Introduction to PAYE for employers
In this section:
Simplified PAYE for domestic employees
If you employ domestic staff in your home like nannies, gardeners, cooks, maids or chauffeurs you may be treated as their employer. This means you must register as an employer and you may have to deduct Income Tax, National Insurance contributions (NICs) and possibly student loan deductions from the money you pay them. You may also have to pay employer's NICs.
Depending on the level of their taxable earnings you may be able to use the Simplified PAYE (Pay As You Earn) Deduction Scheme.
On this page:
- Simplified Deduction Scheme - what it is and who can use it
- How to start using the scheme
- Simplified PAYE forms at a glance
- Taking on a new domestic employee
- Pay and deductions during the year
- End of year tasks - completing the Employer Annual Return
- Statutory payments or student loan deductions
- Dealing with tax code changes
- More useful links
Simplified Deduction Scheme - what it is and who can use it
The Simplified PAYE Deduction Scheme is a way of operating PAYE - deducting tax and National Insurance from your employees - which requires less form filling and uses simpler tax tables than the PAYE schemes operated by most employers.
You can use the scheme if your personal or domestic employees' taxable earnings don't exceed £160 per week or £700 per month (2008-09). If their taxable earnings are more than this you must operate PAYE in the usual way.
Do you always have to operate PAYE?
If this is your employee's only job and you pay them less than the NIC lower earnings limit (LEL) - £90 a week or £390 a month (2008-09) - you won't have to operate PAYE at all.
If it's their only job and you pay them at or over the LEL but below the NICs earnings threshold (ET) - £105 a week or £453 a month (2008-09) - you won't have to operate PAYE on their earnings but you'll have to keep a record of their personal details, their National Insurance (NI) number and the amount you pay them.
If they have more than one job, you'll need to operate PAYE. You can use the Simplified PAYE Deduction Scheme if their earnings are below the thresholds described earlier.
How to start using the scheme
Before you decide whether to use the scheme, you'll have to decide whether the people that work for you in your home are your employees. You don't need to worry about operating PAYE if they're self-employed.
Decide if your workers are employed or self-employed
Read the guide IR56 'Employed or self-employed?'
If they are your employees, you must register with us as an employer. When doing so, make sure you tell us you want to use the Simplified PAYE Deduction Scheme so that we send you the Simplified PAYE Deduction Scheme Employer pack.
If you're already registered as an employer you can download the pack below or order one over the phone.
Employer Orderline: Tel 08457 646 646 - open from 8.00 am to 8.00 pm Monday to Friday and from 10.00 am to 1.00 pm on Saturdays, closed on Christmas and New Year bank holidays.
Find out about registering as an employer
Download the Simplified PAYE Deduction Scheme pack
Simplified PAYE forms at a glance
The key forms for the Simplified PAYE Deduction Scheme are:
- P16A - Employer's report when taking on a new employee
- P12 - Simplified Deduction Card - one for each employee - filled in each time you pay them - instructions in help leaflet P16
- P16 - Simplified PAYE Deduction Scheme leaflet explaining how to fill in a form P12 and use tax tables
- P37 - Employer Annual Return - summarises the information in your P12 deduction card/s - must reach us together with completed forms P12 by 19 May after the end of the tax year.
If you use the scheme, you don't need to worry about completing the usual PAYE forms P11, P45, P46, P14 or P35.
Taking on a new domestic employee
Each time you take on a new domestic employee you'll have to:
- complete and send us form P16A if they earn more than the LEL
- send us parts two and three of your employee's P45 (if they give you one) with form P16A
- ask your employee to apply for a National Insurance (NI) number if they've never had one - they can apply by calling Tel 0845 600 0643 between 8.00 am and 6.00 pm, Monday to Friday
If your employee's got an NI number but can't remember it, we'll send it to you after we get form P16A.
Once we receive the form P16A we'll send you a Simplified Deduction Card form P12.
