In this section:
- PAYE for employers: the basics
- Register as an employer
- Register for PAYE Online
- Choosing a payroll system
- Taking on a new employee
- Understanding employee tax codes
- Simplified PAYE for domestic employees
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 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 NICs 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 (2009-10). 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 NICs Lower Earnings Limit (LEL) - £95 a week or £412 a month (2009-10) - 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 Earnings Threshold (ET) for NICs - £110 a week or £476 a month (2009-10) - 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 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
If they are your employees, you must register with HMRC as an employer. When doing so, make sure you tell them you want to use the Simplified PAYE Deduction Scheme so that they 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.
You can call HMRC’s Employer Orderline on Tel 08457 646 646. They’re 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 HMRC 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 form P16A to HMRC if the employee earns more than the LEL
- send HMRC 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 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 National Insurance number but can't remember it, HMRC will send it to you after they receive form P16A.
Once HMRC receive the form P16A they'll send you a Simplified Deduction Card form P12.
Download form P16A Employer's report when taking on a new employee (PDF 39K)
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. HMRC recommends doing this electronically, but you can also use paper versions of form P12.
The benefits of operating simplified PAYE electronically
Using electronic rather than paper-based methods to operate the Simplified PAYE Scheme saves you time and reduces errors. You can either use commercial payroll software or HMRC's free 'Online Return & Forms - PAYE' service. With either of these methods, when you enter your employee's details and gross pay on the electronic equivalent of form P12 their tax, NICs and net pay figures are calculated for you automatically.
Using these electronic methods also means you're automatically set up to file your Employer Annual Return online. Unlike most other employers, if you’re entitled to use the Simplified PAYE Scheme then you’re not required to file your return online. But HMRC still recommends that you file online because of the greater speed, convenience and reliability that it offers.
More about registering for and using HMRC’s PAYE Online service
Completing paper versions of form P12
HMRC’s leaflet P16 explains how to update form P12 manually and contains the simplified tax tables that this requires. You'll need to know the employee's NICs category letter to work out the NICs correctly. There’s a link below to a flowchart to help with that.
Download P16, ‘Filling in P12 Simplified Deduction Scheme card’ (PDF 267K)
Download NICs category letters flowchart (PDF 42K)
Making quarterly payments of tax and NICs to HMRC
You must send HMRC 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 HMRC manually, the cheque must reach them 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. This provides a summary of the information on the P12s you’ve completed for the tax year. The deadline for filing your annual return is 19 May.
You can submit form P37 to HMRC either online or on paper - unlike most other employers, if you’re entitled to use the simplified scheme then you’re not required to file your annual return online.
HMRC will send you a paper form P37 towards the end of the tax year but strongly recommends that you file online rather than on paper. It’s quicker, more convenient and more reliable.
In order to file any PAYE forms online you must first register for HMRC’s ‘PAYE Online for employers’ service. For more information, follow the link below.
Registering for PAYE Online – find out more
If you complete your forms P12 electronically (recommended)
If you use commercial payroll software or HMRC’s PAYE Online service to complete forms P12, then the figures you need to transfer to form P37 are worked out for you automatically - this is especially useful if you have more than one employee. You’ll then be able to file both your P37 and your P12s online to reach HMRC by 19 May.
You can also print out a form P60 that will be prepared automatically for you by the software or online service that you use – you won't need to complete a paper form P60. You must give your employee their P60 by 31 May after the end of the tax year.
If you complete the paper form P12
In this case you must add up the figures from your P12s yourself in order to complete form P37. You then sign the declaration and certificate on the P37 and send it together with the completed P12s so it reaches HMRC by 19 May after the year end. If you file your forms on paper, HMRC will send your employee a P60.
Bear in mind that even if you've used paper P12s during the year, you can still file your Employer Annual Return online – just transfer the figures from the paper P12 to electronic versions of forms P12 and P37.
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 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 HMRC has sent you form SL1. They'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.
HMRC will send you a new P12 if your employee's tax code needs changing. Use this for future pay days.
HMRC will also send you a new P12 if your employee's tax code changes because of Budget changes.
