Guide to Payroll
We hope our Payroll Guide will assist you - click on a link to read more information on that subject:
- Payroll Overview
- Employers Registration
- Your Payroll
- The PAYE System
- Payroll Year End
- Online Filing
- PAYE and National Insurance (NI)
- Payment of PAYE
- Employer’s Security Deposits
- Penalties for Late Payment
- Benefits in Kind
- Statutory Sick Pay, Maternity and Paternity Pay
- Minimum Wage and Holiday Entitlements
- Our Payroll Advice Service
Other employment issues
- Contracts of Employment
- Employment Status Disputes
- PAYE Inspections
- Employee Disputes & Disciplinary Processes
1. Payroll Overview
The employment of staff in the UK ordinarily requires the operation of a payroll and the application of a system known as a Pay-As-You-Earn (PAYE) to tax your employees’ earnings and certain benefits.
We provide you with the necessary advice and support to set-up, operate and maintain your payroll.
back to payroll guide contents ^
2. Employer Registration
The Inland Revenue must be notified at the outset and an Employers Reference Number obtained.
We will do that for you as part of our service. Registration is normally obtained within 7 days.
back to payroll guide contents ^
3. Your Payroll
You may choose to pay your employees monthly, 4-weekly, fortnightly or weekly. Payroll in any business is a priority – staff must be paid on time, every time, and be paid correctly. It is the responsibility of every employer to ensure that they are.
We undertake that burden for you.
back to payroll guide contents ^
4. The PAYE System
PAYE provides for income tax to be deducted from pay and aims to ensure that, as far as possible, the deductions of tax reflect the correct amount due from the employee having regard to their circumstances as a private taxpayer.
The allowances and reliefs to which they may be entitled by reference to their personal circumstances are converted into a PAYE Code that is notified to the employer by way of a Notice of Coding. It is this PAYE Code that determines the sum of tax the employer must deduct.
The employer is provided with a set of tax tables to use with the PAYE code to calculate the tax due. Because the tables work on a cumulative basis throughout the year, the amount of the tax payable will reflect the earnings to date and, if the earnings fluctuate, the tax deducted will also fluctuate. On occasion a refund may arise.
It is not the employers’ responsibility to explain issues arising from the PAYE Coding Notices; he merely has to operate the code. If an employee disputes the code or the tax being deducted he must take it up with his Tax Office directly.
An employee joining from other employment will usually bring with him a P45, an interim Certificate of Pay and Tax Deducted to date, from his previous employer, which also gives the PAYE Code number the new employer must use. If the employee does not have a P45 or it is their first employment, tax must be deducted, normally at basic rate or with restricted allowances until a form P46 is completed and a code obtained for them. When they leave the employer must in turn provide them with a P45.
back to payroll guide contents ^
5. Payroll Year End
The Payroll year is the tax year to 5th April. Immediately following that year, and subject to strict time limits and severe penalties, Annual Returns must be prepared and submitted summarising the operation of the payroll for the year and P60 Annual Certificates of Pay and Tax Deducted issued to all current employees at the tax year end.
back to payroll guide contents ^
6. Online Filing
Medium sized (50 to 249 employees) and larger employers must file their annual returns online. It becomes mandatory for smaller employers from 5th April 2010.
Online filing is to be extended to in-year forms such as P45’s from 5th April 2009 for medium sized and larger employers and from 5th April 2011 for smaller employers.
Online filing forms part of our ordinary payroll service.
back to payroll guide contents ^
7. PAYE and National Insurance (NI)
In addition to tax, employees must pay Class 1 NI contributions on their earnings, known as Primary Contributions, and employers are obliged to pay a contribution known as a Secondary Contribution. The latter is in fact a payroll tax on the employer i.e. it is a cost to them.
They are collected through the PAYE system together with the tax. The cost to the employer of any employee is therefore the gross wage paid plus the employer’s NI contribution.
back to payroll guide contents ^
8. Payment of PAYE
The sums of tax and employees’ NI deducted together with the employer’s NI contributions are paid over monthly (or quarterly within certain limits).
We send you out a payslip completed with the appropriate sums for you to pay over to the Inland Revenue.
PAYE (together with any CIS deductions) must be paid over to HM Revenue and Customs by the 19th of the month following if paying by cheque and by 22nd if paying electronically. With effect from 6th April 2010 penalties will be imposed for late payment.
back to payroll guide contents ^
9. Employer's Security Deposits
Employers with a history of serious non-compliance may be required to put up a security from which to meet unpaid PAYE liabilities in the event of default.
