Do I need an Employer Reference Number (ERN)?

Most contractors love the flexibility and control over your working life that being self-employed gives you. However, it does involve a lot more responsibility than being an employee. While being an employee has a lot of downsides, it does have the advantage of having someone else do all of the administration and dealings with HMRC.

A good example of this is Employer Reference Numbers (ERNs) which are usually required by businesses that have employees. However, you might need one even as a limited company contractor.

If you’re feeling a bit baffled as to why you might need one, don’t worry. The Kingsbridge team has the lowdown on ERNs and whether or not you might need one.

What is an ERN?

An Employer Reference Number (ERN) is allocated to every single business that registers with HMRC. It’s main purpose is to identify you as an employer for the purposes of employee income tax and National Insurance contributions (NICs). It’s made up of a unique combination of numbers and letters and is used by the Treasury to identify any given company.

You may have seen it on payslips and P60s in the past, referred to as an ‘employer PAYE reference’.

Usually it will be in the format 123/A12345. The first three digits are a HMRC office number, and the second part is your business’s unique reference number. When you first register your business with HMRC, it will be provided in your employer’s welcome pack, and will also appear on much of your correspondence.

When will I need an ERN?

There are a few different circumstances when you will need your ERN. The main one will always be when you come to complete your end of year PAYE return. One of the most common (and easily avoidable) reasons for a tax return being rejected is a missing or invalid ERN, so have it to hand when completing your paperwork.

You will also need your ERN if you have an employee since they will need it when applying for things such as student loans and tax credits. Plus, you may need to include it on payslips. You may, of course, be thinking you don’t have any employees – that you don’t even employ your partner to carry out your administration.

However, remember that right to substitution clause in your contract? If you ever choose to activate it, you could well employ your substitute on a short term contract and, hey presto, you have an employee.

You will also need your ERN to hand when purchasing some business insurances – particularly employers’ liability cover. This is so your insurer can identify and prove where an employee has worked in the event of a claim – especially if the claim is made a significant amount of time after they have worked for you.

This is often the case in health and safety claims, where the consequences of health and safety issues can only be seen years later – for instance, the effects of working with asbestos or in coal mines.

Where can I find my ERN?

The best place to find your ERN is on the letter you received from HMRC confirming your registration with them. You should have kept this letter, so it’s always easy to refer back to. It will be clearly flagged on this letter and easy to see so we suggest keeping it on a pinboard in your office, or in a drawer, where it won’t go missing.

If you haven’t kept the letter, or it’s filed away, there are other places to find your ERN. If you’ve produced any payslips, P45 forms, or P60 forms, it will be printed somewhere on them. Remember, it may be referred to as an ‘employer PAYE reference’ instead of an ERN.

If you don’t have a record of your ERN anywhere, don’t ignore it as it may mean that you’re not registered as an employer. If this is the case, but you are employing someone or intend to do so in the future, then you need to register as an employer with HMRC as a matter of the utmost urgency.

When do I not need my ERN?

There are some cases when you won’t need to register under PAYE and as such won’t have an ERN assigned to your business. You don’t have to register for PAYE if:

• Your employees each earn less than £120 per week
• Your employees are actually unpaid volunteers
• Your employees are paid as self-employed
• Your employees are paid via an agency
• Your business is based in the Channel Islands or on the Isle of Man

As an employer, you will also need employers’ liability cover, which Kingsbridge offers as part of our contractor insurance package along with professional indemnity, public liability, directors’ and officers’ liability and occupational personal accident cover. Contact our expert team for more information, or get a quote online today.