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When you take on a new employee there are important checks that you'll have to make. You'll need to decide what their correct employment status is. You'll also need to check they can legally work for you. If you then employ them, you'll need to consider whether you will need to operate PAYE (Pay As You Earn) on their earnings.
If this is your first employee, you may need to register as an employer and set up a PAYE scheme.
If this isn't your first employee, you have probably already done these initial checks, so you'll just need to complete the relevant PAYE paperwork. To do this you'll need to know if your new employee comes with or without a form P45.
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If this is your first employee and their earnings meet certain thresholds, or they have another job or a pension you'll need to register as an employer and operate PAYE. To find out more and how to do this, read our guide on registering as an employer.
However, if you're taking on someone to work for you in your home - such as a nanny, carer, cook, gardener or chauffeur - please first read the separate guide 'Simplified PAYE for domestic employees'.
Simplified PAYE for domestic employees
The rest of this guide covers the key steps in taking on a new employee. If you are a new employer you may also find Business Link's online tool 'Paying an employee for the first time' to be useful - see the later section in this guide.
It's your responsibility to decide on the correct employment status of someone who works for you. If you get their employment status wrong you might have to pay extra tax, National Insurance contributions (NICs), interest and a penalty.
This means that you've got to decide whether they're an employee or self-employed. You can't simply accept that someone's self-employed because they say they are. A person's employment status depends on the terms of the contract between you:
HM Revenue & Customs' (HMRC's) guide 'Employment status: employed or self-employed?' will help you decide what sort of contract it is and explains what you have to take into account to make your decision. There's a link to it at the end of this section.
You can also use HMRC's online Employment Status Indicator interactive tool to determine the correct status, or you can request a written opinion by contacting HMRC's Status Customer Service Team. If you don't agree with this opinion you have a right to appeal. However, you should treat the worker as an employee in the meantime.
Employment status: employed or self-employed?
Use the HMRC Employment Status Indicator
If you're going to employ someone from outside the UK, you'll need to make sure that they're entitled to work here before they start working for you. The UK Border Agency recommends that employers conduct checks on entitlement to work for all new employees to prevent illegal migrant working. If you don't complete these checks, you could be charged a civil penalty of up to £10,000 per illegal worker.
The National Insurance number notification in isolation is not proof of eligibility to work in the UK.
When you are paying someone for the first time, there are a number of things you need to help you decide how much PAYE and NICs you need to deduct before you pay them.
First, you will need to decide which method you will use to calculate deductions such as PAYE and NICs - this process is known as running your payroll. This can be done using electronic methods or by calculating the figures manually, but there are significant advantages to using an electronic payroll system. You can read more about the options available in our guide 'Choosing a payroll system'.
Next you will need two key pieces of information for each employee:
You can use an interactive tool on the Business Link website to create a list of tailored guidance to steer you through this process. Alternatively continue with this the remainder of this guide, which explains how to decide what tax code to use and how to notify HMRC that the employee has started working with your business.
There is also a helpbook - P49, 'Paying someone for the first time' - available to download or print, which you might want to use alongside this guidance.
Download helpbook P49, 'Paying someone for the first time' (PDF 5.6MB)
If your employee doesn't have a form P45, please read the section in this guide 'New employee doesn't have a P45 - completing starter information (form P46)'.
When someone changes jobs, their old employer should give them a form P45. This shows the leaver's:
You should deal with the P45 before their first payday. Our guide 'Taking on a new employee - dealing with form P45' will take you through the process step by step.
Taking on a new employee - dealing with form P45
There could be several reasons for your new employee not having a P45, including:
You should notify HMRC online of any new employees and the code number you are operating before their first payday, unless either of the following applies:
If your employee doesn't give you a form P45 you will need some employment information from your employee. You can use the form P46 to collect this information, but you must not send this form to HMRC. Or you can ask your employee to provide it in a way that suits you.
Our guide 'Taking on a new employee - employee doesn't have a form P45' will tell you what you need from your employee before their first payday.
Taking on a new employee - employee doesn't have a form P45
If your employee later discovers that they do have a P45 from their previous employer, and you've either already filed their starter information with HMRC or have already paid the employee, read our guide 'PAYE when taking on a new employee - employee gives you a form P45 late' for advice on what to do.
Taking on a new employee - employee gives you form P45 late
HMRC needs to know your employee's National Insurance number so that their National Insurance account can be kept up to date and their entitlement to state benefits like the State Pension can be protected.
