As a business owner (sole trader, partnership or Limited Company) you may need to set up a PAYE scheme when you start to take employees on.
[Please note I am not providing any guidance on employee matters here such as contracts, terms etc. that is not something I can advise on. You would need to speak to a HR professional in this instance.]
PAYE scheme – When to register for PAYE
You do not need to register for PAYE if none of your employees are paid £123 or more a week, get expenses and benefits, have another job or get a pension. However, you must still keep records of the employee details (name, date of birth, address, NIC number), how much you have paid them and when and also things like holidays taken. These have to be kept for 3 years following the end of the tax year to which they relate.
How to register for PAYE:
If you need to set up a scheme, it can be done online here:
Register as an employer – GOV.UK (www.gov.uk)
When you register to operate a payroll system you are responsible for calculating the statutory deductions to be taken from new employees’ wages, the amount that you have to pay on behalf of those employees and the amounts for the employees’ pension scheme.
In addition, you’ll be responsible for all payroll submissions to HMRC. You have to adhere to various deadlines, or else, you will be fined.
After registering for the PAYE system online you will receive a PAYE reference and an Accounts Office Reference in the post to your business’ registered address.
If you are using payroll software to run payroll yourself, you can still run your payroll and pay your staff before registering to operate the payroll, however, since you do not have the payroll reference numbers do not submit the payroll filing.
Therefore, you can pay your staff before registering to operate the payroll. However, as soon as you receive the PAYE reference and an Accounts Office Reference, report late filing on the FPS. Not reporting it may lead to fines or penalties.
PAYE scheme – What software should I use?
There are lots of different payroll software providers out there, you may wish to use one which integrates with your existing accounting software. If you have a lot of employees then there are some which make it quicker and easier. However there is obviously a cost to this.
HMRC do offer free PAYE software: Download HMRC’s Basic PAYE Tools – GOV.UK (www.gov.uk)
This is for businesses with up to 10 employees, the only downside is you would have to internally generate payslips as these are not provided with the software.
What are Full Payment Submissions (FPS)?
Employers need to report employee payment information to HMRC before or on each payday using a Full Payment Submission (FPS). The FPS tells HMRC about the payments you have made to your employees, as well as the details of any deductions, such as for tax or NI.
Each FPS should include:
- the details of employees that you’ve paid in that pay period (so if someone hasn’t been paid, don’t include them in the FPS)
- information about employee pay and deductions
- your PAYE and Accounts Office references, which HMRC will have sent when you registered as an employer
- employer information
- National Insurance information
Use the same information and payroll ID for employees each time, and these should match what you have already reported to the HMRC. This ensures that the correct record is traced to avoid any errors.
You should also include extra information in your FPS about any new employees or leavers, or if you start to paying an employee a workplace pension.
Although a FPS is submitted every time a payment is made, the final FPS of the tax year will include a declaration that it is the final payment of the year.
When should I send an Employer Payment Summary?
An Employer Payment Summary (EPS) is another type of RTI submission.
- You can submit an EPS as well as a FPS. For example, if you reclaim some types of statutory pay, such as Statutory Maternity Pay (SMP), or CIS deductions as a limited company. If this is the case, you’ll need to send the EPS by the 19th of the following tax month for HMRC to reduce what you owe from your FPS.
- You can submit an EPS instead of a FPS if you haven’t paid any employees in that tax month. This tells HMRC that no payments have been made for that period (so that it doesn’t just look like you forgot to submit a FPS).
What information do I need to keep as an employer:
This is HMRC’s official list of records which as an employer, it is your responsibility to maintain them.
These records need to be kept for three years following the end of the tax year to which they relate:
- What you pay your employees and the deductions you make
- Reports you make to HM Revenue and Customs (HMRC)
- Payments you make to HMRC
- Employee leave and sickness absences
- Tax code notices
- Taxable expenses or benefits
- Payroll Giving Scheme documents, including the agency contract and employee authorisation forms
What do I need to do as an employer regarding the operation of PAYE:
As an employer operating PAYE as part of your payroll, you need to complete certain tasks during each tax month. Tax years run from the 6th of one month to the 5th of the next.
You must tell HMRC if you’ve not paid any employees in a tax month.
Every time you pay your employees, you will need to complete the following five steps.
This is HMRC’s official list:
- Record their pay– include their salary or wages and any other pay
- Calculate deductions from their pay, like tax and National Insurance
- Calculate the employer’s National Insurance contribution that you’ll need to pay on their earnings above £175 a week
- Produce payslips for each employee (you can use different software if yours does not have this feature)
- Report their pay and deductions to HMRC in a Full Payment Submission (FPS)
This is a summary of compulsory PAYE deductions:
- Employee Income Tax deductions
- Class 1 and 1B National Insurance
- Class 1A National Insurance on termination awards and sporting testimonials
- Student Loan repayments
- Construction Industry Scheme (CIS) deductions
- Apprenticeship Levy payments
- Student and postgraduate loan repayments
- Compulsory child maintenance deductions
How to pay HMRC
When you set up a PAYE scheme you will have used a government gateway login and password, by logging into your account you can view what you owe to HMRC and make payments through this account. The amounts are due by 22nd of the month following the month of submission.
If you’re a small employer that expects to pay less than £1,500 a month, you can arrange to pay quarterly.
Alternatively you can also pay by following this link:
Pay employers’ PAYE: Overview – GOV.UK (www.gov.uk)
Pension auto enrolment
Employers have a duty to automatically enrol their eligible jobholders into an automatic enrolment scheme and to maintain active membership for those already enrolled.
Your employer must automatically enrol you into a pension scheme and make contributions to your pension if all of the following apply:
- you’re classed as a ‘worker’
- you’re aged between 22 and State Pension age
- you earn at least £10,000 per year
- you usually (‘ordinarily’) work in the UK
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.
It is important that employers comply with all the regulations.
If you would like further help, advice or guidance about setting up a PAYE scheme, I would love to have a chat with you. Just get in touch here.
As an accountancy firm, we can:
- Prepare accounts to help in completion of self-assessment tax returns;
- Produce financial statements for filing at Companies House and abbreviated accounts to ensure the minimum amount of your financial information is made public.
Accounts are prepared to agreed timescales and deadlines.
But we can do more than just report the history of what’s already happened…
- We can identify areas where we can assist in minimising your tax liability;
- Identify areas of the business that give you the most opportunity to make improvements;
- Use the accounts to help you measure where you are in meeting your goals and what actions you need to take.
- We take the time to explain your accounts to you so that you understand what is going on financially within your business, helping you to plan for the future.
