Demystifying the PAYE Reference Number: What Employers Must Know
Demystifying the complex world of tax codes, today we delve into the PAYE Reference Number, a key component in the UK’s tax system for employers. This alphanumeric code, issued by HMRC, plays a crucial role in managing payroll taxes and employee deductions. But, what exactly is it? And why is it so vital for employers? Let’s unravel this financial enigma and simplify the PAYE Reference Number for you.
Overview:
Understanding the PAYE Reference Number
When it comes to payroll management, the employer PAYE reference number is your business’s unique identifier. It’s a distinct combination of letters and numbers assigned by HMRC to identify a business that has registered as an employer. This number, also known as the tax office employer reference, serves as your business’s tax ID, linking your payroll activities to the correct HMRC office.
Employers find the PAYE Reference Number indispensable as it:
Confirms their identity to HMRC for payroll management
Plays a pivotal role in the submission of tax returns
Identifies firms where past or present employees have been employed
Becomes particularly significant in case of a claim against the employer
The Two Components of a PAYE Reference Number
A PAYE Reference Number goes beyond being a mere random sequence of letters and numbers. The VAT number is made up of two distinct components. These include a three-digit HMRC office number and a unique reference number for the business. The three-digit HMRC office number signifies the tax office responsible for managing the specific employer and ensuring that the employer’s tax payments are in line with the paye tax threshold and other regulations.
The second part of the PAYE Reference Number is a reference number unique to each business. It is assigned to facilitate the identification of the business for tax purposes. This unique reference helps HMRC track and manage the tax payments and deductions for each employer.
Variations in Terminology
While PAYE Reference Number is the commonly used term, it’s not the only one. In fact, you may encounter terms such as ERN, employer PAYE reference, and tax office reference number. The Employer Reference Number (ERN) is another name for the PAYE Reference Number and is used by HMRC to manage employers’ tax payments and national insurance contributions for their employees.
All these terms fundamentally fulfil the same objective: distinguishing employers and overseeing their PAYE transactions. Therefore, whether it’s referred to as the ERN, employer PAYE reference, or tax office reference number, they all represent the unique combination that distinguishes employers in the eyes of HMRC.
Need more information about tax thresholds in the UK? Check out our article by clicking the link!
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Registering as an Employer with HMRC
Should you be initiating a business with employees, one of your initial steps would be to register as an employer with HMRC. This process involves enrolling for PAYE Online for employers, creating a login, and selecting payroll software to compute payroll and input employee details. The registration process typically takes about a week or up to 5 working days.
Once you’ve successfully registered as an employer, obtaining your PAYE Reference Number can take up to 15 working days. Generally, you’ll receive this number within 5 working days, and you’ll find it in your PAYE Income Tax history on your HMRC Online Services account.
Timeframe for Receiving a PAYE Reference Number
Having registered as an employer with HMRC, you’re now keenly awaiting your PAYE Reference Number. How long should you expect to wait? Generally, employers receive their PAYE Reference Number within five working days. However, in some cases, the process may take up to a month. Unfortunately, there is no way to expedite this process, and employers cannot register more than 2 months before they start paying people.
Several factors could contribute to a delay in the issuance of a PAYE Reference Number. These include the necessity to register a PAYE scheme at least 28 days prior to the first pay day, as well as using an incorrect reference for payments.
Welcome Pack and Correspondence
Once successfully registered as an employer with HMRC, a welcome pack will be sent to you. This pack is a comprehensive resource containing crucial information such as your PAYE Reference Number. If you misplace the physical copy, don’t panic; you can access the Welcome Pack digitally.
In addition to the Welcome Pack, your PAYE Reference Number can also be found in letters and emails related to PAYE from HMRC. It’s a unique alphanumeric combination and includes a three-digit code representing the tax office responsible for the employer. While there’s no uniform location for this number on all types of correspondence, it’s crucial to locate it as it serves as the primary identifier for all official communications with HMRC concerning payroll taxes and employee deductions.
Curious about tax evasion vs tax avoidance? If so, check out our article by clicking the link!
