay anything other than salary, wages, overtime, bonuses or commission the gross pay for NICs may be different. For more information see pages 79 to 83 of the CWG2 Employer Further Guide to PAYE and NICs. You can find the CWG2 in the Forms and Helpbooks section of your CD-ROM. Do not make an entry in this box unless the gross pay for NICs is different to the 'gross pay this period'.

If you are unsure what to include in any of the boxes, look in the ? symbols for more information.

You must now indicate whether you have received a P6 coding notification.

The P6 tells you when your employee's tax code has changed.

If you have received a P6, turn to page 40 for further information.

If you have not received a P6, select Next'.

Now enter details of any statutory payments paid to your employees during this pay period. If a Student Loan deduction needs to be made the amount will appear on this screen in a greyed out box. Leave these boxes blank if they do not apply.

If you would like to know more about these topics, go to the Learning Zone on your Employer CD-ROM or phone the New Employer Helpline.

Now select 'Next'.

This is the confirmation page that summarises the details you have entered for your employee during this pay period.

If the details are incorrect select 'Back' to re-enter the correct information.

When you are certain that the information is correct select 'Save to P11' to transfer the details onto the P11 Summary.

The first page of the P11 Summary show entries relating to NICs, statutory payments and Student Loan deductions.
Select the PAYE Income Tax tab to view the second page of the P11 which shows the total gross pay and entries relating to PAYE tax deductions.

As you continue to pay your employee throughout the year, the P11 Calculator will:

  • work out the PAYE tax and NICs to deduct for each pay period, and
  • complete the P11 entries for you
  • give you an end of year summary with all the detail you will need to complete your end of year Returns.
  • End of year summary (PDF 126K)

Change of employee's tax code

If your employee's tax code changes during the tax year your HMRC office will send you a form P6. The P6 looks like this.

When you receive a form P6, use the tax code on it from the first pay day after you receive it unless your HMRC office tells you otherwise.

You must enter the revised tax code onto the P11 Calculator. To do this, when you enter pay details for the relevant pay period, answer 'Yes' to the question 'Have you received a P6 coding notice for this employee since their last pay day?'

You must now enter the revised tax code, including previous pay and tax details (if any), shown on the P6, see example below.
If there are no pay and no tax details on the P6 leave the 'Total pay to date' and 'Total tax to date' fields blank.

Then select 'Next'.

You must now:

  • enter details of any statutory payments and select 'Next'
  • confirm your entries are correct and if so, select 'Save to P11'.

The P6 details will now be incorporated. The tax code will be updated in the database and any pay and tax from a previous employment will be included in the current pay period's figures to give you a revised amount of tax due.

P32 employer deductions summary

The P32 Summary will total all your employees' PAYE tax, NICs and Student Loan deductions for each tax month and show what is due to HMRC.

Important note: the P32 Summary will only include details relating to employees entered on the P11 Calculator.

Where to find the P32 Summary

The P32 Summary is found within the main Employer menu.

Select P32 Deductions Summary.

There are a number of options, but to start your P32 record select 'Create a P32 Entry'.

Create a P32 Entry

Before you can view what is due you must create a P32 entry for each tax month.

Select 'Create a P32 Entry'.

This will show the total PAYE tax, Class 1 NICs and any Student Loan deductions from all P11s for the employer chosen. The P32 will build a record month by month starting at month 1. But it will not skip a month, so if you have entries in months 1 and 3
and none in month 2 you must still create a 'nil' entry for month 2.

This screen also has an entry for 'Income Tax Subcontractor Deductions', in case you need to add these to your record.
Either leave blank or enter the relevant details then select 'Next'.

On this screen you can enter any statutory payment recoveries and compensation.

Recovered statutory payments and compensation are deducted from your monthly National Insurance and PAYE liability.

Leave blank or enter details then select 'Next'.

View P32 Summary

Select this option to view the P32 Deductions Summary.

Delete the last P32 entry

If you make a mistake and need to amend your P32 Deductions Summary, you can do this by selecting 'Delete the last P32 entry'.

If you need to amend an entry before the last one, you will need to delete all entries going back to the month in question. You will then need to re-enter all deleted entries by 'Creating a P32 Entry' for all the months you have just deleted.

Delete all P32 entries for this employer

This option will allow you to clear the whole year's P32 Deductions Summary entries.

P32 Record of Funding

If you have received funds from HMRC to pay for statutory payments or to refund PAYE income tax you should record this by selecting 'P32 Record of Funding'.

