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Setting Up Payroll

Friday 17th May 2024

Register As An Employer

If you decide to run payroll yourself, you need to complete certain tasks to pay your employees for the first time. The first step is to Register as an employer with HMRC and get a login for PAYE Online. You must register before the first payday, and it can take up to 30 working days to get your employer's PAYE reference number. You cannot register more than 2 months before you start paying people.

Choose a Payroll Software

If you decide to run payroll yourself, you need payroll software to report to HMRC. The software will help you with tasks like:

-Recording your employees’ details

-Working out your employees’ pay and deductions

-Reporting payroll information to HMRC

-Working out how much you need to pay HMRC

-Calculating statutory pay, for example, maternity or sick

You must get payroll software that reports PAYE information online unless your exempt. 

Collect and Keep Records

You must collect and keep records of:

-What you pay your employees and the deductions you make

-Reports you make to HMRC

-Payments you make to HMRC

-Employee leave and sickness absences

-Tax code notices

-Taxable expenses or benefits

-Payroll Giving Scheme documents, including agency contract and employee authorisation forms.  

Your records must show you’ve reported accurately, and you need to keep them for 3 years from the end of the tax year they relate to. 

Tell HMRC About a New Employee

You must tell HMRC when you take on a new employee. Before you pay your new employee, follow these steps:

  • Check you need to pay them through PAYE

  • Get employee information to work out their tax code - if you do not have their P45, use HMRC’s ‘starter checklist’.

  • Find out if they need to repay a student loan

  • Use these details to set up your new employee in your payroll software

  • Register your employee with HMRC using a Full Payment Submission (FPS).  

Record Pay, Make Deductions and Report to HMRC

As an employer operating PAYE as part of your payroll, you need to complete certain tasks during each tax month. On or before your employees’ payday, use your payroll software to:

  • Record their pay - include their salary or wages and any other pay.

  • Calculate deductions from their pay, like tax and National Insurance.

  • Calculate the employer's National Insurance contribution that you’ll need to pay on their earnings above £242 a week.

  • Produce Payslips for each employee

  • Report their pay and deductions to HMRC in a Full Payment Submission (FPS).

Pay HMRC the tax and National Insurance You Owe

Every month you have to pay HMRC:

-The tax and National Insurance (and any other deductions) you owe as reported on your FPS in the previous tax month. 

-Minus the reductions on any Employer Payment Summary (EPS) you sent before the 19th of the current tax month.

Pay what you owe by the 22nd of the month - you may have to pay a penalty if you do not.   

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