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Taking on a new employee

When you take on a new employee there are a number of important checks that you'll have to make. You'll need to decide what their correct employment status is. You'll also need to check that they can legally work for you. If you then take them on as an employee you'll need to consider whether you will need to operate PAYE (Pay As You Earn) on their earnings.

If you already have other employees you'll just need to complete the PAYE paperwork for taking on a new employee.

If this is your first employee you may need to register as an employer and set up a PAYE scheme. You may be able to operate a simplified PAYE scheme if you're taking on someone to work in your home.

On this page:

First employee - registering as an employer

If this is your first employee and their earnings meet certain thresholds, or they have another job or a pension you'll need to register as an employer and operate PAYE. To find out more and how to do this read the guide below on registering as an employer.

However, if you're taking on someone to work for you in your home - such as a nanny, carer, cook, gardener or chauffeur - please first read the separate guide 'Simplified PAYE for domestic employee

Register as an employer

Simplified PAYE for domestic employees

The rest of this guide covers the key steps in taking on a new employee. If you're a new employer you may also find helpbook P49 'Paying someone for the first time' of use alongside this guidance.

Paying someone for the first time - helpbook P49

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Who counts as an employee?

It's your responsibility to decide on the correct employment status of someone who works for you. If you get their employment status wrong you might have to pay extra tax, National Insurance contributions (NICs), interest and a penalty.

This means that you've got to decide whether they're an employee or self-employed. You can't simply accept that someone's self-employed because they say they are. A person's employment status depends on the terms of the contract between you:

  • a contract of service usually makes them an employee
  • a contract for services usually makes them self-employed

The guide 'Employment status: employed or self-employed?' will help you decide what sort of contract it is and explains what you have to take into account to make your decision. There's a link to it at the end of this section.

You can also use the HM Revenue & Customs (HMRC) online Employment Status Indicator interactive tool to help you make up your mind. This will give you an indication of the correct status, but not a definite decision. If you're still not sure, your Tax Office can give you a written opinion. If you don't agree with this opinion you've got a right to appeal. However, you should treat the worker as an employee in the meantime.

Read the guide 'Employment status: employed or self-employed?'

Use the HM Revenue & Customs (HMRC) Employment Status Indicator

Find out how to appeal against an HMRC decision

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Avoiding employing someone illegally

If you're going to employ someone from outside the UK, you'll need to make sure that they're entitled to work here before they start working for you. The government has recently introduced checks that you must make on all new employees to safeguard you from employing someone illegally.

Read the Businesslink guide, 'Ensuring your workers are eligible to work in the UK' (opens new window)

Use the Businesslink online tool to check the eligibility of your migrant workers (opens new window)

Border and Immigration Agency guidance for employers and sponsors (opens new window)

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New employee paperwork: dealing with form P45

(If your employee doesn't have a form P45, please read the section on completing form P46.)

When someone changes jobs, their old employer should give them a form P45. This shows the leaver's:

  • National Insurance number
  • tax code
  • total pay and tax to the date they left (unless the employee was on a week 1/month 1 tax code in which case this box will be left blank)

The form has four parts - your new employee should give you Part 2 and Part 3.

Checking the P45

You'll need to:

  • Check that the National Insurance number is entered - see below for what to do if this is missing.
  • Check that items 6 and 7 of Part 3 agree with the corresponding entries on Part 2 of the P45. If they don't, contact your tax office immediately.
  • Where the P45 is for the current tax year, check that the 'Total tax to date' at item 7 is correct. The 'P45 checker' tool in the calculator section of the Employer CD-ROM (sent when you register as an employer) can do this for you - or you can use the Pay Adjustment and tax tables.

If you're a new employer, or have been in business for less than three years, and have problems checking the P45 you can call the New Employer Helpline on Tel 0845 60 70 143/Textphone 0845 602 1380 (open 8.00 am to 8.00 pm Monday to Friday and 8.00 am to 5.00 pm Saturday and Sunday).

If the P45 figures are wrong

If you find that the P45 figures are wrong you'll need to enter the correct figures in Part 3 of the P45 (more below) and use these when setting up your employee's form P11 Deduction Working Sheet or equivalent record.

Completing the P45 Part 3

When you've checked the details on the P45, fill in boxes eight to eighteen on Part 3 and send it to HMRC.

At item 12 make sure you enter the correct tax code. It may not be the same as the one shown on the employee's form P45 – for instance, if their P45 is from an earlier tax year. Read the guide below on using the right tax code to find out more.

New employee: using the right tax code

At item 13 make sure you enter the correct tax figure if you found it was wrong during the P45 check.

You'll need your employer PAYE reference number when completing the form. You'll find this on your PAYE paperwork or in your New Employer Starter Pack (sent when you registered as an employer – read the earlier section 'Registering an employer' if you've not yet done this).

What to do with the P45 Part 2

Note that you must keep Part 2 of the P45 for at least three years after the end of the tax year to which it relates.