Creating and amending funding entries is identical to creating and amending P32 entries.

In-Year Save - Backing up data

You can back up data and save it onto a floppy disc, CD-ROM or USB memory stick.

We recommend that you back up the data after each pay period and keep it separate from the computer. You can do this either on a disc or on a server.

To commence the back up your data select the button found below the employer/employee window on the left hand side of the screen.

Select the browse button and navigate to your preferred location. In order to maximise storage capacity on you computer the data file will be compressed to reduce the file size.

If at any time you need to reinstall the data folder please refer to the 'FAQ' section within 'Help' on the CD-ROM.

What to do next

Now you have completed your P11 find out what to do next.

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Using a paper form P11 Deductions Working Sheet

If you are using the tax and NICs calculators on your Employer CD-ROM, or the manual tax and NICs tables, you will need to complete a paper form P11 Deductions Working Sheet for each employee.

You will find a form P11 Deductions Working Sheet in your New Employer Pack.

The following two pages show you how to complete boxes A to M of this form.

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Preparing a form P11 Deductions Working Sheet

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Where to start completing the form P11 Deductions Working Sheet

Example 1 - paying weekly

Look at example 1 if you pay weekly, or example 2 if you pay monthly.

The main part of the P11 Deductions Working Sheet is split into columns and rows. Each row represents a week number. To find out which row to start with, look at the table below.

The starting point for completing a P11 Deductions Working Sheet is the week that includes the first pay day.

Using the chart below find the week number that includes the first pay day. For example, 29 May 2009 (Friday) is in week 8.

In this example you would start to complete your P11 Deductions Working Sheet at line 8.

Example 2 - paying monthly

Look at example 1 if you pay weekly, or example 2 if you pay monthly.

The main part of the P11 Deductions Working Sheet is split into columns and rows. Each row represents a week number. To find out which row to start with, look at the table below.

The starting point for completing a P11 Deductions Working Sheet is the week that includes the first pay day.

Using the chart in example 2 find the week number that includes the first pay day. For example, 29 May 2009 (Friday) is in week 8.

In this example you would start to complete your P11 Deductions Working Sheet at line 8.

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National Insurance contributions

How are NICs made up?

NICs are made up of two elements:

  • employee's contributions, which you deduct from your employee's pay, and
  • employer's contributions, which you must pay.

Which NICs category do I use?

There are many different NICs categories. For most men aged 16 to 64 and most women aged 16 to 59 you will use Category A.

Contact the New Employer Helpline if:

  • your employee is a married woman or widow who tells you that they are entitled to pay reduced rate NICs
  • your employee is State Pension age or over
  • you operate a company pension scheme, or
  • you are unsure what National Insurance category to use.

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Calculating National Insurance contributions

How do I work out the NICs due?

The easiest and quickest way to work out the NICs is to use the NICs Calculator on your Employer CD-ROM.

The calculator will work out the NICs for you and provide the figures that you will need to enter in columns 1a to 1f of the form P11 Deductions Working Sheet. An example of completed form P11 Deductions Working Sheet is shown on pages 57 and 58.

You will find the NICs Calculator in the 'Calculators' section of your Employer CD-ROM.

If you are not using your Employer CD-ROM you will need to work through this book and calculate the NICs manually using the NICs tables.

Category A NICs have been used in the following examples. If you are required to deduct a different NICs category (see page 54), you must ensure that you order the appropriate NICs tables from the Employer Orderline - see the Order Form in your New Employer Pack or phone 08457 646 646.

If you require further advice on how to complete the NICs details on your form P11 Deductions Working Sheet please phone the New Employer Helpline.

Working out NICs using the NICs Tables - category letter A.

To calculate Category A NICs you will need to use booklet CA38 National Insurance Contributions Tables A and J which is available from theEmployer Orderline - see the Order Form in your New Employer Pack, or phone 08457 646 646.

How to use the tables

Turn to Table A. Look up the employee's gross pay in the left-hand column of the table 'Employee's Earnings up to and including the UEL (Upper Earnings Limit)'. If the exact amount is not in the table, use the next smaller figure - see the following examples.

If your employee earns £95.00 per week or £412.00 per month or more, you must keep a record of their earnings, even where no NICs are due.

See:

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Completing the P11 - National Insurance contributions

Example 1 - paying weekly

  • You pay an employee £500.92 on 29 May 2009, for the week. This is week number 8.
  • Look at Weekly Table A to find the next smaller figure, which in our example is £500.00.
  • Copy the figures from columns 1a to 1f of Weekly Table A to columns 1a to 1f of form P11 Deductions Working Sheet.

