When hiring staff, it is important to ensure that you are following the correct procedures and reporting the right information to the HMRC.
PAYE – Pay As You Earn
PAYE is the HM Revenue and Customs’ (HMRC) system to collect Income Tax and National Insurance from employment. You don’t need to register for PAYE if none of your employees are paid £116 or more each week, get expenses and benefits, have another job orget a pension. However, it is important to remember that you must keep payroll records regardless.
What payments and deductions do you need to make?
Payments to your employees include their salary or wages, as well as bonuses or any statutory pay (like maternity or statutory sick pay). From these payments, deductions for tax and insurance will need to be made for most employees. Other deductions you may need to consider are pension contributions or student loan repayments. (please refer to our previous post for more information on these deductions).
Informing the HMRC
These payments and deductions need to be reported to the HMRC on or before each pay day. Your payroll software will do most of the hard work for you, calculating the tax and NI owed (both employee and employer) on each employee’s earnings above the threshold of £162 a week. A separatereport should be filed if you need to claim any reductions on what you owe the HMRC – such as statutory pay. You should also inform the HMRC when a new employee joins the company or if an employee’s circumstances change, e.g. they become a director, these will form part of your regular reports. Annual reports are also required by the HMRC at the end of the tax year, these will include information about any expenses or benefits.
Running payroll yourself
Payroll software will be required if you choose to run payroll yourself (as opposed to outsourcing it to companies like us!), this will help with:
- Recording employee details
- Working out pay and deductions
- Reporting information to HMRC
- Working out how much to pay HMRC
- Calculating any statutory pay
If you have fewer than 10 employees, fear not, there is free software available! These providers have been tried and tested by the HMRC: www.gov.uk/payroll-software/free-software.
Registering as an Employer
You need to register as an employer with HMRC when you start employing staff or using subcontractors for Construction work. You must also register if you are employing yourself, as you are technically still an employee of the company! You need to register at least 2 weeks before the first pay date, but not more than 2 months before you start paying people. As with most things these days, you can register online, but allow plenty of time as it can take up to 2 weeks for a PAYE reference number and an activation code to reach you.
Right to Work in the UK
Unfortunately, it doesn’t end there! You must ensure that all your employees have the right to work in the UK and that you are adhering to employment law and procedures. Ensure that allemployees are subjected to a right to work check, this needs to be done before you officially employ them – ideally at the offer stage. Assumptions on a person’s right to work in the UK or immigration status should not be made based on colour, accent, etc.! The penalty for employing an illegal worker could be up to 5 years in prison and result in an unlimitedfine.
Employers must take out Employers Liability Insurance as soon as they start employing staff. The policy must cover you for at least £5million and be from an authorisedinsurer. Failure to instate the proper insurance could result in fines of £2,500 for each day you are not properly ensure. You are also at risk of fines if your Employers Liability Insurance certificate is not on display at your business premises or you fail to make it available to inspectors should they ask.
I know that all this can seem a little daunting and off putting, but remember, once all these processes are put in place it will just be a case of maintaining them (which is much easier to manage!) and the benefits or employing staff will far outweigh the cons (in theory, anyway!).