Common PAYE Errors/Misconceptions



Following recent enquiries by HMRC we have highlighted three common areas where some employers may not be fully compliant with PAYE regulations. This applies to all businesses that employ staff even those not operating a PAYE scheme.

We are certainly not trying to imply that you have done anything wrong  but you need to be aware of the rules so that you can seek our advice when required.

Please take a little time to read the attached information and if you do need any clarification or have any concerns please do not hesitate to contact Kate or Sue.

1.  As an employer you do not need to register for PAYE if you pay all of your employees below the lower earnings limit (LEL), which is currently £111 per week, as long as none of your employees has another job or a pension.

Example 1: A hairdresser employs 6 staff all earning below the LEL.

The employer does not need to be registered for PAYE.

The employer takes on a new employee who will earn £100 a week ie below the LEL.  The new employee also works in another salon earning £200 per week.

The employer must deduct tax  at basic rate from the new starter and so must register for PAYE and include all employees on the payroll.

2.  If you are registered for PAYE you must include ALL employees on your payroll.  This will include employees earning under the LEL and casual employees.  This is a new requirement this year under RTI.

Example 2:  A pub employs:

A full time manager

20 Part time staff all working  16 hours or less per week at minimum wage

2 students  working 3 hours per week as glass collectors/washers

The managers sister who covers for sickness and only worked  4 shifts this year


The company must operate a PAYE scheme as the manager will be paid above the LEL so all of the above staff must be included on the payroll

3.  When you take on a new employee, regardless of whether you are registered for PAYE or not, then you MUST get the new starter to complete and sign a form P46, which you should keep for your records.  If you do not do this and it later transpires that you should have deducted tax then you will be responsible for paying this, not the employee.

Example 3:  A shop is registered for PAYE and takes on a new employee earning £80 per week (under the LEL and tax threshold).  The employer does not deduct tax from the earnings.  After 2 years it is discovered by HMRC that the employee has another job earning £200 per week.  Therefore the employer should have deducted tax of £16 per week.

If employee has not signed a P46 then employer owes HMRC £1664 plus interest and penalties

 If employee has signed P46 stating that they had no other jobs, then employer is deemed to have taken reasonable care, and the employee owes HMRC 

Please note that all examples are fictitious.