When a company or a person plans to employ staff, it needs to register as an employer to HMRC. Registration should be done if someone is employing even him/herself i.e. as a sole director of a limited company. Registration must be done before the first payday. To get an employer PAYE reference number, one may have to wait for up to 15 working days. An employer can register a maximum of 2 months before starting to pay people. HMRC only deals with applications that are related to the current tax year.
PAYE stands for “Pay As You Earn”
As an employer, one should operate PAYE within its payroll system. It is a system of HMRC through which it collects National Insurance and income tax from employment. If none of the employees are paid £123 or more a week, get a pension, have another job, or get benefits and expenses, the employer does not have to register for PAYE. However, payroll records must be kept.
When employees are paid through payroll, it is necessary to deduct for PAYE. The payments to employees include wages or salary, maternity pay or statutory sick, and bonuses and tips. Tax and National Insurance will be deducted from these payments along with pension contributions or student loan repayment.
Employees will be paid through PAYE if they earn £123 or more a week (£6,396 a year or £533 per month). Self-employed workers are not needed to be paid through PAYE so it is important to distinguish between employee and self-employed as a company may also have to pay extra tax, penalties, etc if it gets the wrong employment status of worker. One will be considered as
- Employed if they work for the employer and he has not any risks associated with running a business
- Self-employed if the person runs his own business and is responsible for the failure and success of the business
The PAYE of temporary workers, if they fall under the employee’s category, will also be operated if they are paid directly.
OBLIGATIONS WHEN NEW EMPLOYEE JOINS:
When a new employee joins, the employer must inform HM Revenue and Customs (HMRC). Before paying the starter, the employer needs to:
- The employment status of new worker
- To work out the employee tax code, get employee information (if an employer does not have the employee’s P45, use HMRC’s starter checklist
- Check if they have any student loans to be repaid
- Use the above details to enter employee in your payroll software
- Using a Full Payment Submission (FPS), register the employee with HMRC
When employing staff for the first time, the employer must follow the same steps.
TASK OF EACH MONTH:
There are certain tasks to complete each tax month, as an employer operating PAYE. The tax month starts on the 6th of the month and ends on the 5th of the next month. If no employee is paid during a tax month, still employer must send Employer Payment Summary to HMRC.
Whenever employees are paid, the payroll software would be used for:
- Record employees pay
- Calculation of deductions from the pay
- Calculating the employer’s NIC that one has to pay on an employee’s earnings above £242 a week
- Producing pay slips
- Reporting pays and deductions to HMRC in FPS
If an employee is paid less than £123 a week, usually his record keeping is only required along with reporting their pay (unless the employee has another job also or gets a pension).
When the next tax month starts, FPS can be viewed online from the 12th. By the 19th, the employer can send EPS (Employment Payment Summary) to claim any reduction on the amount employer owe HMRC. Then within 2 days, you can check the balance owed to HMRC. BY 22ND (if paying by post then the 19th is the last date), HMRC should be paid. If not paid timely, an employer may have to pay a penalty. All of this is needed to be done within a month but if the employer pays less than £1500 per month; you can pay quarterly to HMRC than paying monthly.
As mentioned before, late reporting may result in a penalty if there was not a valid reason for reporting late. HMRC sends a “late filing notice” in case of sending late FPS or not sending it and the employer already has paid the employees. Moreover, HMRC will close the PAYE scheme of those new employers that do not pay or send reports within 120 days to HMRC.
AMOUNT TO PAY HMRC:
Each month, an employer should pay HMRC:
- The tax and National Insurance owed last month as mentioned on FPS
- Excluding any reductions on EPS sent before the 19th of the current tax month
One of the duties of the employer is to give pay slips. Pay slip must be given to the employees or workers before or on their payday. Pay slips should include:
- The gross salary/wage (before any deduction)
- Deductions like National Insurance or tax
- Net salary/wages (paid)
- If pay depends on time worked then no. of hours worked also
Pay slips can contain other information too for example tax code, total amount of pay, or national insurance number of employee. Payslips can be sent electronically or may be handed over. There are certain rights of employees relating to payslips and what payslips should at least include.
The following records must be kept by the employer
- Payment made to employees and deductions
- The reports made to HMRC
- Payments made to HMRC
- Notices of tax code
- Sickness and other leaves of employees
- Benefits and expenses that are taxable
- Documents of payroll giving scheme with authorization forms and agency contract.
The records should be kept for 3 years from the end of the tax year to which they relate. The records must show that reporting has been accurately done. If full records are not kept, HMRC can charge a penalty of up to £3000 and may calculate what you to pay.
In case of records being stolen, lost, or destroyed, one should inform HMRC as earlier as possible. HMRC may help if you can’t estimate/ check how much you have paid.
A final payroll report must be given to HMRC tax year which shows the figures
- That is estimated- that you to be accepted as final by HMRC
- Provisional: that will be updated later with an actual figure
Data protection rules must be followed if the business uses or stores the personal information of employees.