National Insurance numbers consist of two letters, followed by six numbers, followed by one letter, A, B, C or D. No other format is acceptable. It will look something like this: QQ123456A (this is an example only and should not be used where an employee does not provide their National Insurance number).
You can carry on paying an employee even if you haven't got their National Insurance number - but you must keep a record of their name, address, date of birth and gender. The guidance below tells you what to do next.
If your employee has never had a National Insurance number they must contact their Jobcentre Plus office. There's a link at the end of this section to help your employee through the application process. If you're based in Northern Ireland they need to contact their local Social Security or Job Benefits office.
Applying for a National Insurance number
If your employee has previously had a National Insurance number but doesn't know what it is and you're notifying starter information to HMRC, do not make it up. HMRC will automatically trace the number and let you know what it is.
If the P45 doesn't show the National Insurance number, ask your employee to look on any other documentation they have, for example, their National Insurance number letter, previous wages slips or a form P60 from their previous employer.
If you can't obtain your employee's National Insurance number you'll need to use the National Insurance number tracing service.
To use the National Insurance number tracing service you can either fill in form CA6855 'Employee's National Insurance number trace' or complete your own schedule. You then send the details to the National Insurance Contributions Office (contact details below).
You can either download a copy of form CA6855 below, complete and print it from the Basic PAYE Tools or order it online.
Download form CA6855 Employee's National Insurance number trace (PDF 590K)
If completing your own schedule please set out the information in the following order:
Taking care to make sure that you provide the correct information will save you time by reducing enquiries from employees and HMRC. Wherever possible, check the information with a trusted official source such as a birth certificate or passport.
If you want HMRC to send the information to your company agent, please make sure form 64-8 (Authorising your agent) has been completed.
Go to form 64-8 Authorising your agent
HM Revenue & Customs
National Insurance Contributions and Employer Office
NMTS (Non Matched Tracing Section)
Room BP3101
Benton Park View
Newcastle Upon Tyne
NE98 1ZZ
HMRC may tell you to change an employee's tax code if their personal circumstances change. They'll do this by sending you a form P6. You may receive this on paper only if you have opted out of receiving them online.
They can't tell you why the tax code has changed because it's confidential. But they'll explain the reason to your employee when they tell them about the change.
When you get a P6, you must use the new tax code from the next payday onwards unless HMRC gives you a different start date.
There are a couple of exceptions when HMRC will notify new tax codes in another way. The first is at the start of each new tax year. Form P9X 'Tax codes to use from 6 April' gives details of any generic changes to your employees' tax codes. These changes are normally made because new tax rates, thresholds or allowances are coming into effect and will affect the amount of tax you must deduct from your employees' pay from 6 April. For more information, see our guide 'Starting the tax year code: codes and forms'. The second is when there is a general increase in tax codes following a Budget. When this happens, HMRC will send you an update on form P7X and will provide any necessary updates to your Basic PAYE Tools.
Starting the tax year: codes and forms
Increasingly, HMRC is sending tax code notices to employers online. You will start receiving your tax codes online as soon as you register for the HMRC 'PAYE Online for employers' service. Almost all employers must now register for PAYE Online in order to meet the requirement to file their Employer Annual Return and starter and leaver notifications online.
For more information about receiving codes online, read our guide 'Understanding PAYE Online for employers', you'll find a link at the end of this section.
There are two ways of accessing the tax codes that HMRC sends online to you. You can:
Once you have registered you will no longer receive your PAYE notices and reminders on paper unless you change your notice options.
How to download HMRC's PAYE Desktop Viewer (PDV)
Understanding and using PAYE Online
If your new employee was unemployed and claiming benefits, advise them that they'll need to contact their Jobcentre Plus office to stop their claim or send back their ES40JP.
Find contact details for Jobcentre Plus on the Directgov website (Opens new window)
There are special rules for deducting tax and NICs in certain circumstances, for example when your employee is:
New employee - special situations
The Business Link guide 'Paying an employee for the first time' has an interactive tool which you may find useful when taking on a new employee.
If you're a new employer, or have been in business for less than three years, you can get advice by calling HMRC's New Employer Helpline.
Find contact details for HMRC's New Employer Helpline
Otherwise call HMRC's Employer Helpline.
Find contact details for HMRC's Employer Helpline
Improving the operation of PAYE: Real Time Information (RTI)
Payroll calculations and records: an introduction
Download Employer Helpbook E13, 'Day to day payroll' (PDF 413K)
