PAYE stands for Pay As You Earn. It is the system for collecting tax from earnings or pensions throughout the tax year.
Employers normally have to operate PAYE as part of the company payroll. It’s HMRC’s way of collecting Income Tax and National Insurance from employment.
If none of your employees meet the following criteria then you do not need to register for PAYE:
- are paid £120 or more per week
- get expenses and benefits
- have another job
- get a pension
However, you will need to keep payroll records.
Payroll is the process of paying your company employees by calculating their salary or wages, making deductions for PAYE taxes and any employee benefit premiums, and then delivering payment on time. It can also include things like any tips or bonuses, or statutory sick or maternity pay.
You’ll need to deduct tax and NI (National Insurance) for most employees. You will also need to deduct other items from their gross pay such as repayments of a student loan or pension contributions.
Can I run payroll myself?
Yes, you can run payroll yourself although due to its complexities and time-consuming nature we advise using a payroll service through your accountant.
If you do decide to run payroll yourself, you’ll need to report your employees’ payments and deductions to HMRC on or before each payday. Use of a payroll software is also required.
“You must get payroll software that reports PAYE information online and in real time ( RTI ), unless you're exempt from online payroll reporting. You should also consider which other features you need. For example, some software will not let you: produce payslips.”
Accurate payroll is essential and the requirements can be demanding, which can be a strain on a business owners time.
You will need to complete certain tasks to pay your employees for the first time. It is your choice when and how often you pay your employees.
To setup PAYE and Payroll you will need to do the following:
Step 1: Register as an employer with HM Revenue and Customs (HMRC) and get a login for PAYE Online.
Step 2: Choose a payroll software to record employee’s details, calculate pay and deductions, and report these to HMRC. You’ll need to send another report to claim any reduction on what you owe HMRC, for example for statutory pay.
Step 3: Ensure you collect and keep all payment records.
Step 4: Tell HMRC about your employees.
Step 5: Record pay, make deductions and report to HMRC on or before the first payday.
Step 6: Pay HMRC the tax and National Insurance you owe, usually every month.
Tip. If you expect to pay less than £1,500 per month in payroll as a small employer, you can arrange with HRMC to pay quarterly instead.
As part of your regular reports, you must also tell HMRC; when a new employee starts at the company, if an employee’s circumstances change (they become a director or reach state pension age), and if there have been any expenses or benefits.
You will also need to run annual reports at the end of each tax year.
This all sounds quite a lot to manage, right?
Rather than taking up lots of your time and energy wading through paperwork, worrying you might have missed something important; use that time to focus on other areas of your business and outsource your payroll, P11Ds and management of your CIS scheme.
Our payroll service is tailored to the size and needs of your business and will guarantee that you are protected from continually changing Government legislation. We will also advise on opportunities to reduce your PAYE bill.
To find out more about how we can help you with setting up as an employer and all that goes with it, speak to us today.
Call 01322 555442, you’ll be glad you did.