As an employer, you need to register with HM Revenue and Customs (HMRC) to tell them that you employ people. If you run a limited company this means that even if you are the only person in the company then you still have to register as you are effectively employing yourself.
The system that HRMC uses to collect taxes (income tax and national insurance) from your employees is called Pay As You Earn (PAYE). When you register with HRMC you will need to set up PAYE unless none of your employees earns more than £116 per week or receives any benefits, a pension or has another job.
Setting up PAYE means that you are responsible for paying their monthly wages as well as things like maternity and sick pay. You are also responsible for making any deductions for income tax and national insurance before paying monthly salaries. You will also need to consider whether you need to deduct things like pension contributions.
Having good payroll practices in place will help you keep track of your monthly payments to your employees. It will save you time having to deal with mistakes to do with pay or your staff chasing you for their wages. In practice it means:
As an employer, you are responsible for completing certain payroll tasks each month. To do this you have a choice of running payroll yourself using payroll software or outsourcing it to your accountant or payroll provider. Whichever option you choose you it’s payroll’s job to:
Your payroll software or payroll provider will then create and send a Full Payment Submission (FPS) to HMRC summarising all the payments and deductions. In the following month you will be able to:
As an employer, you are responsible for making any income tax and national insurance deductions from your employee’s wages. There can be penalties if you pay your staff and do not send an FPS to HMRC or if it is late. However, HMRC wants to encourage employers to keep their records up to date rather than penalise them for not doing so. So, first of all, they will send you an alert if payments are late or anything has been wrongly reported. HMRC have a vested interest in you getting your house in order and will only fine you if you fail to do so.
Your decision as to whether to keep payroll in-house using payroll software or outsource to your accountant or payroll provider depends upon how many people you employ, how complex their circumstances are and how comfortable you are at either keeping on top of payroll or handing it over for somebody else to deal with.
At AK Tax, the majority of our new clients come to us because they have been recommended by an existing client. If you are unsure about trusting your payroll to an external provider we would wholeheartedly recommend asking people you know for recommendations.
One of the biggest demotivators for any employee is likely to be either receiving late pay or having mistakes with their pay or benefits. Payroll software will help to reduce the majority of errors but somebody needs to be responsible for inputting data and for keeping on top of your employee benefits and tax codes. However, whether you outsource or not you are still ultimately responsible for your own payroll.
Payroll software packages are designed to calculate income tax and national insurance deductions as well as things like statutory sick pay, student loans and pension payments. Which means that the amount of input required is kept to a bare minimum. However, it still takes a significant amount of time to process payroll in-house. Attention to detail is a must and with larger workforces at different levels and circumstances, checking everything to avoid errors takes time. This is valuable time that could be spent growing sales or investing in other areas of your business. How much money you save depends on the value of your own time. If making a few customer calls has the potential to lead to £1000’s in new business, then clearly your time would be better spent on those calls.
New data laws relating to how UK businesses store and handle personal data were introduced in 2018. These laws, called General Data Protection Regulation(GDPR), mean that businesses need to comply with various practices with regards to employees access to the information you hold, and their right to correct and erase it. Any failure to comply with these regulations can lead to heavy fines and reputational damage.
Payroll specialists will be aware of what’s required to ensure that you are compliant with GDPR and make your data secure. While outsourcing your payroll does not absolve you of responsibility, it can help reduce the risks involved with handling employee data.
Payroll specialists are trained to know all about the various tax codes, government legislation and benefits regimes. Outsourcing saves you time reading up on and understanding everything that you need to stay on top of. Accountancy firms that offer payroll services also offer other services that will be able to help your business grow. Services such as producing annual accounts and personal tax returns also require specialist knowledge. Most firms offer packages suited to different sizes and types of business which means that it makes sense to keep all of your accounting requirements with one firm. The more knowledge that your accountant has about your business, the greater their potential for advising you about opportunities and risks to your business.
Making Tax Digital (MTD) is a government initiative designed to simplify the way individuals and business owners manage their taxes. It will provide everyone with a digital tax account, making the way HMRC works more effective, efficient and easier when it comes to a compliance with tax legislation.
In its bid to modernise the tax system, the government introduced Making Tax Digital (MTD) in the March Budget of 2015. While MTD brings with it a number of benefits, the radical change in reporting earnings encountered a bumpy start and an even bumpier road towards implementation.