Tax and National Insurance Deductions | Centre for Independent Living NI

Keeping financial records for your Personal Assistants may at first seem daunting, but with the right support and training in calculating your employee's Tax and National Insurance deductions, using the Simplified Deduction Scheme is reasonably straightforward.

When should I make deductions?

If you employ a Personal Assistant you may be liable to deduct Tax and National Insurance from your employee and pay it to HM Revenue and Customs, together with an additional employer's National Insurance contribution.

The following conditions will determine when and how you can use the Simplified Deduction Scheme:

If your Personal Assistant earns less than the Lower Earnings Limit (£102 per week/£442 per month) and he/she has no other taxable income, you do not have to register with HM Revenue and Customs anyway. In this case your Personal Assistant will not be entitled to any Statutory benefits (such as Statutory Sick Pay).

If your Personal Assistant earns over £102 per week/£442 per month, you must register with HM Revenue and Customs and note the following specific requirements:
- if your Personal Assistant earns between £102 per week/£442 per month and £136 per week/£589 per month and he/she has no other taxable income, neither you nor your Personal Assistant will have any deductions or payments relating to Income Tax and National Insurance. However, but you must keep records and submit new returns to the HM Revenue and Customs as your Personal Assistant may be entitled to some Statutory benefits*.
- If your Personal Assistant earns between £137 per week/£593 per month and £139 per week/£602 per month and has no other income, he/she will have no deductions. You however will have to begin to pay for Employer's National Insurance contributions and start using the Simplified Deduction Scheme. Your Personal Assistant may be entitled to some Statutory benefits*.
- If your Personal Assistant earns between £140 per week/£606 per month and £143 per week/£619 per month, then both your Personal Assistant and you will be liable to pay National Insurance contributions. If your Personal Assistant has no other income, he/she is not liable to pay Income Tax and deduction for this need not be made.
- If your Personal Assistant earns between £144 per week/£624 per month and £160 per week/£693 per month, then both your Personal Assistant and you will be liable to pay national insurance contributions. Your Personal Assistant will have Income Tax deducted, the rate of which will depend upon the total income he/she receives from all sources.

If your Personal Assistant earns over £160 per week/£700 per month, then you must operate under the full PAYE regulations and you cannot use the Simplified Deduction Scheme for that employee.

*These depend on the benefit in question and the length of time your Personal Assistant has been working for you. For instance, Statutory Maternity Pay is dependent on continuous employment and earning more than the Lower Earnings Limit. Contact Centre for Independent Living NI with the details of your Personal Assistant's length of service etc if you need further assistance.

For full details of the Tax and National Insurance rates for tax year 2012-13, please click here.

What is the Simplified Deduction Scheme?

The Simplified Deduction Scheme is designed to make the calculation and deduction of Income Tax and National Insurance Contributions simpler for small employers including individuals using Direct Payments. Full training on starting and running the scheme is available from Centre for Independent Living NI or HM Revenue and Customs. CILNI understands however that from 6 April, 2012 the Simplified Deduction Scheme will be closed to new employers and, after that date, new employers will need to use HM Revenue and Customs Real Time Information scheme. (For more information on Real Time Information, click here.)

What if this is a second job for my new employee?

If your new employee already has a job and a tax code when starting working for you and does not intend to leave his or her original job, he or she will be required to pay the basic rate (20%) tax and potentially National Insurance Contributions (NIC) on the job you are offering.

Your employee may be earning less than the Primary Tax Threshold, £139 per week in this tax year 2011-2012 in his or her other job. If this is the case, your employee may pay tax up to the Primary Tax Threshold under his or her tax code with the other employer. This will avoid overpayment of tax by the employee. You can ask the Business Support Team at HM Revenue and Customs to assist you clarify your situation and that of your employee. National Insurance is still applicable at £110 per week. If your employee is earning under £144 per week gross in their first/other job, they may be entitled to a reduction in the amount of Income Tax you are deducting from the wage you are giving them. To ensure they are on the correct tax code, your employee should contact their local tax office.

What tax is payable on travelling expenses?

If your employee is using his or her own vehicle on your behalf you may pay travelling expenses. These are not taxable if you pay 45p per mile or less for the first 10,000 miles if records are kept. After 10,000 miles, travelling expenses should be paid at 25p per mile to avoid paying tax.

As you start each new tax year, you can resume paying 45p per mile up to the first 10,000 miles. It is important that you continue to keep records of travelling expenses for HM Revenue and Customs. Should you decide to give your employee 'one-off' payments for travelling, this will be treated as part of his or her wages and therefore taxable.

What happens when I take on a new employee and I am using the Simplified Deduction Scheme?

Existing employers should:

Follow the procedure outlined below.