  • Extract from Weekly Table A (PDF 100K)

Example 2 - paying monthly

  • You pay an employee £1503.50 on 29 May 2009, for the month. This is month number 2.
  • Look at Monthly Table A to find the next smaller figure, which in our example is £1500.00.
  • Copy the figures from columns 1a to 1f of Monthly Table A to columns 1a to 1f of form P11 Deductions Working Sheet.

  • Extract from Weekly Table A (PDF 102K)

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Using a tax code

Tax codes

Whether you are using a P45 or P46 you must now consider deducting tax.

First of all you will need to know how to use the tax code for your employee.

A tax code is usually made up of one or more numbers followed by a letter. The number indicates the amount of pay an employee is allowed to earn in the tax year before tax becomes payable.

Which tax code?

L, P, T or Y

codes not followed by

week 1, month 1 or X

These tax code numbers are called 'cumulative' code numbers. This means that you will be working on a running total basis of 'total pay to date' at each pay day.

If you are using one of these codes and calculating tax using the tables see Code numbers with L, P, T or Y not followed by week 1, month 1 or X.

L, P, T or Y codes followed by week 1, month 1 or X

These tax code numbers are not 'cumulative' code numbers. They are known as week 1/month 1 codes. If week 1/month 1, or an 'X' is written after the tax code this means that instead of keeping a running total of the pay to date, you treat each pay day as if it is the first week or month of the tax year.

If you are using one of these codes and calculating tax using the tables see Code numbers with L, P, T or Y followed by week 1, month 1 or X.

Code BR - basic rate

For an employee with a tax code BR you must deduct tax from all their pay at the basic rate - currently 20%. You can operate code BR either on a:

  • cumulative basis, which means that you will be working on a running total basis of 'total pay to date' at each pay day

If you are using one of these codes and calculating tax using the tables see Code BR not followed by week 1, month 1 or X.

or

  • week 1/month 1 basis. If code BR is followed by week 1, month 1 or X - this means that you must operate the code on a 'non-cumulative' basis. Instead of keeping a running total of the pay to date, you must treat each pay day as if it is the first week or month of the tax year.

If you are using one of these codes and calculating tax using the tables see What next?.

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Code numbers with L, P, T or Y not followed by week 1, month 1 or X

Working out the tax due (cumulative)

The easiest and quickest way to work out the amount of tax to deduct is to use the PAYE Tax Calculator on your Employer CD-ROM. The PAYE Tax Calculator will work out the tax due for you and provide you with the figures to enter in columns 2 to 8 of your P11Deductions Working Sheet.

You will find the PAYE Tax Calculator in the 'Calculator' section of your CD-ROM. Please see an example of a completed form P11

If you are not using your Employer CD-ROM you will need to continue to work through this book and calculate the tax manually using the tax tables.

You will now have to fill in columns 2 to 8 on the P11 Deductions Working Sheet. Use the same week or month number you used for the NICs entries. We will work through an example using the following details.

  • pay day = 29 May 2009
  • tax week = 8
  • pay = £500.92
  • P45 details
    • Item 6 code = 510L
    • Item 7 'Total pay to date' = £1,546.15
    • Item 7 'Total tax to date' = £ 171.60

The columns you will use on the P11 Deductions

Working Sheet for these codes are 2, 3, 4a, 5, 6 and 7.

Column 2 Pay in the week or month

Enter the pay for the pay day in column 2 at the appropriate week or month.

Example: Week 8 pay = £500.92

Column 3 Total pay to date

Column 3 is for the total pay to date, which includes pay from any previous employment your employee may have had during the tax year.

If you have a form P45 see if there is an amount at item 7 'Total pay to date'. If there is:

  • copy the figure onto the line in column 3 above the line you are using for the pay day
  • add the amount that you are paying your employee to the 'Total pay to date' figure, and
  • put the new total in column 3, next to the pay for the pay day in column 2.

If there is no entry at item 7 'Total pay to date' on the P45 or you and your employee have completed form P46, copy the figure from column 2 of the P11 Deductions Working Sheet to column 3 on the line for the pay day.

