payeBefore you pay your first employee for the first time, you must check whether you need to operate PAYE. The guide ‘How to register as an employer’ tells you when you need to register and how to register.

Payments that the PAYE system covers

You must apply PAYE to all payments that an employee receives through working for you, including:

  • salary and wages
  • overtime, shift pay and tips
  • bonuses and commission
  • certain expenses allowances paid in cash
  • Statutory Sick Pay
  • Statutory Maternity, Paternity or Adoption Pay
  • lump sum and compensation payments – such as redundancy payments – unless they’re exempt from tax
  • non-cash items such as vouchers, shares or premium bonds

PAYE on expenses and benefits

Different tax and NICs procedures apply to expenses and benefits (such as company cars or medical insurance) that you provide to employees. In certain cases, you have to operate PAYE on the value of an expense or benefit in the same way as for the payments above. If you do this, you need to include the information about the value of benefits in your FPS to HMRC.

But in most cases, you should report to HMRC the expenses or benefits you give to employees at the end of the tax year and make a one-off payment of Class 1A NICs on the value of them.

If you allow an employee the use of a company car, you must report this to HMRC using a form P46 (Car). This must be filed online, using payroll software, if it supports this function, or the PAYE Online for employers service, within 28 days of the end of the quarter when they first had use of the car.

There are also ways you can reduce your paperwork if you do provide expenses and benefits to your employees. This is called a dispensation.

Other deductions under PAYE

As well as deducting Income Tax and NICs from your employees’ pay each pay period you might also use the PAYE system to deduct other items, such as:

  • student loan repayments
  • employees’ pension contributions
  • payments under an attachment of earnings order
  • repayment of a loan made to an employee
PAYE tax rates, thresholds and codes Figures to use 2014 to 2015
PAYE tax threshold £192 per week
£833 per month
£10,000 per year
Basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £31,865
Higher tax rate 40% on annual earnings from £31,866 to £150,000
Additional tax rate 45% on annual earnings above £150,000
Emergency tax code 1000L
Category of worker Hourly rate from 1 Oct 2013
Aged 21 and above £6.31
Aged 18 to 20 inclusive £5.03
Aged under 18 (but above compulsory school leaving age) £3.72
Apprentices aged under 19 £2.68
Apprentices aged 19 and over, but in the first year of their apprenticeship £2.68
Type of payment or recovery Figures to use 2014 to 2015
Statutory Maternity Pay (SMP) – weekly rate for first six weeks 90% of the employee’s average weekly earnings
Statutory Maternity Pay (SMP) – weekly rate for remaining weeks £138.18 or 90% of the employee’s average weekly earnings, whichever is lower
Ordinary Statutory Paternity Pay (OSPP) and Additional Statutory Paternity Pay (ASPP) – weekly rate £138.18 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory Adoption Pay (SAP) – weekly rate £138.18 or 90% of the employee’s average weekly earnings, whichever is lower
SMP/OSPP/ASPP/SAP – proportion of your payments you can recover from HMRC 92% if your total Class 1 NICs (both employee and employer contributions) are above £45,000 for the previous tax year
103% if your total Class 1 NICs for the previous tax year are £45,000 or lower
Engine size Petrol LPG
1400cc or smaller 14p 9p
1401cc to 2000cc 16p 11p
Bigger than 2000cc 24p 16p
Engine size Diesel
1600cc or smaller 11p
1601cc to 2000cc 13p
Bigger than 2000cc 17p
Type of vehicle Rate per business mile 2014 to 2015
Car For tax purposes: 45p for the first 10,000 business miles in a tax year, then 25p for each subsequent mile
For NICs purposes: 45p for all business miles
Motorcycle 24p for both tax and NICs purposes and for all business miles
Cycle 20p for both tax and NICs purposes and for all business miles