Tax and National Insurance

By law, every person aged 16 or over who is working must have a National Insurance (NI) number, provided by HM Revenue and Custom’s (HMRC) NI Contributions Office. New staff should provide their NI number as soon as possible.

If an employee does not have a P45 the employer and employee must gather starter information for the first Full Payment Submission (FPS) through the Real Time Information (RTI) system. The starter checklist will help you do this (www.gov.uk/government/publications/paye- starter-checklist). Where an employee has lost his or her NI number, HMRC will automatically trace and advise you of this when you send the first FPS.

If an employee does not have an NI number you can still pay the employee but must keep a record of their name, address, date of birth and gender. Article 52 onwards gives details of allowances and contributions.

First time as an employer?

New employers should contact HMRC to register as an employer. From its website (www.gov.uk/paye-for-employers) you can access all the information you need to set up and operate a payroll system. The free HMRC Basic PAYE Tools software package (www.gov.uk/basic-paye- tools) enables you to work out tax and NICs for employees.

Employers have to report tax and NI information in real time (on or before the day you pay employees), online, through RTI (see article 165 for further information or visit www.gov.uk/business-tax/paye).

Working abroad

Whether an employee working abroad will have to pay UK tax and NICs on their income depends on where they are working and how long they are expected to be there.

From April 2013 the UK residence status of an individual is now determined by reference to the Statutory Residence Test (SRT)’. The statutory residence test is divided into three stages, each of which has multiple tests, and once an employee can answer ‘yes’ to one of the tests in a stage, there is no need to continue. The three stages – in order – are:

1  the automatic overseas tests 

2  the automatic UK tests

3  the sufficient ties tests.

In most cases the tests are taken for each tax year, although the results for one tax year may influence the results for other tax years. A detailed breakdown of the tests for each stage can be found in the document RDR3, available at: www.gov.uk/government/publications /rdr3-statutory-residence-test-srt

When an employee goes to work abroad, the employer must give them a letter that states:

• the date they went abroad to work

• their gross pay from the start of the tax year to the date they went abroad

• the tax deducted from the start of the tax year to the date they went abroad.

Employees should notify HMRC if they are going to work abroad. More information is available at www.gov.uk/tax-right-retire-abroad-return- to-uk including the claim form P85. There are special rules for, among others, people working for the government, non-UK-resident oil and gas exploration and mining companies, and the merchant navy.

NIC operates differently and depends on where the employee is working. If the employee works in an EEA country or Switzerland (see article 45 for the list of EEA countries) and their contract is for less than two years, they may be exempt from paying NICs in that country and will continue to pay UK NICs. This also applies if they normally work in two or more EEA countries. The employer will need to apply for a Portable Document A1 for the employee, which will prove they are still paying UK NICs. Further information and links to the application forms are available from: www.gov.uk/paying-employees-working-abroad

Certain countries have social security agreements with the UK and employees posted to them will usually pay NICs in those countries, although they may apply to continue to pay UK NICs. In the case of countries without social security agreements that are not members of the EEA and Switzerland employers must continue to deduct NICs for the first 52 weeks of the posting. See https://www.gov.uk/paying- employees-working-abroad for more details.