Payroll and PAYE

As an employer, you need to operate PAYE as part of your payroll.  

PAYE is the system that HM Revenue and Customs (HMRC) use to collect Income Tax and National Insurance from employment.  

Payroll is recording information about employees, calculating workers’ pay and deductions, reporting payroll data to HMRC, calculating out how much tax the employer needs to pay and working out statutory pay, for example, sick pay or maternity/paternity pay. 

Choose how to run payroll 

You can operate PAYE by either: 

• paying a payroll provider to do it for you 
• doing it yourself using payroll software 

Paying a payroll provider 

If you decide to pay a payroll provider to run your payroll, you’ll need to consider how much support you’ll need. 

The employer is responsible for collecting and keeping records of employees’ details. These are needed for your payroll provider to run payroll for you. 

Depending on your requirements, some payroll providers can offer you more support if you need it. For example, providing payslips, keeping employee records, and making payments to HMRC. 

Whether paying someone else to do payroll, it is the employer who is legally responsible for completing all PAYE tasks. 

Running payroll yourself 

If you decide to run payroll yourself, tasks need completing before you can pay your employees for the first time. When and how often to pay your employees is your choice as an employer. 

1. To get a login for PAYE Online you need to register as an employer with HMRC.  

2. Choose the payroll software that can provide all that you require from recording employee details, calculating pay and deductions, and reporting to HMRC. 

3. Collect and keep records of: 

• • what you pay employees and any deductions made; 
  • payments made to HMRC; 
  • employee leave and sickness absences; 
  • any tax code notices; 
  • expenses or benefits that are taxable; 
  • when a new employee joins; 
  • any changed circumstances for an employee – they reach State Pension age or become a director. 

4. Tell HMRC about your employees: 

• • Use their P45 for tax code; 
  • Check on any student loan payable; 
  • Register the employee using a Full Payment Submission (FPS). 

5. On or before the first payday, record pay, make deductions and report this to HMRC 

6. Pay HMRC the tax and National Insurance owed by the 22^nd of the month. The amount required will be from the FPS submitted the previous tax month. For a small employer expecting to pay less than £1,500 a month, the payment may be quarterly. 

Other things to report 

As part of your regular reports, an annual report needs to be run at the end of the tax year and sent to HMRC. 

Include in the report: 

• The final payroll report of the year; 
• Update on employee payroll records from 6 April; 
• Provide a P60 to employees by 31 May; 
• Report employee and benefits to HMRC by 6 July. 

Want us to help? 

If all this sounds too daunting or you just don’t have the time, get in touch to discuss your requirements.