Taking the PAYE plunge
If you have reached the stage of needing to setup a payroll system and the idea of running PAYE fills you with dread, or if you are worried that you just don’t know enough to get things right, our simple check list will help you realise it’s not as daunting as you may think…
1. Register as an employer with HMRC
First, confirm whether you need to register as an employer. Typically you will need to do so if you are about to hire your first employee or use subcontractors for construction work. You will also need to register as an employer if you’ve set up a limited company and plan to pay yourself wages as a director.
To register as an employer, use the form on HMRC’s website: https://www.gov.uk/register-employer.
When you become an employer for the first time, you will also need to understand what your legal obligations are to your employees. As an employer, the tax and employment responsibilities you have for your staff will depend on the type of contract you give them and their employment status. HMRC have produced a checklist for first time employers which we highly recommend that you read. It includes things such as purchasing employers’ liability insurance and checking whether you need to automatically enrol your staff into a workplace pension scheme.
If you need help with employment contracts, carrying out legal right to work checks or understanding your responsibilities as an employer, then our friendly HR team are on hand to help. We’ve also written a blog on HR for start ups & small businesses.
2. Register for PAYE
Once you have registered with HMRC as an employer and you have received your letter from HMRC confirming your registration, you’ll need to register online to pay tax and national insurance. This is called PAYE or Pay As You Earn.
At this point you can also choose to get alerts from HMRC – this is a really handy tool and we highly recommend it! The alerts will tell you when deadlines are coming up, remind you when to send payments and reports, and give you notice of new tax codes for your employees.
3. Collect employee details
Take time to ensure you get all the correct details from your new employee. You will need: start date, full name, national insurance number, date of birth, home address and confirmation of whether they have other jobs or a student loan.
HMRC have made collecting this information really easy as you can just ask your new employee to fill in the online HMRC new starter form. The employee completes it online, prints it out and then signs it before giving it to you with all the information you need.
You should also be aware of your legal obligations when collecting and processing personal data. Under the Data Protection Act (DPA) individuals and organisations that process personal information need to register with the Information Commissioner’s Office (ICO), unless they are exempt. To find out whether you need to register you can complete the ICO’s registration self-assessment. To find out more about the DPA, read our blog The Data Protection Act: what you need to know.
Once you have collected the required information, you then need to keep and maintain accurate records of what you pay your employees (including salary, bonuses, expenses, deductions etc). The HMRC website details what records you need to keep and for how long (3 years from the end of the tax year to which they relate).
4. Use payroll software
A cloud-based payroll system will automate the whole process for you, saving you valuable time and preventing worry by taking care of things like NI and tax calculations, your employment allowance (if you are entitled to one), automatically creating monthly RTI (Real Time Information) reports to submit to HMRC, generating payslips for employees, keeping up with legislation and providing information for end of year tax returns.
Sage, QuickBooks and Xero all offer cloud-based accountancy software packages that include integrated payroll systems with support. If you use one of these systems then it will make it easier for you when Making Tax Digital (MTD) comes into effect. MTD is the government’s vision for making all tax reporting to HMRC digital and more frequent (including VAT and Corporation Tax returns). Sage, QuickBooks and Xero are already planning and developing their systems to ensure their customers’ transition to the new digital tax system is a smooth one.
5. Consider the benefits of a payroll service
If, having read through the above, the idea of tackling it all by yourself is still too daunting – don’t be put off. Here at Business Clan, our payroll team takes the headache out of being an employer.
In addition to offering a full accountancy, bookkeeping and payroll service, we also offer support and training to help you get your payroll system up and running, and ad-hoc and ongoing HR support. Our friendly and qualified experts will be able to save you time whilst also helping you to grow your business successfully.