• PAYE (Pay As You Earn): A system used by HMRC to collect Income Tax and National Insurance directly from employees’ wages or pensions. Employers act as intermediaries, deducting these taxes before payment of salaries to employees. It makes sure that employees pay the correct tax throughout the year.
   

• NIC (National Insurance Contributions): Payments made by employers and employees to fund benefits such as state pensions, maternity allowance, and unemployment support. NIC rates and thresholds depend on earnings and the type of employment. 

To comply with PAYE and NIC requirements, businesses must: 

• Register as an Employer with HMRC: Make sure registration is completed before hiring employees to receive a PAYE reference number.
   

• Deduct Income Tax and NIC: Use HMRC-provided tax codes and NIC thresholds to calculate the correct amounts to deduct from employees’ wages each pay period.
   

• Submit Real Time Information (RTI): Report earnings and deductions to HMRC each time payroll is run.
   

• Provide Payslips: Employees must receive a breakdown of gross pay, deductions, and net pay.
   

• Pay Employer NICs: Calculate and pay NICs on behalf of employees above specified earnings thresholds. 

Tax Codes: HMRC issues tax codes (e.g., 1257L) that determine how much tax to deduct. Regularly update codes to reflect changes in employee circumstances (e.g., marriage, secondary income).

Bands and Rates: Income Tax is charged at different rates depending on earnings: 

• Basic Rate: 20% 

• Higher Rate: 40% 

• Additional Rate: 45% 

Allowances: Employees are entitled to a Personal Allowance (currently £12,570 per year) that reduces taxable income. Be aware of benefits or changes that might affect this allowance, such as adjustments due to earning above £100,000, which reduces the allowance by £1 for every £2 earned above this threshold. Additionally, factors like marriage, certain disability benefits, or specific tax-deductible expenses could also influence the Personal Allowance.

Employee NIC: 

• Employees start paying NIC once their earnings exceed the Lower Earnings Limit (LEL), which is currently £123 per week or £533 per month for the 2023/24 tax year.
   

• Class 1 NIC is the most common type for employees under standard contracts. 

Employer NIC: 

• Businesses must contribute NIC on earnings above the Secondary Threshold.
   

• The current rate for Employer NIC is 13.8% on qualifying earnings. 

NIC Thresholds: 

• LEL: Earnings below this limit (£123 per week or £533 per month) do not require NIC for the 2023/24 tax year.
   

• Primary Threshold (PT): Employee NIC applies to earnings above this limit, which is currently £12,570 per year or £1,048 per month for the 2023/24 tax year.
   

• Secondary Threshold (ST): Employer NIC applies to earnings above this limit, which is currently £9,100 per year or £758 per month for the 2023/24 tax year.

Gather Information: 

• Employee’s gross pay for the pay period.
   

• The employee’s tax code issued by HMRC.
   

• Current Income Tax bands and NIC thresholds. 

Calculate PAYE (Income Tax): 

• Subtract the Personal Allowance (£12,570/year or £1,048/month) from gross earnings.
   

• Apply the relevant tax bands: 

  - Basic Rate (20%) for earnings within the basic threshold. 

  - Higher and Additional Rates for earnings above the higher thresholds. 

Calculate Employee NIC: 

• Identify the portion of earnings exceeding the Primary Threshold. 
   

• Apply Class 1 rates: 
  
  -12% on earnings between the Primary Threshold and Upper Earnings Limit (UEL). 

• - 2% on earnings above the UEL. 

Calculate Employer NIC: 

• Apply 13.8% to earnings exceeding the Secondary Threshold.

Scenario: Employee earns £3,000/month. 

• Personal Allowance: £1,048/month. 

• Taxable Income: £3,000 - £1,048 = £1,952. 

• Income Tax: £1,952 x 20% = £390.40 PAYE deduction. 

Employee NIC: 

• Earnings above PT (£1,048): £3,000 - £1,048 = £1,952. 

• NIC: £1,952 x 12% = £234.24. 

Employer NIC: 

• Earnings above ST (£1,048): £1,952. 

• NIC: £1,952 x 13.8% = £269.38. 

Businesses in the screen sector often employ a mix of full-time staff and freelance workers. Considerations include: 

• Freelancers vs. Employees: Confirm employment status, as PAYE does not apply to freelancers, but may apply to employees under short-term contracts. Employment status can be determined using HMRC’s Check Employment Status for Tax (CEST)tool. This tool evaluates control, substitution, and mutual obligation to establish whether an individual should be classified as employed or self-employed for tax purposes. 
   

• Seasonal Work: Manage fluctuating staff numbers efficiently by using payroll software. 
   

• Complex Payments: For staff receiving variable pay, such as royalties or bonuses, ensure correct tax codes are applied. 

Monthly PAYE Payments: Due by the 22nd of each month if paying electronically. 

Year-End Reporting: Submit the final Full Payment Submission (FPS) of the tax year, which provides HMRC with details of employee payments and deductions for each pay period. Additionally, submit an Employer Payment Summary (EPS) if you need to report adjustments to what is owed to HMRC, such as statutory payments or recoverable amounts. 

Issuing P60s: Provide to employees by 31 May after the tax year ends. 

• Invest in Payroll Software: Simplify calculations and reporting with HMRC-approved tools, such as Sage, QuickBooks, Xero, BrightPay, or FreeAgent. These tools are recognised for meeting compliance standards and integrating with HMRC systems for real-time reporting.
   

• Outsource Payroll Services: Reduce administrative burdens by working with payroll professionals.
   

• Stay Updated: Monitor HMRC announcements for changes in rates, codes, or thresholds by regularly visiting the HMRC News Page , subscribing to HMRC email updates, or following HMRC’s official social media accounts for timely notifications. 
   

• Keep Records: Maintain payroll records for six years as required by law. 

Failure to comply with PAYE and NIC obligations can result in various penalties and consequences, including: 

Late Filing Penalties: Missing RTI submission deadlines incurs fixed penalties based on the size of the business payroll: 

• 1 to 9 employees: £100 per missed filing. 

• 10 to 49 employees: £200 per missed filing. 

• 50 to 249 employees: £300 per missed filing. 

• 250 or more employees: £400 per missed filing. 

Late Payment Penalties: Repeated late payments of PAYE or NIC attract penalties: 

• 1% to 4% of the unpaid amount depending on the frequency of late payments in a tax year. 

Interest Charges: HMRC charges daily interest on late payments from the due date until the payment is made. The interest rate is set at the Bank of England base rate plus 2.5%. 

Inaccurate Records: If payroll records contain inaccuracies due to negligence or intentional misconduct, penalties can be up to 100% of the underpaid tax. 

Compliance Checks and Audits: HMRC may conduct investigations into payroll practices, which can result in further penalties, legal fees, or reputational damage if non-compliance is identified. 

Failure to Maintain Records: Not keeping payroll records for at least six years as required by law may lead to fines and additional compliance scrutiny. 

Understanding PAYE and NIC obligations is critical for businesses, particularly in the screen sector where employment scenarios can vary. By following these guidelines, businesses can remain compliant, improve efficiency, and maintain trust with employees. 

For detailed guidance, visit the HMRC Employer PAYE Guide or consult with a qualified tax advisor. 

Note: Material on this platform is not official legal advice but we’re here to point you in the right direction if needed.