PAYE (pay as you earn) is the most common method of paying income tax and national insurance in the UK for permanent staff – employers take care of national insurance, tax deductions and student loan repayments prior to paying the employee their wages. Deductions and wages are displayed on monthly payslips, it is up to the employer to provide payslips either online or in a paper format.
At the end of the tax year, employees receive a P60, displaying how much tax the employee has paid between April 6th and April 5th of the relevant tax year. It is the employer’s responsibility to provide the employee with their P60 by May 31st of the new tax year.
By law, employers must provide a P45 form to employees who leave the company to confirm the total amount of tax that has been paid by the employee during the current tax year. The employer must send part 1 to HMRC (HM Revenue & Customs); the employee keeps part 1A for their own records; part 2 and 3 must be given to the new employer if the employee starts a new job within the same tax year.
P46 forms were used to determine an employee’s tax code, however, this has been replaced by the starter checklist. Starter checklists only need to be completed if the employee does not have a P45 or has started a new job within the same tax year. If employees receive a company car a P46 (car) form will need to be completed. The total value of the car is added to the employee’s salary and tax is deducted from this figure.
Prior to 2019, employers needed to complete end of year forms. The process has since been replaced with RTI (real-time information) forms which must be completed at the end of every tax month. FPS (full payment submission) and EPS (employer payment summary) have replaced P35 forms.
Completing a monthly FPS form lets HMRC know of the payments and deductions made to employees and directors. If preferred, employers can complete separate forms for employees and directors.
An EPS can be sent instead of an FPS if no employees have been paid in the tax month. Additionally, employers may need to send both an EPS and an FPS if they are reclaiming contributions and deductions such as national insurance contributions holiday or statutory maternity, paternity, adoption or shared parental payments.
As one of the UK’s leading payroll companies, we offer a range of payroll services including assistance with PAYE and end of year return forms. Request a quote here to learn more about our services.