PAYE and NI

Guides • Private Limited Company • 07/09/2017

Here we explain what needs to be done with PAYE (Pay As You Earn), and NI (National Insurance)

What you need to do with PAYE & NI

When you work for a Company, you are likely to be working as an employee and rewarded through a salary. Whenever you pay an employee a salary, it attracts two kinds of taxes: Income Tax, which is collected through HMRC’s Pay As You Earn (PAYE) system, and National Insurance (NI).

Both taxes are used by the Government to fund certain state benefits and public services that you get as a national citizen. For example: services from the police force, the armed forces, firefighters, the national health service,… furlough schemes, Theresa May’s latest pair of red stiletto shoes, Boris Johnson’s Guardian Articles, you name it!

Both taxes “become due” to HMRC when you pay your employee’s a salary – usually once at the end of the month. The taxes are calculated (and then deducted) from an employee’s gross salary. Whatever is left will be an employee’s “take home pay”, or “net salary”.

Income Tax (via PAYE)

The tax spent by the Government from Income Tax is enjoyed by society overall. It is collected via PAYE, and calculated directly from an employee’s salary (including on: any bonuses, tips, maternity pay, and other benefits).

The tax is usually charged at different marginal rates, and paid to the Government, by an employee’s employer (designed such, so you as an employee don’t have to bother with this). In the case of starting your own company, as you will also likely be your own employer, you, as the employer, will have to arrange for the payment of Income Tax yourself.

More information about Income Tax, PAYE, and different tax rates applicable, can be found here:

» Income Tax

» PAYE

National Insurance (NI)

National Insurance is calculated in a similar way to Income - predominantly on salary, but can also be affected by any bonuses and other benefits employee’s may receive.

How much National Insurance you pay goes towards determining your individual state benefit entitlements (such as Job Seeker’s Allowance).

There are two components to National Insurances, both of which are owed to HMRC:

Employ-“ers”- “NI” (what your company - as its own legal entity - has to pay to HMRC)
Employ-“ees”- “NI” (what your employees, individually, owe to HMRC)

Note: Even though employees NI contributions are from employees, they are often still paid by the employee’s employer, on their behalf – i.e. by whichever company the employee happens to be working for

More information about National Insurance, and different tax rates applicable, can be found here:

» National Insurance

Records you will need to keep

Tax Document 5:

P60 End of Year Certificate This is a certificate prepared by the employer and then given to the employee annually, just after the tax year (5th of April). It summarises how much Income Tax and NI contributions an employee has made in a given tax year.

Note: The P60 certificate can be generated from HMRC’s own RTI software

Tax Document 6:

P45 Leaving Certificate This is a certificate prepared by the employer and given to the employee only when an employee stops working for a company. It summarises how much Income Tax and NI contributions an employee has paid from the beginning of the tax year up to the date they left.

Note: The P45 certificate can be generated from HMRC’s own RTI software

Tax Document 7:

Payslips You should also be able to keep records of each employee’s monthly payslip. If you are the only employee and owner of the business, you should be able to see these salary payments from your company’s own bank account.

Note: You can the find the detailed specifics on how to create payslips, from running your payroll, from the Government’s own website, here: More information about Payslips

Tax Document 8:

FPS & EPS As part of your monthly payroll submissions, you will also need to send to HMRC, either an Employer Payment Summary (or Full Payment Summary), each month that summarises, to HMRC, all employee payroll payments you have made in the month.

Note: These submissions can be made to HMRC from HMRC’s own RTI software

More Information

There are various online softwares and accounting packages that help you submit the necessary payroll information, calculate Income Tax & NI, and generate the necessary certificates. As we’ve used it before, and because we know it works, we recommend using the government’s own RTI Payroll Software, which you can find out more about here:

» GOV.UK - RTI Payroll Software