Example:

P45 item 7 'Total pay to date' is £1,546.15

so the entry at week 7 is £1,546.15

The entry at week 8 is £1,546.15 +

£ 500.92

= £2,047.07

Column 4a Total 'free pay' to date

Use the Tables A, Pay Adjustment Tables as follows (the weekly tables come before the monthly tables):

  • find the page for the week or month that includes the date of the pay day
  • find your employee's tax code
  • enter the figure shown in the 'total pay adjustment' column in column 4a of theP11 Deductions Working Sheet.

  • Cover of Tables A booklet (PDF 117K)

Example:

Code 510L gives free pay £786.08 at week 8.

For codes over 500 you must use the instructions in the box at the bottom of the page to calculate the free pay to date.

Week 8 adjustment for code 500 is £769.28

Week 8 figure for code 10 (510-500) £ 16.80

Total pay adjustments for week 8 £786.08

Column 5 Total taxable pay to date

Now work out how much of your employee's pay is taxable. To do this:

  • deduct the figure in column 4a from the figure in column 3
  • enter the result in column 5.

If the amount in column 4a is more than the amount in column 3 leave column 5 blank.

Example: £1,260.99 (£2,047.07 minus £786.08)

Column 6 Total 'tax due' to date

Look at the amount in column 5.

If this is blank check that column 4a is more than the amount in column 3. If it is, put 'Nil' in column 6.

If there is an amount in column 5 you now need to work out the tax due. Use the Taxable Pay Tables,

Calculator Method.

The table that you will need depends on:

  • how much total taxable pay is shown in column 5 on the P11 Deductions Working Sheet, and
  • whether you pay your employee weekly or monthly.

For weekly pay turn to pages 3 and 4 in the Taxable Pay Tables, Calculator Method.

For monthly pay turn to page 5 in the Taxable Pay Tables, Calculator Method.

  • Find the week or month number for your employee's taxable pay.
  • Go to Section A of the Weekly paid - Calculator Tables or Monthly paid - Calculator Tables as appropriate.
  • Follow the guidance given there.

If you have a problem, call the New Employer Helpline.

When you have worked out the tax due enter this amount in column 6 on the line for the week or month that includes the pay day.

£1,260.99 round down to £1,260

£1,260 x 0.20 (20%) = £252.00

Example: Tax due on £1,260.99 = £252.00

Now look at the P45 from your employee. You must check the 'Total tax to date' figure is correct by following the 'Check Tax' instructions on page 16.

Enter the figure provided by the P45 Checker/New Employer Helpline into column 6 on the line above the figure you have just entered.

Then compare the two figures in column 6 and move on to column 7.

Column 7 Tax deducted or refunded

If the figure in column 6 for the pay day is:

  • more than the figure on the line above, take away the amount on the line above from the figure for the pay day and put the result in column 7 - this is the amount of tax to take off your employee's pay
  • the same as the figure on the line above, or if both are Nil, put 'Nil' in column 7
  • less than the figure on the line above, put the difference in column 7 - plus the letter 'R'.

This means a refund is due - you will have to phone the New Employer Helpline.

In our example, the figures will appear on the P11 Deductions Working Sheet like this.

Now that you have completed your P11 find out what to do next.

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Code numbers with L, P, T or Y followed by week 1, month 1 or X

Working out the tax due (week 1/month 1)

The easiest and quickest way to work out the amount of tax to deduct is to use the PAYE Tax Calculator on your Employer CD-ROM. The PAYE Tax Calculator will work out the tax due for you and provide you with the figures to enter in columns 2 to 8 of your P11Deductions Working Sheet.

You will find the PAYE Tax Calculator in the 'Calculator' section of your CD-ROM. Please see an example of a completed form P11 Deductions Working Sheet.

If you are not using your Employer CD-ROM you will need to continue to work through this book and calculate the tax manually using the tax tables.

You will now have to fill in columns 2 to 8 on the P11 Deductions Working Sheet. Use the same week or month number you used for the NICs entries.

We will work through an example using the following details.

  • pay day = 29 May 2009
  • tax week = 8
  • pay = £500.00
  • P45 details
    • Item 6 code = 647L week 1

The columns that you will use on the P11 Deductions Working Sheet for these codes are 2, 4a, 5 and 7.

Week 1, month 1 or X after the letter part of the code number means that each pay day should be treated as if it is the first week or month of the tax year.

Entries on the P11 Deductions Working Sheet, however, should still be made on the line for the week or month that includes the pay day.

Column 2 Pay in the week or month

Enter the pay for the pay day in column 2 at the appropriate week or month.

