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What you need to know and why you should leave it to an accountant.
Table of Contents
What is Payroll?
Payroll is essential in any business in which people are employed to work and provides the following information to employers.
- How much your employees need to be paid
- How much tax and NIC you need to deduct from an employee’s gross pay
- What employee pay details to report to HMRC
- How much tax to pay HMRC
How do I set up my company's payroll?
In order to operate a company payroll you will first need to register as an employer with HMRC, this needs to be done before the first payday. It can take up to 5 working days to get your employer PAYE reference number and accounts office reference number so this must be done in good time. You cannot register more than 2 months before you start paying employees.
Venn Accounts can set up your company’s payroll on your behalf, simply contact us.
What are the reporting requirements?
Your payroll can be run on a weekly or monthly basis, or a combination of the two, this is done via payroll software. On or before your employees pay day each company needs to ‘run the payroll’ and this does the following:
- Records each employees’ pay, including their salary or wages and any other pay.
- Calculates deductions from their pay, like tax and National Insurance.
- Calculates the employer’s National Insurance contribution that you’ll need to pay on their earnings above £166 a week.
- Produces 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).
What is a payslip?
Payslips must be given or made available to all employees on or before their payday and must show the following information:
- pay before any deductions (‘gross’ wages)
- deductions like tax and National Insurance
- pay after deductions (‘net’ wages)
- the number of hours worked, if the pay varies depending on time worked
Payslips can also include information like your employee’s National Insurance number and tax code, their rate of pay, and the total amount of pay and deductions so far in the tax year.
What are the penalties?
Due to the frequency of reporting, unless you are well versed in payroll getting an accountant to run your payroll for you is a wise decision.
Penalties for late filings start at £100 per month for employers with 1-9 employees and increase to £400 per month for the largest employers.
Penalties for late payment are based on the amount that is due and starts at 1% and rises to 4% depended on the number of times the employer defaults in the tax year.
Failure to settle any payment due within a 6 month period will lead to a further penalty of 5%.