Download an example of a completed form P45, Part 2 (PDF 40K)

Sending P45s online – benefits and deadlines

There are lots of PAYE forms you can send online, including the P45, Part 3. Sending forms online is secure, convenient and more reliable than using paper. It helps your employees too as they'll receive their correct tax code more quickly.

Employers with 50 or more employees must now file form P45, Part 3 online. And under government proposals all employers, regardless of the number of employees, must file P45 Part 3 online from 6 April 2011.

You can register for or read more about the PAYE Online for employers service below. The guidance includes further detail on important employer deadlines for filing both in-year and end-of-year PAYE forms online.

Find out about PAYE Online for employers

Register for PAYE online filing

Setting up a payroll record for your new employee

Once you've completed and sent in the P45 you'll need to complete a P11 Deductions Working Sheet or equivalent. You use this to calculate and record the tax, NICs and any student loan deductions due on your employee's earnings.

More about how to complete the form P11

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Employee doesn't have P45 – completing form P46

There could be several reasons for your new employee not having a P45, including:

  • it's been lost
  • it's your employee's first job
  • they are continuing with another job as well as working for you
  • your employee is a student working for you solely during their holidays

If your employee doesn't give you a form P45 you and your employee must complete a form P46 unless either of the following applies:

  • your employee is a student working for you solely during their holidays
  • your employee intends working for you for one week or less, with no expectation of coming back in the current year – in this case read page 27 of the Employer Helpbook E13 'Day to day payroll' to find out what you need to do

The P46 has two sections:

  • section one – completed by the employee - gives their personal details, including their National Insurance number, current/recent work history and any student loan details
  • section two – completed by the employer - gives details about your PAYE scheme and the tax code you're using for the employee

Your employee must provide you with the P46 information before their first pay day.

You must show the date of birth and gender on all forms P46.

Completing form P46 section one on your employee's behalf

If you file your P46s online you can either ask your employee to complete section one or ask them to give you the information needed for it. They can provide this in a way that best suits your business, for example in an email or on your own stationery.

It doesn't matter how you get the information as long as your keep a record of where it came from. It's also up to you to decide whether or not you need a signature.

If you don't file your P46s online you'll need to ask your employee to complete the P46 themselves.

Completing form P46 section two – which tax code to use

In the 'Tax code used' part of section two on the P46:

  • tick box A, B or C in line with the box ticked in section one
  • use the tax code indicated in the table below – enter this in the 'Tax code used' field
Box ticked on form P46 Tax code to use
A 647L cumulative
B 647L week 1/month 1
C BR cumulative
None BR cumulative

You'll use this tax code when you come to set up your payroll records on form P11 (or an equivalent record) to calculate the tax, NICs and any student loan deductions due on your employee's earnings. You'll find more information on when to complete form P11 - and links to related guidance - in the section 'When and how to send in form P46'.

Find our more about employee tax codes

P46 information not received by the employee's first pay day

Exceptionally, if your employee hasn't completed the P46 or provided you with the information to complete section one in time for their first pay day you must complete this section to the best of your knowledge on their behalf and use code BR (Basic Rate) on a cumulative basis.

Download on example of form P46 (PDF 1K)

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When and how to send form P46 to HMRC

Whether or not you need to send the P46 to HMRC or keep hold of it depends on:

  • the boxes ticked on the P46
  • whether or not the employee's earnings are equal to or above the NICs Lower Earning Limit (LEL) – for the tax year 2009-10 this is £95 a week or £412.00 a month

If you do need to send in a P46 your filing options - online or using a paper form - depend on the size of your business. See the later section 'How to send form P46 to HMRC'.

The guidance below will help you decide whether or not you need to send the form in.

Employee ticked box A or box B and earnings in the week or month are less than the NICs LEL

In this case:

  • keep form P46 for future use
  • keep a record of the employee's name, address and amount of pay

If the rate of pay increases at a later date to be equal to or more than the LEL:

  • look at the form P46 again
  • take appropriate action based on the instructions below

Bear in mind that even if you don't need to send the P46 to HMRC right away you still need to keep a record of your employee's name address and amount you pay them.

Employee ticked box B and earnings in the week or month are more than the NICs Lower Earnings Limit

In this case:

  • prepare a form P11
  • deduct and record tax in the normal way using the emergency tax code on a cumulative basis
  • deduct and record NICs in the normal way
  • send the P46 to your tax office on your employee's first pay day

To find out about how to prepare the form P11, follow the link below.

Completing form P11: an introduction

Employee ticked box B and earnings in the week or month are more than the NICs Lower Earnings Limit

In this case:

  • prepare a form P11
  • deduct and record tax using the emergency tax code on a week 1/month 1 basis
  • deduct and record NICs in the normal way
  • send the P46 to your tax office on your employee's first pay day

To find out how to complete form P11 and for an understanding of different tax codes, follow the links below.

