When starting out in business it is likely that you will need to employ staff. This involves a whole host of issues, from running a payroll, recruitment processes, contracts of employment, training, and disciplinary and grievance procedures. You can of course attempt to tackle all of these yourself, but this may be an unwelcome distraction when you have so many other things to consider. There are many freelance Human Resource professionals who will work on an “as needs” basis, and you can of course sub contract your payroll to a payroll bureau or accountant. Payroll software can be expensive and the cost of a bureau or accountant may be less than buying the software yourself, with less hassle. However, if you do want to keep this in house HMRC do offer free software, Basic PAYE Tools, which is available from the Business Link website. You can use this free tool to work out the tax and National Insurance contributions for your employees in each pay period and small employers with up to and including nine employees can use it to file their Employer Annual.
When employing staff there are a whole host of checks that may be appropriate, depending on the nature of your business and the position being recruited for, such as right to work in the UK, checking references, health checks, qualification checks, criminal records. If you are engaging a human resource professional, accountant or payroll bureau, be absolutely clear who is performing these tasks.
You may prefer to take on staff on a sub contract basis, but you need to be absolutely sure of your ground when doing this. If HMRC consider the arrangement to be one of an employer/employee relationship then the payments you make to your sub contractor will be deemed to be net of tax, and you will be liable for PAYE on the payments made. HM Revenue & Customs have issued guidance on this subject and now provide an online Employment Status Indicator (“ESI”). It is free and easy to use and can help you work out whether your workers are employed or self-employed in all but the most complex of cases. Provided that the information you input into the ESI is an accurate account of the work carried out for a particular engagement, you can rely on the ESI outcome as HMRC’s view of the status for that particular engagement, but you should retain the printed version of the ESI result, the printout of the Enquiry Details Screen showing the engagement details and the replies to the questions asked, the engagement contract where applicable and any other documentation or information you relied upon when completing the ESI.
The Revenue have also published a guide “Employed or self-employed for tax and National Insurance contributions” which also provides a useful reference point, including a list of factors that will determine employment status.
In addition to accounting for PAYE and national insurance contributions for your employees, employer national insurance contributions are payable on salaries and wages. But you may qualify for a Regional Employer National Insurance Contribution Holiday. This scheme offers reductions in employer national insurance contributions for new businesses (that is businesses that started after 22 June 2010) based outside London, the South East and East of England . The first 10 employees taken on during the first year of the business will be employer NI free for up to one year (or up to 5 September 2013 if earlier). The scheme could potentially save a business £50,000.
Once you have decided that you need to operate a PAYE scheme you will need to register with HM Revenue. You can register up to four weeks in advance of your first pay day. Bear in mind that if you run your business through a limited company, you will still need to register as an employer even if you’re the only person working in your business. In effect you will be both an employer and an employee. You can register by calling the HM Revenue & Customs New Employers’ Helpline on 0845 60 70 143. The information you will need to provide will depend upon the type of business you are operating, and more detail can be found on our website.