Are there any circumstances when not running PAYE or reporting pay to HMRC is OK?
For example, a client who has one employee, with no other job who is earning less than the NI Lower Earnings Limit. Does there need to be a payroll, PAYE, annual returns to HMRC and RTI when there is no tax or NI due by either the employee or the client (sole trader)?
Thanks
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No PAYE scheme is required (and hence, no need for any RTI compliance) if all the employees are paid less than the NI LEL and have no other job or pension.
No reporting needed but you'll need to keep a record - not only for the employer's own tax but for the employee who may need proof of earnings for a variety of reasons.
Records to prove no need
No reporting, but you will need to keep records to show that you did not need to operate PAYE. This is not only records showing that all payments are below the LEL, but also that you have checked that they have no other job.
The latter is important, as otherwise a person could work in several jobs, all below the LEL, and earn a decent amount without having to account for tax on any of them.
Checking that they have no other job should only go so far as to getting them to confirm that this is the case. They could sign a form, lets call it a p46 perhaps for want of a better name. The employer doesn't have to be any more active than that.
Employer role
I agree that the employer has to do no more than ask if the employee has another job. However, an employer that does not keep a record of the response (in whatever form) is leaving themselves open to accusations of aiding tax evasion if the employee should turn out to have another job that would have resulted in a liability. This is why it is vital that this is properly documented.
There's more than just PAYE/Tax to consider
There's more to employing a person than just looking at the PAYE situation
Overlooking further responsibilities can be very costly (and these further responsibilities are very often forgotten):
see:
http://www.reading.ac.uk/web/FILES/humanresources/humres-UKBAright_to_wo...
And take particular note of this paragraph of the 89 pages of guidance:
" You are breaking the law if you employ a person who does not have the right to work in the UK. You can be fined up to £10,000 for each illegal worker or face criminal prosecution. "
The full 89 pages guidance has an ISBN of:
ISBN 978-1-84987-611-7
Published by UK Border Agency: