Avoid common PAYE mistakes

Employed or self-employed

If someone is your employee, you need to apply PAYE (Pay As You Earn) to the total amount you pay them, and deduct National Insurance contributions (NICs), before they receive payment.

If a person working for you is self-employed, they must take responsibility themselves for paying any income tax and NICs they owe to HM Revenue & Customs.

It is not always easy to decide if a person you pay for work is employed or self-employed as defined by HM Revenue & Customs.

For example, if a person only works for your business and no other, HM Revenue & Customs is likely to regard them as your employee, even if they claim to be self-employed. This would make you responsible for their PAYE income tax and NICs, among other things.

They may be working for you through an agency, perhaps on a temporary basis, or on a fixed-term contract. You need to know whether you have to apply PAYE and deduct NICs from them.

Where can I get some guidance?
You can download a guide on tax and National Insurance for the employed or self-employed from the HM Revenue & Customs website (PDF). It suggests a number of questions to ask about work and pay to make things clearer.

For further information, see our guide on individuals, companies and IR35.

You can find your local enquiry centre through the HM Revenue & Customs website. They can give you a written decision about the employment status of an individual for tax and National Insurance purposes.

Subjects covered in this guide

• Introduction
• Employed or self-employed
• Forms checklist
• Calculations checklist - does it all add up?
• Special deductions and payments checklist