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.
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 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.
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.
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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