You may have become a boss for the first time and will be looking forward to delegating and sharing some responsibilities, but welcome to a new world of payroll accounting.
Becoming an employer is an exciting time, but also brings a whole load of administration and figures to report to HMRC each month.
We explain why you need to register for payroll and what you need to report.
As soon as you start employing staff you need to register as an employer with HMRC.
This is because the taxman will want to know you are paying the right amount of national insurance and that staff are paying the right tax on any benefits they receive.
Even if you are just a company director employing yourself, the taxman will still want to know how much you are getting paid.
Once you take on your first employee you must register as an employer before the first payday.
It can take up to two weeks for this to go through.
Every time you pay your employees, you need to report to HMRC their pay, any tax deductions, and your national insurance contributions.
You will also need to produce payslips for each employee.
It’s a legal requirement to have a trackable payroll system recording all payments you make to staff.
This needs to be done monthly using HMRC’s real time information system.
As an employer you normally have to operate a PAYE (Pay As You Earn) scheme as part of your payroll. PAYE is HMRC’s system to collect charges such as income tax, national insurance, pension contributions and student loan repayments.
Each month you will get a PAYE bill to be paid each month based on what you owe HMRC. If you are a small employer expecting under £1,500 a month you can usually pay quarterly instead.
You are 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.
A payroll record must include what you pay your employees and any deductions you make, such as for tax. You also need to show any taxable expense and benefits and records of any leave and sickness.
Records must be kept for three years from the end of the tax year they relate to. HMRC may check your records to make sure you’re paying the right amount of tax and if it is unsatisfied you could get a penalty of up to £3,000.
If you are late or pay the wrong amount then interest can be charged.
There is an exemption if you fail to pay the first time.
After that, interest of between 1 and 4 per cent can be added depending on how many defaults there are in a tax year.
This isn’t just something you can write in a list, there is dedicated payroll software that links into HMRC’s systems.
You can either get paid for or free software that lets you manage your own payroll.
Or you can pay for a professional, such as an accountant, to manage this for you.
You will still be responsible for providing accurate records but an accountant can help relieve the administrative burden.
Our accounts team will calculate employees’ tax and national insurance contributions and adjust these for sickness, paternity or maternity leave. We will send the final payroll calculations for your approval and then provide you with paper payslips to pass on to your staff or electronic versions which can be emailed directly to your employees.
As part of our payroll services, we’ll also calculate your employer’s national insurance contribution and prepare your monthly PAYE returns as well as producing P45 forms for employees when they leave. At the end of the year we will also produce a P60 for each employee showing all taxable income for the year.
We’ll also help you navigate the tricky topic of employees’ expenses and help you make sure these are treated correctly and as tax efficiently as possible.
If this sounds of interest, why not get in touch today.