What is an Employer Reference Number, and do I need an ERN?

An employer reference number, also referred to as ERN or a PAYE reference, is important to keep hold of once you’ve received your employer welcome pack from HMRC.

Here, exclusively for ContractorUK, let’s explore what an ERN is, if you need an ERN as a contractor, and where you can find yours, writes Rachael Johnston at The Accountancy Partnership.  

What is an Employer Reference Number?

An Employer Reference Number is the number you’ll get when you register with HMRC as an employer.

It’s uniquely yours and is split into two parts. First is a three-digit HMRC office number, followed by your own personal reference number. It usually looks something like 123/AB54321 or 123/A54321.

The purpose of this is to identify both your business and your PAYE scheme to HMRC. Like a UTR number, you’ll use your ERN as a tax reference when you submit your PAYE tax returns (without it your PAYE return will be rejected).

It’s also used for employee tax credits, employee payslips, and employer liability insurance.

How do I register with HMRC as an employer?

You’ll need to register as an employer if you’ve recently employed someone, hired a subcontractor, or, for example, started your own limited company by yourself (as you’ll pay yourself a salary as a company director).

You can register as an employer online, and once you’ve done this, you’ll receive your ERN number. It’s important to note you’ll need to register before the first payday in order to pay your employees using your ERN (or PAYE reference).  

We know how quickly these things come around, so if you are late, and need to pay someone, you can send a late full payment submission to HMRC.

Where can I find my ERN number?

You should find your ERN number in your ‘employer welcome pack’ once you’ve registered with HMRC. Your ERN will also make an appearance on any payslips, P60s, and P11Ds that have been issued to both current and former employees.

Are there any exceptions?

There are some exceptions where you employ someone and don’t need a PAYE reference number. This includes:

• Your business is based in either the Channel Islands or the Isle of Man.
• Your employees are self-employed or paid through an agency.
• Your employee or employees earn more than the ‘lower-earning limit’ (this is currently £123 a week).
• They are an unpaid volunteer.

This doesn’t apply to construction subcontractors, as they need tax deductions from their payslips as per the Construction Industry Scheme.

Before you hire a subcontractor, you must check if the person should be an employee, otherwise, penalties may be issued.

When do I need to use my ERN number?

You’ll need your ERN number to hand when you complete your end-of-year PAYE returns.

This is important because if you input the incorrect number, your returns will be rejected.

As well as this, your employees may ask to have your ERN when they apply for things such as Universal Credit or student loans.

It’s also key to have your ERN handy when you apply for employer liability insurance. This insurance is important to have in order to cover both yourself and your business.

Furthermore, it is a legal requirement for employers to have Employer Liability Insurance unless they are the sole employee of the company (employing themselves as the only employee), or only employ family members.

So, if you have staff and you are not registered as an employer, ensure you get your ERN today!