The amount of the security demanded will be set by HMRC in the light of the potential tax liability i.e. the size of the payroll.
back to payroll guide contents ^
10. Penalties for Late Payment
To date employers have been able (astonishingly) to delay payment of PAYE to the Revenue without either interest or penalty just so long as the PAYE was paid over by 19th April following the end of the tax year. Even then only interest was payable -- no penalty. It has been a decades long mystery why the authorities have permitted such a state of affairs to continue.
With effect from 6th April 2010 a new penalty regime and interest regime has been introduced for late payments throughout the year. It is a percentage penalty applied to the amount of tax not paid. The rate is set by the number of times in the year that the employer has been late and the length of time the payment is overdue.
There is no penalty for the first late payment in a year but thereafter the penalty is geared between one and four percent.
There is an additional five per cent penalty if an amount is outstanding for 6 months and a further five per cent if the sum is not paid for 12 months.
For the moment interest is not to be charged – only penalties. It is likely that Interest (in addition to penalties) will not be chargeable before 6th April 2012 at the earliest. In the meantime only the penalties set out above will be in point.
back to payroll guide contents ^
11. Benefits in Kind
In addition to wages employees may be remunerated through other benefits, typically such things as tips, cars and vans available for private use, health-care, cheap loans and so on.
The legislation is very widely drawn and just about anything that could conceivably give rise to a benefit (whether it does or not) is returnable. So entertainments, functions, reimbursements of hotel and travel expenses, home phones etc. all have to be returned, as well as any expenses met on behalf of the employee.
The only get-out (and then only for certain expenditures) is to obtain a dispensation from the need to return such details. But such a dispensation will only be granted where the Revenue are satisfied that the employee is only being recompensed for expenditure incurred in the performance of his duties, that there are controls in place to check such expenditures and that no benefit arises.
Such benefits have to be reported annually on a P11D Return and are taxable on the employee. Very low-paid employees, typically part-timers have such benefits reported on a P9D but fewer of the benefits are reportable. Their PAYE coding number is usually reduced to give effect to the tax charge.
Tips paid through the employer must normally be taxed through the payroll. Failure to do so can result in an expensive settlement for the employer.
We can prepare the P11D Return for you and assist you in making an application for a dispensation where appropriate.
back to payroll guide contents ^
12. Statutory Sick Pay, Maternity and Paternity Pay
Employers have an obligation to assist in the distribution of benefits through the payroll. They act as the unpaid agent of the state and have a responsibility to apply the rules correctly.
We deal with the payroll implications as part of our normal service.
back to payroll guide contents ^
13. Minimum Wage and Holiday Entitlements
Employees have entitlements fixed by law.
We are able to advise you as to current entitlements.
back to payroll guide contents ^
14. Our Payroll Advice Service
Our staff are always available to help you with payroll questions generally. You need only ask. Please contact Mrs Tracey Smith (01461 204121) in the first instance.
Other employment issues
1. Contracts of Employment
All your staff, including part-timers, are required by law to be given a written statement setting out the main terms and conditions of their employment.
We can draw up those for you. There is no requirement to involve a Solicitor.
back to payroll guide contents ^
2. Employment Status Disputes
Although it is normally quite clear as to whether individuals providing services are in your employment or not, on occasion it may not be.
For example some workers in the construction industry and those supplying consultancy services may wish to be treated as self-employed.
However the responsibility rests with the employer, not the employee, and if the Revenue are able to demonstrate, following an inspection (see following para.), that payroll should have been operated then the employer will be liable to make good all the PAYE, including both employer’s and employee’s NI, which should have been paid over. And in strictness there is no right of set-off against any tax the self-employed person may have paid himself – it is up to the employer to get it back from the individual who claimed to be self-employed (if he can).
We can advise you with regard to such matters and assist in the event of any status disputes arising.
back to payroll guide contents ^
3. PAYE Inspections
The Inland Revenue have Inspection teams who routinely visit employers to check that PAYE is being operated correctly.
The detailed nature of many tax rules relating to employment matters, together with frequent uncertainty as to their application, makes it difficult to avoid oversights and error that can result in hefty settlements. The correct treatment of expenses & benefits is a common source of error as are employment status disputes.
If you are unfortunate enough to suffer problems as a result of such an investigation we are able to assist and advise you in reaching a settlement.
back to payroll guide contents ^
4. Employee Disputes & Disciplinary Processes
It is a fact that on occasion employees will need to be disciplined or fired. There are principles of procedure that have the force of law and by which employers must abide. Certain breaches of procedure have the effect of making a dismissal automatically unfair regardless of the circumstances or for how short a period the individual has been in the employment.
We are able to provide you with an appropriate grievance procedure and advise you in the event of problems arising.