You have to account for the income tax and NICs payable by all employees who earn more than the weekly or monthly PAYE threshold.

For the year 2007/08, these thresholds are £100 and £435 respectively. For tax purposes, directors are treated as employees of the business.

For employees over the state pension age, you must still collect any income tax due, but not NICs if the worker has a certificate of age exemption or earner's non-liability.

Casual and part-time employees must also pay income tax and NICs through the payroll system. They will be exempt, however, if they work for you for less than a week during a pay period and are paid at a rate below the PAYE threshold; or if they are paid at a rate below the PAYE threshold during a pay period.

Even if a casual or part-time employee is exempt from tax and NIC deductions, you still need to record their name, address and the money paid to them on the payroll.

Self-employed freelance workers manage their own tax affairs. If, however, you offer work to a self-employed person but are not sure of their self-employed status, you must regard them as an employee and account for any tax or NICs due using an emergency code. You can then confirm with Her Majesty's Revenue & Customs (HMRC) that the worker is indeed self-employed.