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All businesses that take on staff and pay them more than the lower earnings limit – currently £120 per week or £6,240 a year – will need to process a payroll and submit the information via an Real Time Information (RTI) submission.
Employers are required to keep comprehensive payroll records of salary paid and deductions that include income tax, national insurance, student loans, payments made to HMRC, employee leave, sickness absences, and tax code notices. Online accounting software, such as Xero can make this much easier
For small businesses with fewer than nine employees, HMRC provides an online PAYE tool that is free to use. But a word of caution – its functionality is very basic and suitable only for the smallest of businesses.
Taking on new members of staff is a key stage in the growth of any business. It is a step that brings new responsibilities and obligations, not least of which to those employees and to HMRC.
Register new staff with HMRC
The first step for any business taking on staff with pay over the lower earnings limit is to register with HMRC. This can be done online here.
If an individual is joining your business from another employer, they will need to provide a P45 form, usually available from their previous employer. If they do not have a P45, the new member of staff will need to complete a “New starter declaration form/starter checklist” (historically known as a P46), easily obtained from HMRC. These forms simply provide information on the employees’ personal details and which statement applies to them, helping an employer to determine the correct tax code to place them on.
The “New starter declaration form/starter checklist” form can be completed online.
Where an employer is unsure which take code to apply to an employee, employers can easily work out the correct code via another helpful HMRC online tool, found here.
If for any reason the wrong tax code is used, an employer will not penalised – HMRC will simply inform you of the correct tax code to use and any corrections to tax due once the first RTI submission has been completed.
Employers are legally required to give employees a payslip before or on their pay date. Payslips must include the date of pay, the gross amount, PAYE deductions, national insurance contributions, and the amount of any additional deductions, including student loan and pension contributions.
Any current employee working for an employer on 5th April each year must be given a P60. This needs to be with an employee by the 31st May, on paper or electronically.
Employers must submit an end-of-year report (P11d) to HMRC for each employee you’ve provided with expenses or benefits in the tax year ending 5 April – for example a company car. P11ds must be submitted before 6th July.
Payroll can quickly become complicated when a business starts to employ more people, when introducing workplace benefits, and with the Government support from the Covid pandemic. It is recommended that you speak to your accountant for help and support.
Jacqui Reeves is a senior payroll manager at accountants Hillier Hopkins
Further reading on payroll
Small Business UK