When you take on a new employee there are important checks you have to make. You need to decide what their correct employment status is and check if they can legally work in the UK. If you employ them, you must check whether you need to operate PAYE (Pay As You Earn) on their earnings.
You need to get certain information from your employee and send it to HM Revenue & Customs (HMRC) on or before the employee's first payday. If this is your first employee, you may need to register with HMRC as an employer and set up a PAYE scheme.
This guide tells you what checks you need to make on potential new employees, what you need to do to register as a new employer and how to get the information you must report to HMRC.
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Once you start reporting your PAYE information in real time you won't be able to submit forms P45 and P46 via HMRC's Online Service - this is because you must tell HMRC about people who've started working for you, or left, using your real time submissions (Full Payment Submissions, or FPS) through your payroll software.
If you've been notified that you must start reporting PAYE in real time from April 2013, if you try to send P45s or P46s via HMRC's Online Service, they will be rejected so you need to take the following action:
For employees who left your employment in 2012-13:
For employees who started in your employment in 2012-13:
Read the rest of this guidance to find out how to let HMRC know about employees who've started since you started reporting PAYE information in real time.
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.
You must decide whether someone who is going to work for you is 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 and them:
The 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. It also tells you how to use a tool to help you decide and how you can also ask HMRC for a decision.
Employment status: employed or self-employed?
If you're going to employ someone, you must make sure that they're entitled to work in the UK before they start working for you. Just because they can give you a National Insurance number doesn't prove that they're entitled to work in the UK.
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. If as part of these checks you have reviewed the employee's passport, you should make a note of the passport number because you need to include it in the employee's first Full Payment Submission (FPS) to report their payroll information to HMRC.
Use an online tool to check if someone can work in the UK on the GOV.UK website (Opens new window)
If this is your first employee and any of the following apply:
You need to register with HMRC as an employer and operate PAYE. To find out more and how to do this, read HMRC's guide 'How to register as an employer'.
If you're already registered as an employer with HMRC, the guide 'New employer - getting started' summarises all the steps you need to take and where to find information on how to do them. The rest of this guide covers the key steps in taking on a new employee.
If you're a new employer, or have been in business for less than three years, you can also get advice by calling HMRC's New Employer Helpline.
How to register as an employer
New employer - getting started
Find contact details for HMRC's New Employer Helpline
You need to send payroll information to HMRC about everyone you employ before or on every payday, even if they only work for a very short time or don't earn much. This includes those earning under the Lower Earnings Limit, people paid just once a year and any temporary or casual staff. Before you can pay anyone new, you need to get certain basic information from them so it's ready to send to HMRC in an FPS.
When you take on a new employee you will need to obtain and keep a record of information that is needed when you submit your first FPS that includes them. This information can be gathered and stored however you prefer - letter, email or a form. You must keep your records for the current year and the three previous tax years.
If the employee doesn't give you a P45, you need to obtain the information in another way. The guide 'Notifying and getting new employee information right' tells you what you must find out from your employee.
Notifying and getting new employee information right
When you take on a new employee, you don't need to tell HMRC straightaway - but you do need to send a report before or on the employee's first payday. You can take on an employee at any point during a pay period, but whenever you take on an employee you should record their start date and report it to HMRC in the first FPS for that employee.
It's a good idea to set up your new employee's details on your payroll as soon as you receive them, so you have their details ready for your first FPS.
Notifying and getting new employee information right
When you pay someone for the first time, there are a number of things you can do to help you decide how much tax and NICs to deduct before you pay them.
You need to decide which method you're going to use to calculate tax, NICs and other deductions - this process is known as running your payroll. You can use an agent or payroll bureau or do it yourself using either commercial payroll software or HMRC's Basic PAYE Tools. You can read more about the options available in the guide 'Software packages and other payroll options'.
You also need the information listed above in 'Reporting employee information to HMRC' to put into your payroll system or into the Employer Database of the Basic PAYE Tools. You need some of this information to send to HMRC when you report your payroll information on an FPS for your employee and some of it to help you calculate the right tax and NICs for them.
Other information that you have to put into your payroll system or the Basic PAYE Tools is information you will know - such as the start date, whether or not the employee is also a director, and the approximate number of hours worked each week.
Software packages and other payroll options
