Payroll and PAYE Guide for Employers

What is PAYE?

PAYE stands for Pay As You Earn. It is the system used to collect Income Tax and National Insurance from employees’ wages.

If you run payroll, you need to calculate pay, deduct tax and National Insurance, report payroll information to HMRC, provide payslips and pay HMRC what is owed.

HMRC says employers need to record pay, make deductions and report to HMRC on or before the first payday. Employers also need to pay HMRC the tax and National Insurance owed.

When does a business need payroll?

You may need payroll if you employ staff, pay directors through salary, pay employees above relevant thresholds, operate a PAYE scheme, provide benefits, or have workplace pension duties.

Even a limited company with one director may need payroll depending on how salary is paid.

What information is needed for employees?

For each employee, you normally need their full name, address, date of birth, National Insurance number, starter checklist or P45, tax code, pay rate, pay frequency, student loan information where relevant and pension details.

Accurate employee data is essential. Incorrect information can lead to wrong tax deductions, payroll corrections and employee queries.

RTI submissions

RTI means Real Time Information. Employers usually report payroll information to HMRC on or before each payday through a Full Payment Submission, known as FPS.

HMRC guidance confirms that if you run payroll yourself, you need to report employee payments and deductions to HMRC on or before each payday.

Late or incorrect RTI submissions can create compliance issues, so payroll should be processed carefully every pay period.

Payslips

Employees must receive payslips showing their pay and deductions. A payslip normally includes gross pay, tax deducted, employee National Insurance, pension deductions, other deductions, net pay and pay period details.

Clear payslips reduce confusion and help employees understand how their pay has been calculated.

Workplace pension duties

Many employers have workplace pension responsibilities. This can include assessing employees, enrolling eligible workers, deducting employee contributions, making employer contributions and submitting pension data.

Payroll and pension administration should work together. If pension details are not handled properly, the employer may fall behind on compliance duties.

Payroll records

Employers should keep payroll records showing employee pay, deductions, tax codes, National Insurance, statutory pay, pension contributions, payroll reports, HMRC submissions and payments made to HMRC.

Good records make it easier to resolve HMRC queries and prepare year-end payroll reports.

Common payroll mistakes

Common payroll mistakes include:

• using the wrong tax code
• missing starter or leaver details
• late RTI submissions
• incorrect National Insurance categories
• missed pension enrolment
• incorrect holiday pay
• late HMRC payments
• poor payroll reconciliation

Director payroll

Director payroll can be different from normal employee payroll. Directors may receive salary, dividends, expenses, benefits or company withdrawals. Each has different tax and accounting treatment.

A director’s salary should be considered alongside the company’s profits, National Insurance, Corporation Tax, dividends and personal tax position.

How DepoTax can help

DepoTax can help with PAYE registration, monthly payroll, weekly payroll, director payroll, payslips, RTI submissions, workplace pension administration, payroll reports, leavers, starters, P60s and HMRC payroll correspondence.