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Paying your employees is more than just writing cheques

If you run a business and employ staff then you will have to complete payroll. Payroll is the term used to describe records and calculations for the pay and deductions of employees under HM Revenue and Customs PAYE (Pay As You Earn) system.

All businesses that have employees (Including Director Only Companies) will need to run a Payroll and submit RTI (Real Time Information) Returns to HMRC on or before each pay day. HMRC impose penalties starting at £100 per missed RTI return and any underpaid tax and NI due will also accrue interest.

Too busy? Here’s Payroll in 30 seconds.

  • You must manage holiday, statutory sick & maternity pay
  • Include student loan deductions
  • Submit your RTI (Real Time Info) Returns
  • Produce and process P45, P46, P60 etc.
  • Process & claim employment allowance
  • You can be fined for inaccurate/late submission
  • Almost all companies will need to outsource payroll

Introduction to PAYE

As an employer, you normally have to operate PAYE as part of your payroll. PAYE is HM Revenue and Customs system to collect Income Tax and National Insurance from employment.

You’re exempt from PAYE if none of your employees is paid £112 or more a week, gets expenses and benefits, has another job or gets a pension. However, you must keep  payroll records.

Payments and deductions

When paying your employees through payroll you also need to make deductions for  PAYE.

Payments to your employees

Payments  to your employees include their salary or wages, as well as things like any tips or bonuses, or statutory sick or maternity pay.

Deductions from their pay

From these payments, you’ll need to  deduct  tax and National Insurance for most employees. Other deductions you may need to make include student loan repayments or pension contributions

Reporting to and paying  HMRC

Reporting pay and deductions

If you run payroll yourself, you’ll need to  report  your employees’ payments and deductions to HMRC on or before each payday.

Your payroll software will work out how much tax and National Insurance you owe, including an employer’s National Insurance contribution on each employee’s earnings above £155 a week.

You’ll need to send another report to  claim any reduction  on what you owe HMRC, e.g. for statutory pay.

Paying  HMRC

You’ll be able to view what you owe HMRC, based on your reports. You then have to  pay them, usually every month.
If you’re a small employer that expects to pay less than £1,500 a month, you can arrange to pay quarterly – contact HMRC’s  payment enquiry helpline.

Other things to report

As part of your regular reports, you should tell HMRC when a new employee joins and if an employee’s circumstances change, e.g. they reach State Pension age or become a director.

You have to run annual reports at the end of the tax year – including telling HMRC about any expenses or benefits.

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We’ll answer any questions you have, or even better, we can take on your payroll for you so that you can get back to running your business.

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