Set yourself up as an employer

Who counts as an "employee"?

Almost everyone who works for your business under a contract of service, even if this is just a verbal contract, normally counts as an employee. This means that you will have to deduct the appropriate income tax and National Insurance contributions. If your new employee has a student loan to be repaid, you may also need to make deductions for this when you pay them.

The following all count as employees for tax purposes:

• full and part-time workers
• temporary and casual workers
• directors or other office holders

Of course, not all these types of employee will pay the same amounts of income tax and NICs - this depends on their individual circumstances. That's why it is essential to record full details of every employee from the start and to make sure you take the correct actions. See the page in this guide on the first steps in taking on a new employee.

Self-employed workers
If a worker claims to be self-employed, and intends to make their own tax and National Insurance arrangements, you will need to establish that they are in fact self-employed - download leaflet IR56 on employment status for tax and NICs from the HM Revenue & Customs website (PDF). You can call your local HM Revenue & Customs office for guidance, but in the meantime you must treat your worker as a normal employee.

Subjects covered in this guide

• Introduction
• Who counts as an "employee"?
• First steps in taking on a new employee
• The New Employer's Starter Pack
• Dealing with a new employee's P45
• What if my new employee doesn't have a P45?
• When a new employee doesn't have or know their NI number
• Choosing a payroll system
• Operating the payroll manually
• Using payroll software
• Arranging payment for your new employee
• Paying your employee for the first time

 Print This Page

Source - Business Link; Crown Copyright.