Check who belongs on payroll and register for PAYE

New employer PAYE checklist

Before Riverside Care Services decides whether someone belongs on its payroll, it needs to understand the real working arrangement. A job title, invoice or contract label is only part of the evidence. Tax status depends on the facts of the engagement and how the work happens in practice.

Ask five questions first:

1. Who controls what work is done, and when, where and how it is completed?
2. Can the individual send a genuine substitute, and who controls that substitution?
3. Does the individual carry meaningful financial risk or have to correct defective work at their own cost?
4. Who provides the equipment and bears the operating costs?
5. Does the real working practice match the written contract?

Employment status for tax and employment-rights status are related but not identical decisions. This lesson focuses on tax and PAYE treatment. It does not determine holiday, dismissal or other employment rights.

HMRC’s Check Employment Status for Tax service can give HMRC’s view for a specific engagement. Use it when the status is not already clear from supported professional advice or an established arrangement.

Payroll treatment comes before registration

Full-time, part-time, temporary and casual arrangements can all indicate employment for tax. A contract does not have to be written: an agreement can be verbal or implied. If the facts indicate employment, the employer normally accounts for Income Tax and National Insurance through PAYE.

A company director is an office holder. When Riverside pays its director through payroll, director PAYE and National Insurance treatment can apply. That does not mean every incorporated company needs an active PAYE scheme from incorporation. A company with an unpaid director and no payroll should not register solely because the company exists.

An agency commonly operates PAYE for workers it supplies, but Riverside must confirm who contracts with the worker, who pays them and whether specialist agency rules apply. For contractors, distinguish between:

• an individual who is genuinely self-employed for this engagement;
• a person supplied through an intermediary or personal service company;
• a construction subcontractor potentially within CIS;
• an individual described as a contractor whose facts indicate employed status.

A genuinely self-employed individual normally deals with their own tax, but Riverside needs a supported status determination. Intermediary, off-payroll and CIS cases should be routed to the relevant HMRC guidance or a qualified adviser rather than compressed into this introductory lesson.

When an employer must register for PAYE

Under HMRC’s current PAYE guidance, Riverside must register if any employee:

• is paid £96 a week or more;
• receives expenses or company benefits;
• receives a pension from the employer;
• has had another job during the current tax year;
• has received Jobseeker’s Allowance, Employment and Support Allowance or Incapacity Benefit.

The pension trigger means pension income being paid by the employer. It does not mean an ordinary employee contribution being deducted for workplace-pension saving. Detailed automatic-enrolment assessment belongs to Lesson 5.

If none of the registration conditions applies, Riverside may not need to register a PAYE scheme yet, but it must still keep payroll records. If Riverside already operates PAYE, low pay does not automatically mean an employee can be ignored; the software and reporting treatment must follow current HMRC rules.

Riverside must normally register before the first payday so it can obtain its employer PAYE reference. It cannot normally register more than two months before it starts paying people. These timings come from HMRC’s register as an employer guidance.

Register the employer that will pay the person

The legal entity employing and paying the individual must be the entity registered. Riverside should use its correct legal name, address, company information and expected first-payday details. Government Gateway access should be controlled, recoverable and available to more than one authorised person without recording passwords in the payroll procedure.

HMRC issues two references with different jobs:

• the employer PAYE reference identifies the PAYE scheme and is used in payroll reporting and correspondence;
• the Accounts Office reference identifies the employer when payments are allocated to its HMRC account.

Record both exactly as issued. Do not substitute an employee tax reference or use a reference belonging to another group company. If payday arrives before the PAYE reference, follow the separate late PAYE registration guide; never invent a reference or delay contractual pay without appropriate advice.

Retain the CEST evidence

HMRC says it will stand by a CEST result only when the supplied information is accurate, the service was used according to its guidance and the answers remain consistent with the real working arrangement. Riverside should retain:

• the CEST result and reasoning;
• the answers entered into the service;
• the engagement contract;
• evidence of the actual working practices;
• the date the assessment was completed;
• any later reassessment and the reason for it.

Run the assessment again when the contract or actual arrangement changes materially. A result based on an accurate contract is not reliable if day-to-day working practices later become different.

Riverside classification exercise

Prefer paper? Download the blank new-employer payroll checklist PDF.

Check your understanding

Three key takeaways

1. Determine the real working arrangement before deciding who must operate PAYE.
2. Employment payroll treatment and the employer’s PAYE registration trigger are separate decisions.
3. Register the correct entity at the correct time and retain evidence that supports every decision.

Next lesson

Choose a payroll method and complete setup. Lesson 3 will compare internal payroll, bureaus and software, then establish the controls required before processing live pay.

Related resources

• Director-only payroll for a limited company
• Late PAYE registration before first payroll
• UK payroll glossary