Payroll — basic procedures

New Employer

In order to set up a Pay As You Earn (PAYE) scheme with HMRC it is nec­es­sary to con­tact the New Employ­er’s Helpline on 0300 200 3211 or reg­is­ter online via the GOV.UK web­site.

As an employ­er you will be respon­si­ble for oper­at­ing PAYE and cal­cu­lat­ing Nation­al Insur­ance Con­tri­bu­tions (NICs). There are also cer­tain statu­to­ry pay­ments you may have to make from time to time which you need to be aware of. These include:

• statu­to­ry sick pay (SSP)
• statu­to­ry mater­ni­ty pay (SMP) and
• ordi­nary statu­to­ry pater­ni­ty pay (OSPP)
• shared parental pay (ShPP).

A vast amount of infor­ma­tion is avail­able on the GOV.UK web­site detail­ing the oper­a­tion of PAYE togeth­er with online cal­cu­la­tors these can be accessed as part of the HMRC Basic PAYE tools.

If request­ed HMRC will send you sev­er­al book­lets and tables to enable you to make the rel­e­vant deduc­tions and pay­ments to your employ­ees. How­ev­er the major­i­ty of employ­ers use the HMRC Basic PAYE tools or equiv­a­lent soft­ware.

Real Time Information reporting

Employ­ers, or their agents, are gen­er­al­ly required to make reg­u­lar online pay­roll sub­mis­sions for each pay peri­od dur­ing the year detail­ing pay­ments and deduc­tions made from employ­ees on or before the date they are paid to the employ­ees.

More detailed guid­ance and infor­ma­tion on oper­at­ing your pay­roll under Real Time Infor­ma­tion can be found here or in our Pay­roll Real Time Infor­ma­tion fact­sheet.

What Tax Do I Have to Deduct?

By using the cal­cu­la­tors pro­vid­ed on HMRC’s web­site or equiv­a­lent soft­ware, you should be able to cal­cu­late the tax and NICs due in respect of your employ­ees.

The tax due for a par­tic­u­lar employ­ee is cal­cu­lat­ed by ref­er­ence to their gross pay with a deduc­tion for their tax free pay which reflects their par­tic­u­lar cir­cum­stances (using their cod­ing notice and the pay date). The remain­der of the pay is sub­ject to tax and this is cal­cu­lat­ed using the Basic PAYE tools or soft­ware.

Tax is gen­er­al­ly cal­cu­lat­ed on a cumu­la­tive basis, look­ing at the individual’s cir­cum­stances for the tax year to date.

What about NICs?

NICs are payable by the employ­ee and the employ­er on the employee’s gross pay for a par­tic­u­lar tax week or month and are cal­cu­lat­ed on a non cumu­la­tive basis. The NICs can be cal­cu­lat­ed using the HMRC Basic PAYE tools or equiv­a­lent soft­ware.

When do the tax and NICs have to be paid to HMRC?

The tax and NICs should be paid to HMRC by the 19th of the month fol­low­ing the pay­ment. Tax months run from the 6th to the 5th of the month, so if an employ­ee was paid on 25 July (tax month being 6 July to 5 August) the tax and NI would need to be paid over to HMRC by 19th August.

Any employ­er can pay elec­tron­i­cal­ly, if they wish, tak­ing advan­tage of the cleared elec­tron­ic pay­ment date of 22nd as opposed to the usu­al 19th.

Employ­ers whose aver­age month­ly pay­ments are less than £1,500 are allowed to pay quar­ter­ly rather than month­ly.

Large employ­ers, with more than 250 employ­ees, must pay tax and oth­er deduc­tions elec­tron­i­cal­ly.

Forms You Will Need to Complete

You will need to com­plete the fol­low­ing forms or main­tain the equiv­a­lent dig­i­tal records:

P11 Deduc­tions work­ing sheet

This form (or a com­put­er gen­er­at­ed equiv­a­lent) must be main­tained for each employ­ee. It details their pay and deduc­tions for each week or month of the tax year.

P60 End of year sum­ma­ry

This form has to be com­plet­ed for and giv­en to all employ­ees employed in a tax year.

P45 Details of employ­ee leav­ing

This form needs to be giv­en to any employ­ee who leaves and details the earn­ings and tax paid so far in the tax year. New employ­ees should let you have the form from their pre­vi­ous employ­er.

Starter Check­list

When a new employ­ee starts you will need to advise HMRC so that you can pay them under RTI. Some of the nec­es­sary infor­ma­tion may be obtained from the P45 if the employ­ee has one from a pre­vi­ous job.

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.

Automatic enrolment pensions

Auto­mat­ic enrol­ment places duties on employ­ers to auto­mat­i­cal­ly enrol ‘work­ers’ into a work based pen­sion scheme from a spec­i­fied ‘stag­ing date’. The main duties are:

• assess the types of work­ers in the busi­ness
• pro­vide a qual­i­fy­ing auto­mat­ic enrol­ment pen­sion scheme for the rel­e­vant work­ers
• write to most of their work­ers explain­ing what auto­mat­ic enrol­ment into a work­place pen­sion means for them
• auto­mat­i­cal­ly enrol all ‘eli­gi­ble job­hold­ers’ into the scheme and pay employ­er con­tri­bu­tions
• com­plete the dec­la­ra­tion of com­pli­ance and keep records.

More infor­ma­tion on Pen­sions — Auto­mat­ic Enrol­ment can be found in the fact­sheet.