When Employers Need Their PAYE Reference Number
Having grasped what a PAYE Reference Number signifies and the procurement process, recognizing when you’ll require it is of equal importance. There are a few key situations where your PAYE Reference Number is required. For instance, you’ll need to provide it when completing your end-of-year PAYE returns to fulfill statutory reporting obligations and to claim tax relief on employment expenses.
Employees may also request your PAYE Reference Number for personal tax-related matters, such as claiming tax credits or managing student loans. Moreover, you will need your PAYE Reference Number to acquire and administer employers’ liability insurance, a crucial requirement for adhering to legal mandates.
Annual PAYE Returns
Your PAYE Reference Number assumes an indispensable role in satisfying your statutory reporting obligations. It is a critical requirement for the submission of annual PAYE returns. This unique identifier ensures that the reports are accurately attributed to the correct employer. Failure to provide this number may result in the rejection of the return and potential fines and penalties for non-compliance.
The annual PAYE return encompasses the year-end obligations that employers must fulfill. These include:
Reporting of expenses and benefits
Submitting the final Full Payment Submission (FPS) to HMRC
Organizing documentation and records for the upcoming tax year.
To submit an annual PAYE return, you’ll need to use your payroll software to report to HMRC on the previous tax year and provide end-of-year reports to your employees. Providing the correct PAYE Reference Number in this process is crucial to avoid late or non-filing penalties, specified charges, and potential for inaccurate reporting.
Employee Requests
Occasionally, your employees might ask for your PAYE Reference Number. For instance, they might need it when seeking tax credits or Universal Credit, or when applying for student loans.
Employees can obtain the PAYE Reference Number through various methods, such as checking their PAYE Income Tax history, reviewing HMRC communications, or locating it on their P45s or P60s. The inclusion of the PAYE Reference Number is essential in the student loan application process and is typically necessary for the verification of employment details.
Insurance Purposes
In the realm of insurance, your PAYE Reference Number or Employer Reference Number (ERN) assumes significance. You’ll need this number to acquire and administer employers’ liability insurance, which is vital for complying with legal requirements.
The ERN plays a key role for the Employers’ Liability Tracing Office (ELTO) in maintaining an updated database of employers’ liability insurance data. This ensures the identification of insurers over time, which is especially important in cases where an employer does not possess an ERN at the time of purchasing insurance.
The ELTO requires enquirer/claimant information for its database updates, and retains this information for a duration of 2 years from the date of the pertinent enquiry.
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Locating a Lost or Misplaced PAYE Reference Number
Misplaced your PAYE Reference Number or can’t recall it? Don’t worry. There are several ways you can locate this number. Start by reviewing your correspondences such as letters or emails from HMRC related to PAYE. These communications often include the PAYE Reference Number.
In addition to HMRC communications, your PAYE Reference Number is typically included in official tax documents such as P45s, P60s for previous or current employees, and in the welcome pack provided by HMRC after registering as an employer. If you’re still unable to locate your PAYE Reference Number, you can contact HMRC using their online form, webchat, the Employer Helpline by phone, or through postal mail.
When reaching out to HMRC, it’s advisable to have the first part of the reference, composed of three digits indicating the tax office responsible.
Checking Payslips and Tax Forms
Your PAYE Reference Number is typically found on:
a payslip as a distinct alphanumeric code allocated to your business by HMRC upon its registration as an employer
inquiries regarding a P45 form
the P60 form, which serves as an annual statement
Contacting HMRC
If you’re unable to locate your PAYE Reference Number on payslips or tax forms, you can request it directly from HMRC. To do this, you’ll need to:
Register as an employer using the PAYE Online for employers service available on HMRC’s website.
During registration, provide details such as your name, address, business start date, and Accounts Office reference.
Once registered, your PAYE Reference Number and Accounts Office reference will be included in a letter from HMRC confirming your registration.
If you prefer to make the request over the phone, the designated contact number for HMRC for PAYE-related inquiries is 0300 200 3200. For international callers, the number is +44 151 268 0558. HMRC typically provides a response to a request for a PAYE Reference Number within 7 days.