Download form P16A - Employer's report when taking on a new employee
Pay and deductions during the year
If your employee's taxable pay is at least equal to the LEL, you'll need to complete form P12 each time you pay them. Leaflet P16 explains how to do this manually and contains the simplified tax tables that you'll need. You'll need to know the employee's NIC category letter to work out the NICs correctly.
Download NIC category letters (PDF 42K)
Operating simplified PAYE online - benefits and deadlines
You can save time and reduce error by operating the Simplified PAYE Scheme online using HMRC's free 'Online Return & Forms - PAYE' software. With this method when you enter your employee's details and gross pay on the electronic equivalent of the form P12 the tax, NICs and net pay are calculated for you automatically.
Using this service also means you're automatically set up to file your end of year return online. Filing PAYE online is secure, convenient and more reliable than using paper - and there are proposed deadlines for all employers to file end of year returns online after April 2010. Find out more in the later section 'End of year tasks - completing the Employer Annual Return' or by following the links below.
More about PAYE Online and how to register
Check employer deadlines for filing PAYE online
Making quarterly payments of tax and NIC to HMRC
You must send us the PAYE tax, NICs and any deductions for student loan repayments at the end of each tax quarter. The tax quarters end on:
- 5 July
- 5 October
- 5 January
- 5 April
If you make the payments electronically you'll have until the 22nd of the month to make the payments. Paying electronically is fast and secure.
If you pay us manually, the cheque must reach us by the 19th of the month in which the quarter ends accompanied by a payslip from the P30BC payslip booklet.
Read more about the different PAYE payment methods
End of year tasks - completing the Employer Annual Return
At the end of the tax year you'll need to complete an Employer Annual Return, form P37. We'll send this to you towards the end of the tax year. The completed P37 provides a summary of the information on all employee P12s for the tax year.
If you complete your forms P12 online (recommended)
If you use the PAYE Online service to complete forms P12, when you transfer the figures to form P37 the totals are worked out for you automatically - this is especially useful if you have more than one employee. The deadline for filing the return is 19 May.
If you file online you don't need to complete form P60 - end of year summary. Instead you can print a P60 to give to your employee by 31 May.
If you complete the paper form P12
In this case you must add up the figures in order to complete the P37. You then sign the declaration and certificate on form P37 and send it together with the completed P12s so it reaches us by 19 May after the year end.
Bear in mind that even if you've used paper P12s during the year, you can use the online service at the year-end to file online - just transfer the figures from the paper P12 to the online P12.
If you file paper returns, we'll send your employee a P60.
Tax-free payments and deadlines for using PAYE online for employers
Employers with fewer than 50 employees do not have to file their end of year return online until at least 2010. But you'll get a tax-free payment if you send your return online before then. You'll get £100 for the 2007-08 return and £75 for the 2008-09 return.
You can also use the PAYE Online service to complete form P12 and work out net pay and deductions.
To use PAYE Online, you'll have to register for Online Services on our website.
More about PAYE Online and how to register
Statutory payments or student loan deductions
As an employer you may have to deal with some payments and deductions other than tax and NICs.
Statutory payments
If your employee is off work because they're sick you may need to pay them Statutory Sick Pay. If your employee becomes a parent you may need to pay Statutory Maternity Pay, Statutory Paternity Pay or Statutory Adoption Pay.
Read our related guidance to find out more about eligibility for and calculating statutory pay.
Student loan deductions
You only need to worry about student loan deductions if we've sent you form SL1. We'll send you tables that tell you how to work out the deduction. Leaflet P16 explains how to record the deduction on the form P12 Simplified Deduction Card.
If you complete the P12 online you simply enter the student loan deductions in the appropriate field.
Dealing with tax code changes
If you use the simplified scheme you don't need to use a tax code to work out your employee's free pay. This is done for you on form P12.
If your employee asks you to change their code tell them to get in touch with their Tax Office. You shouldn't change the entries for the tax code or the free pay on form P12.
We'll send you a new P12 if your employee's tax code needs changing. Use this for future pay days.
We'll also send you a new P12 if your employee's tax code changes because of Budget changes.
