Here is a brief outline of what you need to do to set up and run your payroll.
New Employer
To set up a Pay As You Earn (PAYE) scheme with HMRC, it is necessary to contact the New Employer’s Helpline on 0300 200 3211 or register online via the GOV.UK website.
As an employer, you will be responsible for operating PAYE and calculating National Insurance Contributions (NICs). There are also certain statutory payments you may have to make from time to time which you need to be aware of.
These include:
- statutory sick pay (SSP)
- statutory maternity pay (SMP)
- ordinary statutory paternity pay (OSPP)
- shared parental pay (ShPP).
A vast amount of information is available on the GOV.UK website detailing the operation of PAYE, together with online calculators these can be accessed as part of the HMRC Basic PAYE tools.
Real-Time Information reporting
Employers, or their agents, are generally required to make regular online payroll submissions for each pay period during the year detailing payments and deductions made from employees on or before the date they are paid to the employees.
Tax Deductions
By using the calculators provided on HMRC’s website or equivalent software, you should be able to calculate the tax and NICs due in respect of your employees.
The tax due for a particular employee is calculated by reference to their gross pay with a deduction for their tax-free pay which reflects their particular circumstances (using their coding notice and the pay date). The remainder of the pay is subject to tax and this is calculated using the Basic PAYE tools or software.
Tax is generally calculated on a cumulative basis, looking at the individual’s circumstances for the tax year to date.
NICs
NICs are payable by the employee and the employer on the employee’s gross pay for a particular tax week or month and are calculated on a non-cumulative basis (unless you are a Director). The NICs can be calculated using the HMRC Basic PAYE tools or equivalent software.
Paying Tax and NICs to HMRC
The tax and NICs should be paid electronically to HMRC by the 22nd of the month following the payment. Tax months run from the 6th to the 5th of the month, so if an employee were paid on 25 September (tax month being 6 September to 5 October) the tax and NI would need to be paid over to HMRC by 22 October.
Forms You Need to Issue
P60 End of year summary
This form has to be completed for and given to all employees employed in a tax year by 31 May following the tax year.
P45 Details of employee leaving
This form needs to be given to any employee who leaves and details the earnings and tax paid so far in the tax year. New employees should let you have the form from their previous employer if applicable.
Penalties
HMRC impose penalties on employers who fail to:
- make the online submissions on time
- pay the liabilities on time
- keep the necessary records
- operate PAYE or NI correctly
- make the correct statutory payments
- provide HMRC or the employees with the relevant forms on time.
Employers must comply with all the regulations.
Automatic enrolment pensions
Automatic enrolment places duties on employers to automatically enrol ‘workers’ into a work-based pension scheme from a specified ‘staging date’. The main duties are:
- assess the types of workers in the business
- provide a qualifying automatic enrolment pension scheme for the relevant workers
- write to most of their workers explaining what automatic enrolment into a workplace pension means for them
- automatically enrol all ‘eligible jobholders’ into the scheme and pay employer contributions
- complete the declaration of compliance and keep records.
Last updated: 17.11.2020
Whilst the information in this document is correct; you should always obtain individual advice from a qualified accountant.