New Employers should:

Contact the New Employers' Help-line on 0845 6070143 register as a new employer. The New Employers' Help-line will then send your details to your local tax office.

Complete and return form P16a (available from the New Employers' Help-line). You do not need a P45 for your new employee when running a Simplified Deduction Scheme. If your new employee gives you his or her P45, you should not fill it in. Send parts 2 and 3 of any P45 with your form P16a to your local tax office.

When your local tax office sets up your Simplified Deduction Scheme, you will be sent a starter pack which contains:

A Simplified Deduction Card (P12) that already shows the 'free pay' that your employee is entitled to earn per year without incurring tax.

Simplified National Insurance tables.

An instruction leaflet (P16).

Information about the Simplified Deduction Scheme (P25).

You will be issued with a payments book shortly after your scheme has been set up. You can pay your local tax office at quarterly intervals.

What if my employee doesn't give me a National Insurance number?

If your new employee does not have a National Insurance number, you should advise him or her to contact the nearest Social Security office.

If your employee cannot provide you with his or her National Insurance number for any other reason, you should send form P16a to your local tax office and they will trace the number. Give your Personal Assistant a copy of his or her National Insurance number and advise your employee to keep it in a safe place for future reference.

What should I do on Payday?

On payday complete form P12 for each employee using the step-by-step instructions and tables supplied;

It is important to keep the P12 up-to-date. You should fill it in each time you pay your staff wages.

Give your employee a payslip (available from most good stationers or a payslip template will be available on the CILNI website), which shows the pay date, gross pay, deductions, net pay, along with the names of the employee and employer.

What should I do at the end of each quarter?

On the following dates (5 July, 5 October, 5 January and 5 April) you should total all your Income Tax and National Insurance (employer and employee contributions) and any other deductions you have made.

Use a separate card P12 for each employee. Pay HM Revenue and Customs a lump sum for all of your employees.

It is important to pay HM Revenue and Customs no later than the 19th of the relevant month otherwise you may have to pay interest.

What happens at the end of the tax year (5 April)?

You will be issued a form P37 in January/February each year;

As soon as possible after 5th April each year you should total, sign and date all (one for each employee) cards P12.

Pay remaining payments of Tax and National Insurance deductions to your local tax office by 19th April to avoid interest charges.

Avoid further charges by sending forms P37 and P12 to your local tax office by 19th May.

What about Statutory Sick Pay and Maternity Pay?

If your employee's earnings are above £102per week you may have to pay:

Statutory Sick Pay

Statutory Maternity Pay

Click on the links above for more information on Statutory Sick Pay and Statutory Maternity Pay.

What should I do if my employee requires his or her Tax Code changed?

If your employee requires his or her code number to be changed do not alter P12 details:

Your employee should contact his or her local tax office and request a new form P12

When you receive your new form P12, you should complete the old P12 by totaling all entries

Send your old (completed) P12 to your local tax office

Pay any Tax and/or National Insurance Contributions due, to your local tax office

You should not transfer any old P12 details to your new form P12

What should I do if my Personal Assistant claims to be Self-employed?

Personal Assistants are unlikely to be self-employed. Individuals cannot choose to become self-employed without first obtaining permission from their local tax office. If your Personal Assistant tells you that he/she is self-employed, consult the "Using a Worker Who is Self Employed" information sheet (available on the CILNI website) on this subject.

What if my Personal Assistant leaves?

When a Personal Assistant leaves your employ you should follow the procedure below:

Do NOT issue a P45

Complete card P12 and return it to your local tax office

Keep a copy of the P12 for your records

Make any payments regarding the leaving employee to your local tax office promptly

What else do I need to know about Tax and National Insurance deductions using the Simplified Deduction Scheme?

If your employee is over retirement age he or she does not pay National Insurance Contributions but they may be liable for Income Tax. Remember: even though your employee may be receiving a pension, you as the employer may still be required to pay Employers National Insurance Contributions.

Please remember that the National Insurance and Income Tax thresholds change every April.

Keep your records up-to-date. If you have real difficulty with the paperwork, you could assign it as a duty of a Personal Assistant. The Trust may agree to pay for a book keeping service as part of the Direct Payments package.

For further help, contact Centre for Independent Living NI or the Business Support Team at the HM Revenue and Customs.

HMRC New Employer's Helpline 0845 60 70143
HMRC Existing Employer's Helpline 08457 143 143

This information sheet offers guidance only. You should contact your local tax office for advice relevant to your circumstances. To determine the tax office you need to contact, click here.

There is a PAYE Basic Toolkit available from HM Revenue and Customs to assist employees in calculating PAYE and keeping records. To obtain the Toolkit, click here.