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Setting up a PAYE scheme is usually one of the first things you do when you start a new business. In fact, if it is a limited company, the Revenue will often do this for you whether you want one or not!

A PAYE scheme is compulsory if you pay staff more than the lower earnings limit (£95 per week in 2009/10) or pay yourself fees for work you have performed as a director. It should be noted here that directors are not allowed to charge fees to their companies on a consultancy basis. You must operate PAYE on them unless you are already self-employed and the fee is a genuine commercial transaction that forms part of your normal trading activities.

The registration process itself is fairly painless. All you need to do is phone the Employers Helpline on 0845 6070 143 and they will set up your PAYE scheme without any need for form-filling. The just need your company name and number, trading address, a further address for PAYE matters (if different) and the names, addresses and NI numbers for all directors. Unfortunately you cannot set up the PAYE scheme on-line yet, although on-line registration for filing PAYE returns is the very next step.

After digesting the information given over the phone (and spelling most of it wrong!) the Revenue will send you a confirmation letter informing you of your PAYE district and reference number. You will need this to communicate with them about your PAYE scheme. You will also receive a yellow payslip booklet for the current tax year, a stock of envelopes for posting your monthly (or quarterly) payments (which irritatingly you need to put stamps on now) and a very handy CD-ROM that tells you everything you need to know about operating a payroll, paying your PAYE bills, filing your PAYE returns and a host of other things besides. It even has calculators for working out deductions for tax, NI and student loans and for statutory payments such as sick pay and maternity pay. You also get a glossy magazine called the Employer Bulletin 3 times a year which updates you on all the latest changes and talking points in the wonderful world of PAYE (it's quite readable actually).

An important point to note is that you will still need a PAYE scheme for reporting expenses even if you don't actually pay anyone a salary. All expenses must be reported on an annual P11D even if they are non-taxable, and you can only do this if you have a PAYE scheme. You can of course apply for a dispensation to avoid having to do P11Ds, but you need a PAYE scheme in order to get the dispensation. As most directors will have out-of-pocket expenses of some kind, you may as well apply for a PAYE scheme at the outset rather than have to set one up in a rush just before the P11D deadline.

Incidentally, if there is little or no activity on a PAYE scheme you can ask the Revenue to put it on an annual basis. This means that you will not receive a yellow payslip booklet (or envelopes), you will not be hassled for payments during the year and you will receive a special payslip at the end of the year for any PAYE that might be due. This is very handy for one-person companies where the director only receives expenses or a salary equivalent to the NI Earnings Threshold (£5,715 in 2009/10). They are even allowed if a director earns more than the Earnings Threshold and consequently has to pay tax and NI, although strictly speaking not if the PAYE liability will be more than £4,500 as then they would require monthly payments anyway.

Finally, when a company closes down or becomes dormant, you will need to de-register from PAYE. A simple letter to your PAYE office explaining why you no longer need the scheme will suffice. Don't forget to file P45s for any directors that might still be lurking on the payroll.

Acumen Tax Solutions
2 Purley Bury Avenue, Purley Oaks, Surrey CR8 1JB
Tel: 020 3669 5270 Mobile: 07813 582890 E-mail:

For information of users: Although every care has been taken in compiling this material, it only provides an overview and does not take the place of an individual consultation. We strongly advise all users to consult the detailed legislation or seek professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or this firm.

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