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PAYE Reference Number Exemptions and Exceptions
A PAYE Reference Number isn’t mandatory for all businesses. Businesses are exempt from needing a PAYE Reference Number if:
They have no employees
All employees receive pay below a certain threshold
The employers are exempt from online filing and do not operate a PAYE scheme.
Moreover, employers must register for PAYE and acquire a PAYE Reference Number if they remunerate at least one employee with £123 per week (£533 per month) or more. There are exceptions for businesses located outside the UK, especially if they employ individuals working abroad, as they may need to seek exemption in the respective country.
A business can bypass the need for a PAYE Reference Number by utilizing their accounts office reference number when making payments and contacting HMRC about payments, and if they do not have a requirement to claim tax relief on employment expenses via a form P87.
Non-PAYE Schemes and Employees
Some employment scenarios do not necessitate a PAYE Reference Number. These include:
Self-employment
Agency work
Employees paid under the Lower Earnings Limit
Directors receiving money for directorial duties
Self-employed workers
In these cases, Non-PAYE schemes may apply, exempting them from traditional PAYE withholding and reporting.
For instance, agency workers are not initially part of a PAYE scheme. However, after working in the same job for 12 weeks, they are entitled to equal treatment as if they had been directly recruited, which includes PAYE withholding for taxes.
Low Earnings and Tax Thresholds
Employees with low earnings or those who earn below the tax threshold are not mandated to have a PAYE Reference Number. The current tax threshold for employees in the United Kingdom is £12,570. The Lower Earning Limit for employees is £123.
If an employee’s earnings fall below the Lower Earnings Limit, there is no obligation to implement a payroll scheme for them. Furthermore, if none of the employees:
are paid £123 or more per week
receive expenses and benefits
have additional employment
receive a pension
There is no necessity to register for PAYE.
Managing Multiple PAYE Reference Numbers
Businesses operating multiple PAYE schemes may possess more than one PAYE Reference Number. Each PAYE scheme is treated as a distinct employer by the Revenue. Therefore, if an employee transitions from one scheme to another, a specific form may be necessary. It’s also important to note that employers with multiple PAYE schemes can only claim the Employment Allowance from one scheme within a given year.
To manage multiple PAYE Reference Numbers, businesses can:
Establish two separate companies in their software system and assign them the same scheme reference number.
Assign different employee numbers to the employees to prevent any confusion.
Keep a comprehensive record of these various numbers throughout the business structure.
Businesses with multiple locations managing different PAYE schemes across multiple locations should ensure that a unique Employer Reference Number (ERN) is assigned for each scheme.
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Conclusion
In conclusion, understanding the PAYE Reference Number and how it functions is an integral part of managing a business in the UK. From registration with HMRC to managing multiple reference numbers, this unique identifier plays a crucial role in payroll management, tax returns, and employee deductions. While there may be exemptions and exceptions, it’s important to ensure you’re compliant with HMRC regulations to avoid potential penalties. With this comprehensive guide, we hope you now feel more confident about managing your PAYE Reference Number.
If you’re unsure about any aspect of your taxes or need assistance with financial tax planning, consulting tax advisors at Sleek will save you time, money, and potential headaches. At Sleek, we provide accounting services to aid you with an efficient and seamless tax process.
FAQs
You can find your PAYE reference number on letters or emails from HMRC about PAYE, as well as on your P45s or P60s. Make sure to keep hold of it as you’ll need it regularly throughout the tax year.
You can find your tax reference number, also known as your UTR number, in your “welcome to Self Assessment” letter, previous self-assessment tax returns, reminders of payment, notice to file a tax return, statement of account, and on the HMRC app.
The last 4 digits of the PAYE reference number indicate the year and month being paid.
Yes, the PAYE reference and the tax code are not the same. The PAYE reference is a unique identifier for an employer’s payroll scheme, while the tax code determines the amount of income tax an employee needs to pay.
You can expect to receive your PAYE Reference Number within 15 working days after registering as an employer with HMRC, but typically it is dispatched within 5 working days.
