1. ‘Pay As You Earn’ (PAYE) and National Insurance
The PAYE Regulations 2003 and various Social Security / National Insurance Regulations place an onus on the University as employer to deduct tax on earnings paid to its employees at source, i.e. unless there is a specific exception, the general rule of thumb is that all payments to employees must be made after the deduction of tax and National Insurance.
Payments to employees or workers are made on a monthly basis, and returns to HMRC are made monthly. At the end of each tax year, annual statements of earnings (P60) are also sent to employees, providing information on total taxable earnings, tax-free allowances and deductions for the previous tax year, so long as the employee/worker has a 'live' record on the HR/payroll system as at 31st March.
2. P11D and taxable benefits
The University is required to make an annual return to HMRC declaring all taxable payments or benefits provided to individuals not otherwise dealt with via the PAYE process. This occurs after the end of each tax year and is based upon a questionnaire that is circulated to each department to gather the necessary information.
3. Gross payments and ‘Section 16’ returns
Under Section 16 of the Taxes Management Act 1970, HMRC are empowered to request that employers provide a complete list of all payments to individuals made without deduction of PAYE in any tax year. Organizations that employ a lot of ‘consultants’ or self-employed individuals, such as the University, are usually asked to provide this information on a regular basis.
HMRC compare this data with personal tax returns to determine whether correct amounts of tax have been paid.