Example: Week 8 pay = £500.00

Column 4a Total 'free pay' to date

Use the Tables A Pay Adjustment Tables as follows

(the weekly tables come before the monthly tables):

  • find the page for week 1 or month 1
  • find your employee's tax code
  • enter the figure shown in the 'total pay adjustment' column in column 4a of the P11Deductions Working Sheet.

Example:

Code 647L week 1 gives free pay of £124.61

For codes over 500 you must use the instructions in the box at the bottom of the page to calculate the free pay to date.

Week 1 adjustment for code 500 is £96.16

Week 1 figure for code 147 (647 - 500) £28.45

Total pay adjustments for week 1 £124.61

Column 5 Total taxable pay to date

Now work out how much of your employee's pay is taxable. To do this:

  • deduct the figure in column 4a from the figure in column 2
  • enter the result in column 5.

If the amount in column 4a is more than the amount in column 2 leave column 5 blank.

Example: £375.39 (£500.00 minus £124.61)

Column 7 Tax deducted or refunded

Look at the amount in column 5.

If this is blank no tax is due in the week or month.

If there is an amount in column 5 you now need towork out the tax due. Use the Taxable Pay Tables, Calculator Method.

The table that you will need depends on:

  • how much total taxable pay is shown in column 5 on the P11 Deductions Working Sheet,

and

  • whether you pay your employee weekly or monthly.

For weekly pay turn to pages 3 and 4 in the Taxable Pay Tables, Calculator Method.

For monthly pay turn to page 5 in the Taxable Pay Tables, Calculator Method.

  • Find the week or month number for your employee's taxable pay.
  • Go to Section A of the Weekly paid - Calculator Tables or monthly paid - Calculator Tables as appropriate.
  • Follow the guidance given there.

If you have a problem, call the New Employer Helpline.

When you have worked out the tax due enter this amount in column 7 on the line for the week or month that includes the pay day.

£375.39 round down to £375

£375 x 0.20 (20%) = £75.00

Example: Tax due on £375.39 = £75.00

This is the amount of tax to deduct from your employee's pay.

In our example, the figures will appear on the P11 Deductions Working Sheet like this:

Now that you have completed your P11 find out what to do next.

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Code BR not followed by week 1, month 1 or X

Working out the tax due (cumulative)

The easiest and quickest way to work out the amount of tax to deduct is to use the PAYE Tax Calculator on your Employer CD-ROM. The PAYE Tax Calculator will work out the tax due for you and provide you with the figures to enter in columns 2 to 8 of your P11 Deductions Working Sheet.

You will find the PAYE Tax Calculator in the 'Calculators' section of your CD-ROM. Please see an example of a completed form P11 Deductions Working Sheet.

If you are not using your Employer CD-ROM you will need to continue to work through this book and calculate the tax manually using the tax tables.

You now have to fill in columns 2 to 8 on the P11 Deductions Working Sheet. Use the same week or month number you used for the NICs entries.

We will work through an example using the following details:

  • pay day = 29 May 2009
  • tax week = 8
  • pay = £500.75
  • P45 details
    • Item 6 code = BR
    • Item 7 'Total pay to date' = £3,200.00
    • Item 7 'Total tax to date' = £ 640.00

The columns that you will use on the P11 Deductions Working Sheet for code BR are 2, 3, 6 and 7.

Column 2 Pay in the week or month

Enter the pay for the pay day in column 2 at the appropriate week or month.

Example: Week 8 pay = £500.75

Column 3 Total pay to date

Column 3 is for the total pay to date, which includes pay from any previous employment your employee may have had.

If you have a form P45 see if there is an amount at item 7 'Total pay to date'. If there is:

  • copy the figure onto the line in column 3 above the line you are using for the pay day
  • add the amount that you are paying your employee to the 'Total pay to date' figure, and
  • put the new total in column 3, next to the pay for the pay day in column 2.

If there is no entry at item 7 'Total pay to date' on the P45 or you have completed form P46, copy the figure from column 2 of the P11Deductions Working Sheet to column 3 on the line for the pay day.

Example:

P45 item 7 'Total pay to date' is £3,200.00

so the entry at week 7 is £3,200.00

The entry at week 8 is £3,200.00 +

£ 500.75

= £3,700.75

Column 6 Total tax due to date

You now need to work out the tax due. Use the Taxable Pay Tables, Calculator Method.

For weekly pay turn to pages 3 and 4 in the Taxable Pay Tables, Calculator Method.

For monthly pay turn to page 5 in the Taxable Pay Tables, Calculator Method.

Follow the guidance given there.

If you have a problem, call the New Employer Helpline.

Put the combined amount of tax, shown in the tables, in column 6 of the P11Deductions Working Sheet on the line for the week or month that includes the pay day.

£3,700.75 round down to £3,700

£3,700 x 0.20 (20%) = £740.00

Example: Tax due on £3,700.75 = £740.00

Column 7 Tax deducted or refunded

Before you complete this column look at the P45 from your employee. You must check the 'Total tax to date' figure is correct by following the 'Check Tax' instructions (PDF 75K).

Enter the figure provided by the P45 Checker/NewEmployer Helpline into column 6 on the line above the figure you have just entered.

Then take away the amount on the line above from the figure for the pay day and enter the total in column 7.

This is the amount of tax to deduct from your employee's pay.

In our example, the figures will appear on the P11 Deductions Working Sheet like this:

Now that you have completed your P11 find out what to do next.

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Code BR followed by week 1, month 1 or X

The easiest and quickest way to work out the amount of tax to deduct is to use the PAYE Tax Calculator on your Employer CD-ROM. The PAYE Tax Calculator will work out the tax due for you and provide you with the figures to enter in columns 2 to 8 of your P11 Deductions Working Sheet.

You will find the PAYE Tax Calculator in the 'Calculators' section of your CD-ROM. Please see an example of a completed form P11 Deductions Working Sheet.

If you are not using your Employer CD-ROM you will need to continue to work through this book and calculate the tax manually using the tax tables.

You now have to fill in columns 2 to 8 on the P11 Deductions Working Sheet. Use the same week or month number you used for NICs entries.

We will work through an example using the following details:

  • pay day = 29 May 2009
  • tax week = 8
  • pay = £500.75
  • P45 details
    • Item 6 code = BR week 1

The columns that you will use on the P11 Deductions Working Sheet for this code are 2 and 7.

Week 1, month 1 or X after the code number means that each pay day should be treated as if it is the first week or month of the tax year.

Entries on the P11 Deductions Working Sheet should, however, still be made on the line for the week or month that includes the pay day.

Column 2 Pay in the week or month

Put the pay for the pay day in column 2 at the appropriate week or month.

Example: Week 8 pay = £500.75

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Code BR followed by week 1, month 1 or X

Column 7 Tax deducted or refunded

Now work out the tax due. Use the Taxable Pay Tables, Calculator Method.

For weekly pay turn to pages 3 and 4 in the Taxable Pay Tables, Calculator Method.

For monthly pay turn to page 5 in the Taxable Pay Tables, Calculator Method.

Follow the guidance given there.

If you have a problem, call the New Employer Helpline.

Put the combined amount of tax, shown in the tables, in column 7 of the P11 Deductions Working Sheet on the line for the week or month that includes the pay day.

This is the amount of tax to deduct from your employee's pay.

£500.75 round down to £500

£500 x 0.20 (20%) = £100.00

In our example, the figures will appear on the P11

Deductions Working Sheet like this:

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What next? - Paying your employees

You have now worked out how much NICs and tax to deduct from your employee's pay, and made a record of the information. The next step is to work out how much pay to give your employee.

If you have followed the guidance in this helpbook:

  • take the figure from column 2 of the P11, 'pay in the week or month' - this is 'gross pay'
  • from the 'gross pay' take off the figure from column 1f of the P11 (Employee's contributions due on all earnings above the ET), and the figure from column 7 of the P11, 'Tax deducted or refunded in the week or month'.

The result is the amount to give your employee.

Using our examples from Extract from Weekly Table A (PDF ) and Working out the tax due example, the amount to give to the employee would be £377.57.

Example

Gross pay £500.92

minus Employee National Insurance contributions £ 42.95

minus Tax deducted or refunded in the week or month £ 80.40

£377.57

Wage/payslips

By law, you must give each of your employees a written pay statement at or before the time of payment.

In most circumstances, if you are using payroll software to maintain your payroll this will produce a payslip for you. Alternatively, payslips can be purchased from most stationers.

The payslip can be produced electronically or on paper and must show:

  • the gross pay (before the deduction of tax or NICs and any other deductions)
  • the employee's NICs deducted
  • the PAYE tax deducted
  • any other deductions and the purposes for which they are made, and
  • the net pay (this is the amount of take home pay after all the deductions have been made).