Completing form P11: an introduction

New employee: using the right tax code

Understanding employee tax codes

Employee ticked box C

In this case:

  • prepare a form P11 when you first pay the employee
  • deduct tax using the Basic Rate (BR) code
  • deduct and record NICs in the normal way
  • send the P46 to your tax office on your employee's first pay day

To find out how to complete form P11 and for an understanding of different tax codes, follow the links below.

Completing form P11: an introduction

New employee: using the right tax code

Understanding employee tax codes

Employee ticked box D

In this case start making student loan deductions from the next pay day. To find out how you do this – including the benefits of using HMRC's free online calculators if you don't use commercial payroll software – follow the link below.

Calculating student loan deductions

How to send form P46 to HMRC

Employers with 50 or more employees must file P46s online. And under government proposals all employers, regardless of the number of employees, must file P46s online from 6 April 2011.

If you use commercial payroll software this facility will probably be built in – however you'll need to check the features of your particular package. You can also send P46s online using HMRC's free PAYE Online Service. Follow the links below to find out how to register and start using this service.

More about employer deadlines for filing PAYE forms online

Understanding and using PAYE Online for employers

File your in-year forms online: P45, P46 etc

If using postal methods, you can download or print form P46 below or from the Employer's CD-ROM (sent to you when you registered as a new employer). You'll also find a P46 in your New Employer Pack issued when you registered as an employer. Alternatively you can order form P46 online or by telephone through the Employer Orderline.

Download a blank form P46 (PDF 44K)

Place an order through the Employer Orderline

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Employee doesn't have a National Insurance number

HMRC needs to know your employee's National Insurance number so that their National Insurance account can be kept up to date and their entitlement to state benefits like the State Pension can be protected.

National Insurance numbers consist of two letters, followed by six numbers, followed by one letter, A, B, C or D. No other format is acceptable. It will look something like this: AB123456C. (This is an example only and should not be used where an employee does not provide their National Insurance number.)

You can carry on paying an employee even if you haven't got their National Insurance number - but you must keep a record of their name, address, date of birth and gender. The guidance below tells you what to do next.

Employee has never had a National Insurance number

If your employee has never had a National Insurance number they must contact their Jobcentre Plus office on Tel 0845 600 0643 to arrange an interview to obtain one. If you're based in Northern Ireland they need to contact their local Social Security or Job Benefits office.

P46 and no National Insurance number

If your employee has previously had a National Insurance number but doesn't know what it is and you're sending a P46 to your tax office, they'll automatically trace the number and let you know what it is.

P45 and no National Insurance number

If the P45 doesn't show the National Insurance number, ask your employee to look on any other documentation they have, for example, their plastic National Insurance number card (RD3) or a form P60 from their previous employer.

If you can't obtain your employee's National Insurance number you'll need to use the National Insurance number tracing service.

Using the National Insurance number tracing service

To use the National Insurance number tracing service you can either fill in form CA6855 'Employee's National Insurance number trace' or complete your own schedule. You then send the details to the National Insurance Contributions Office (contact details below).

You can either download a copy of form CA6855 below or print it from the Employer CD-ROM or order it through the Employer Orderline.

Download form CA6855 Employee's National Insurance number trace (PDF 84K)

Order form CA6855 through the Employer Orderline

If completing your own schedule please set out the information in the following order:

  1. employee's title
  2. surname
  3. first name(s)
  4. address
  5. date of birth
  6. gender
  7. works/payroll number
  8. date employment started
  9. date employment ended (if applicable)
  10. employer's PAYE reference.

If you want us to send the information to your company agent, please make sure form 64-8 (Authorising your agent) has been completed.

Go to form 64-8 Authorising your agent

National Insurance contributions office contact details

HM Revenue & Customs
National Insurance Contributions Office
Additional Business Workstream
Room BP1102
Benton Park View
Newcastle Upon Tyne
NE98 1ZZ

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Employee previously claiming Jobseeker's Allowance

If your new employee was unemployed and claiming benefits, advise them that they'll need to contact their Jobcentre Plus office to stop their claim or send back their ES40JP. They can do this by calling Tel 0845 600 0643.

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New employees – special cases

There are special rules for deducting tax and NICs in certain circumstances, for example when your employee is:

  • non-UK resident or domiciled
  • a student
  • a temporary or agency worker
  • a female who is entitled to pay reduced rate NICs

New employee - special situations

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Taking on a new employee - further information

For more information about dealing with forms P45 and P46 when taking on a new employee, follow the links below for answers to common questions.

Common questions about form P45

Common questions about form P46

If you still can't find the information you're looking for, you can ask a question through HMRC's email query service.

Send an email query about completing form P45

Send an email query about completing form P46

Alternatively you can get advice from HMRC's Employer Helpline on Tel 08457 143 143, open from 8.00 am to 8.00 pm, Monday to Friday and from 8.00 am to 5.00 pm, Saturday and Sunday, except Christmas Day, Boxing Day and New Year's Day.

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More useful links

Day to day payroll - employer helpbook E13

Check current PAYE and NICs rates and limits

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