Updated: Aug 9, 2019
As a guide, I am aiming to simplify Payroll for small businesses and help you ensure that you are covering all the statutory requirements. It is worth noting that this is meant as a guide for UK based companies and covers the basics.
When you are ready to start payroll, the first thing you need to know is the HMRC Payroll tax month runs from the 6th of one month to the 5th of the subsequent month. Once signed up you need to tell HMRC what payroll went through your business even if no Payroll runs.
Paying your employees
To pay your employees, you will need Payroll software. HMRC has a list of approved software that you can do this prices range from free software to paid. For most small businesses with a small number of employees, free software is ordinarily sufficient. However, it is worth noting that, if you are already using an Accounting package for your day to day accounts, it will probably be easiest using the same supplier for payroll.
Your payroll software will need to do the following:
1. Record pay including salary, bonuses and any other supplements.
2. Calculate any tax, national insurance and statutory deductions. National insurance rates do differ depending on where in the country you employ staff.
3. Record any Employers National Insurance that you need to pay.
4. Send payslips to your employees
5. Send a Full Payment Submission to HMRC (more on that later)
Other types of Pay
From time to time, you might need to record other types of pay. So it is worth noting that the following types of pay need to be logged :
Statutory Sick Pay - This is set at a fixed £94.25 and can be paid for up to 28 weeks. You can offer more as part of a company sick pay scheme (it is wise to make sure this has unambiguous guidelines within an employment contract). To be eligible for SSP, your employees need to meet the following eligibility criteria:
Have an employment contract.
Have done some work under their contract
Have been sick for 4 or more days in a row (including non-working days)
Earn an average of at least £118 per week
Give you a sick-line or equivalent - the guidelines are that they need to give you this after seven days. However, you can stipulate in the employee's contract that they deliver it to you sooner.
An employee can ask to take annual leave while they are off sick; this does not, however, interrupt the 28 weeks.
If the employee is on long term sick leave, you need to send them an SSP 1 form on their 23rd week of SSP. This will support their claim to Universal credit should they wish to claim this after the 28 weeks ends.
Statutory Pay for Parents
Statutory pay for parents comes in various guises including Maternity, Paternity, Adoption and Shared parental pay.
As an employer, you can reclaim 92% of Statutory Maternity, Paternity, Adoption and Shared Parental Pay. This can be claimed through the EPS (Employer Payment Summary to HMRC through your software)
Your payroll software will work out how much NI and tax need to be taken from an employee depending on the amount they earn and their tax code see link below for more information about tax codes:
Your payroll software can be used to work out how much in student loan payments an employee needs to pay back. It is crucial to find out from your employee which 'Plan' they are on, but as a general rule most employees that have studied in Scotland will be on Plan 1, and most employees that have studied in England and Wales will be on Plan 2.
The plan repayments are as follows:
Plan 1 - 9% of their income above £18,935 a year
Plan 2 - 9% of their income above £25,725 a year
Postgraduate loans - 6% of their income above £21,000
Make pension deductions after you take off National Insurance. You usually make pension deductions before you take off tax - check with your workplace pension provider.
You’ll also need to pay any employer contributions into your employee’s pension.
Court - related deductions
You may have incidents where a court will send a payroll arrestment or attachment order on the earnings of an employee.Usually, this is to pay off outstanding Council Tax, Child support but can also be police related fines. On the back of the letter, there will be a breakdown of what percentage should be deducted from their wage.
Reporting to HMRC
Full Payment Submission
You need to send HMRC for every payroll date in most Payroll software this will be a click away. In the following tax month - from the 12th of the month you can go onto your HMRC account pay your the national insurance and tax that you owe HMRC.
The deadline for paying HMRC is the 22nd of this tax month or 19th if you wish to pay by post.
Employee payment Submission
If you need to claim back a reduction based on paying SMP or similar to an employee, then you should also send an EPS to HMRC by the 19th of the month. After you submit through the EPS you will be able to view the reductions and the true balance by the 14th if you sent before the 11th of the month or two days if submitting after.
Hopefully this guide has been helpful to you but if you have any questions don't hesitate to get in touch with us on firstname.lastname@example.org