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Paying HM Revenue & Customs

To work out what you have to pay to HMRC add together the:

  • Employee NICs
  • Employer NICs
  • tax
  • Student Loan deductions.

Then take off any amount that you have had to refund.

You can use the form P32(2009) Employment Payment Record to work out and record your total monthly payments. Keeping records on form P32(2009) should make it easier for you to work out your monthly payments.

You will find a copy of the P32(2009) in your New Employer Pack. It is also available:

  • in the 'Forms & Helpbooks' section of your Employer CD-ROM, or
  • from the Employer Orderline 08457 646 646
  • if you use the P11 Calculator on the CD-ROM there is a P32 Summary that will record all the tax and NICs for you. It will also advise you how much tax and NICs is payable to HMRC each tax month or quarter, if you pay quarterly.

Making a payment

We accept payment by a range of methods but recommend that you pay electronically. If you pay electronically (including through your bank or Post Office), your cleared payment for the full amount must reach our account no later than the 22nd of the month. Where the 22nd falls on a weekend or is a bank holiday, your cleared payment must reach us on the previous bank working day. Bank working days are Monday to Friday excluding bank hollidays.

When paying electronically you need to allow enough time for your payment to reach us. You will need to check how long your bank or building society takes and what their cut-off time is for initiating payment.

The Accounts Office will have automatically sent you your payslip booklet when you first registered as an employer. If you wish to pay by cheque you will need to complete a payslip from your payslip booklet and send it to your HMRC Accounts Office together with payment for the tax, NICs and Student Loan deductions you have deducted. You must ensure that we receive payment no later than 19th of the month if you pay by cheque.

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Other things you may need to know

For further information about how to pay see Paying HMRC or the Employer Helpbook E13(2009) Day-to-day payroll.

No payment due in a tax month

If, at the end of the month/quarter you have no payment to make, tell your HMRC Accounts Office by either:

  • completing the Nil payment form

    The online form is the most convenient and cost effective way to let us know that no payment is due

  • returning a signed payslip, form P30B letter Paying electronically for the correct month marked 'NIL' due
  • phoning 0845 366 7816 to advise you have no PAYE/NICs payment to make for a particular month, quoting your Accounts Office reference number.

Quarterly payment option

If your average monthly payments are likely to be less than £1,500.00 you can choose to pay your Accounts Office quarterly.

For more information about making payments:

  • see 'Making Tax and NICs Payments' in the Payroll Basics section of your CD-ROM
  • visit Paying HMRC
  • contact the New Employer Helpline.

Refunding tax to your employees

If you need to refund tax to your employees, you can deduct the amount needed from your next payment of PAYE, NICs or any CIS or Student Loan deductions to HMRC. Remember to tell your HMRC Accounts Office if this means that you will have no payment to make for a particular month or quarter.

If you do not have sufficient deductions from which to make the refund, you can apply to HMRC for funding for the difference. We may refuse claims where payments for previous months/quarters are not up to date.

How to claim funding from HMRC to pay a tax refund

To apply for funding in respect of a tax refund you can:

  • complete the PAYE funding form

    or

  • send a letter or a fax to your HMRC Accounts Office requesting funding for a tax refund.

The fax numbers are:

Accounts Office Shipley 01274 539651

Accounts Office Cumbernauld 01236 785251

You will need to provide the following information:

  • Accounts Office reference number (shown on the front cover of your P30BC Payslip Booklet or P30B letter Paying electronically)
  • employer reference number (shown on the front cover of your P30BC Payslip Booklet or P30B letter Paying electronically)
  • employer name
  • phone number
  • number of employees for whom you require funding
  • total amount required.

After processing your refund application your HMRC Accounts Office will send you a cheque for the amount requested.

Tax code changes

During the year your HMRC office may send to you form P6, if:

  • there is a change to an employee's tax code, or
  • you have to add in the employee's pay and tax from their last employer.

For further information see Part 7 of Employer Helpbook E13 Day-to-day payroll which is available from:

Employee leaves

If an employee leaves your employment you will need to complete a P45. You can get a supply from the Employer Orderline. See the Order Form for details.

For further information see Part 6 of Employer Helpbook E13 Day-to-day payroll which is available from:

  • the Online Order Form
  • the 'Forms & Helpbooks' section of your Employer CD-ROM, or
  • the Employer Orderline phone 08457 646 646.

If you have used the P11 Calculator on your Employer CD-ROM for your employee, an in-year leaver summary is provided that will have all the information you will need to complete the P45.

End of Year

At the end of the tax year (5 April), you will have to send HMRC an Employer Annual Return.

To do this you will need to complete:

  • a form P35 Employer Annual Return, summary of all NICs and tax you have deducted during the year, and
  • a form P14(2009-10) End of Year Summary for each employee for whom you have been required to complete a P11 Deductions Working Sheet.

Your Employer Annual Return, both forms P14 (2009-10) End of Year Summary and P35 Employer Annual Return, must reach us by 19 May 2010.

You must also provide each employee that is working for you at April 2010 a paper form P60(2009-10) End of year certificate.

The Employer Helpbook E10 Finishing the tax year up to 5 April 2010 provides all the information you will need to enable you to complete your P35 Employer Annual Return. This is available from the Online Order Form, on your Employer CD-ROM or from the Employer Orderline on 08457 646 646.

We will send you information telling you what you need to do when you come to the end of the tax year nearer the time.

You must keep the following forms for at least three years after the end of the tax year to which they relate:

  • forms P11 Deductions Working Sheet and any pay records. This applies even if an employee does not pay any PAYE or NICs in the tax year, but you have completed a form P11 Deductions Working Sheet to keep records of earnings
  • forms P38(S) Student employees or equivalent records, including those relating to students for whom a form P14 (2009-10) End of Year Summary has been prepared
  • forms SL1 Start Notice and SL2 Stop Notice in respect of Student Loan deductions.

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Help and further guidance

You may need help and further guidance not only when you take on your first employee, but also as your business grows.

We offer a range of help to suit all needs and will support you every step of the way.

We'll work with you to get your payroll started and support you through any problems that you may encounter.

The Internet

Help and further guidance is available from the PAYE area.

Your Employer CD-ROM

Your Employer CD-ROM is in your New Employer Pack and includes:

  • a P11 Calculator that will work out and record your employee's PAYE tax, National Insurance contributions (NICs) and any Student Loan deductions every pay day. It also has a linked P32 Employer Payment Record that works out what you need to pay us. Using the P11 Calculator is the easiest and quickest way to work out PAYE tax and NICs
  • a Payroll Basics section for new and less experienced employers explaining what to do when employing someone for the first time
  • a Learning Zone to help you understand payroll topics for example, tax, NICs and PAYE Online
  • copies of most of our forms, Helpbooks and guidance.

By phone - New Employer Helpline

Our Helpline Advisers are dedicated specifically to helping new employers. They will not confuse you with technicalities and jargon. Their aim is to help you meet your obligations correctly first time.

Phone 0845 60 70 143

Monday to Friday 08.00 - 20.00

Saturday and Sunday 08.00 - 17.00.

If you have a hearing or speech impairment, and use a textphone, phone 0845 602 1380 (Only people with specialised equipment such as Minicom are able to use this service.)

Your HMRC office

Your own HMRC office can also help you.

Please tell us your Employer reference. You will find it on correspondence from your HMRC office.

If your enquiry is about one of your employees, you must tell us their National Insurance number.

Employer helpbooks

Our Employer Helpbooks will help you understand and operate PAYE, NICs and other payroll related matters.

The Helpbooks are for guidance only; they are not comprehensive and have no legal force.

You can view, download and order the full range of Helpbooks, booklets and other forms and guidance from the Online Order Form or from your Employer CD-ROM.

Or you can order copies from the Employer Orderline:

  • by phone 08457 646 646
  • by fax 08702 406 406

Forms and guidance in Braille, larger print and audio

For details of employer forms and guidance in Braille, large print or audio call the Employer Orderline on 08457 646 646 and ask to speak to the Customer Service Team.

Yr laith Gymraeg

Ffoniwch 0845 302 1489 i dderbyn fersiynau Cymraeg o ffurflenni a chanllawiau.

In person

We can help you with many payroll topics, explaining:

  • what you need to do
  • the deadlines you need to meet
  • the forms you need to fill in
  • the records you need to keep.

We have a range of workshops which are free of charge on many payroll topics, including 'Paying your Employees' based on the Employer CD-ROM and 'Do it online for employers'.

Further information is available from the Business Support Team area or by calling our Advice Team on 0845 603 2691.

Online Services

Please see the information about our online services.

For help and assistance using our online service contact the Orderline Services Helpdesk:

  • email helpdesk@ir-efile.gov.uk
  • phone 0845 60 55 999
  • open Monday to Sunday 08.00 - 20.00.