Getting Started with Setting Up Payroll
In the dynamic world of entrepreneurship, founders and small business owners are relentlessly pursuing their dreams, fuelling their aspirations with dedication and hard work. As their businesses flourish and their teams grow, a critical element demands their attention: setting up payroll. This essential responsibility gives rise to a multitude of concerns, including the potential for errors, maintaining financial control, ensuring a positive experience for employees, and adhering to HMRC reporting requirements. Making mistakes during the payroll setup process can have repercussions down the line. This burden can be a distraction, threatening to overshadow their entrepreneurial ambitions.
The Importance of Setting Up Payroll Correctly
Recognising the significance of these challenges, this article aims to provide a solid foundation and guidance for those navigating the complexities of payroll. Drawing on expertise and experience, it seeks to empower every founder and small business owner with the knowledge and confidence they need to address their payroll concerns effectively. By offering practical insights and actionable advice, this article will serve as a valuable resource, enabling entrepreneurs to focus on their business goals and achieve continued success.
Register as an Employer with HMRC for Setting Up Payroll
Before you can start the process of setting up payroll, you must first register as an employer with HM Revenue and Customs (HMRC). This registration process should ideally be completed four weeks before your first payday to allow for application processing times. You can register online using the HMRC website, and upon successful registration, you will receive your Employer PAYE reference number and accounts office reference number. Keep these numbers safe, as they are essential for future communications and interactions with HMRC.
Setup a Login with HMRC’s PAYE Online
After registering as an employer, you should set up a login with HMRC’s PAYE Online service. This platform enables you to manage your payroll records, submit real-time information (RTI), and access crucial tax documents. By creating an account and familiarising yourself with the PAYE Online service, you can efficiently manage your payroll responsibilities and ensure compliance with HMRC regulations.
For more details on how and when to register with HMRC, see this article.
Inform HMRC About Your Employees
As an employer, it is your responsibility to provide HMRC with information about your employees, including their personal details, National Insurance numbers, and employment start dates. This information can be submitted through the Full Payment Submission (FPS) using your payroll software. It is important to maintain accurate employee records and update them promptly to avoid potential errors and penalties.
Record Pay and Make the Necessary PAYE and NI Deductions
Each time you pay your employees, you must accurately record their pay and calculate the necessary deductions for income tax and National Insurance contributions. These calculations can be completed using payroll software, which will also generate payslips for your employees. By maintaining precise payroll records and providing clear pay information, you can build trust with your employees and ensure a smooth payroll process.
Report to HMRC and Pay Any Tax and National Insurance Owed
Each time you pay your employees, you must report the details to HMRC using a Full Payment Submission (FPS). This report includes information on your employees’ pay, tax, and National Insurance deductions. Once your FPS is submitted, you will need to pay any outstanding income tax and National Insurance contributions to HMRC. Payments should be made by the 22nd of the following month to avoid penalties for late payment.
For more details on reporting payroll information to HMRC, see this article.
End of Tax Year Report to HMRC and Issue P60s
At the end of each tax year (5th April), you must submit a final Full Payment Submission (FPS) and an Employer Payment Summary (EPS) to HMRC, detailing your employees’ pay and deductions for the entire year. Additionally, you are required to issue P60 forms to all employees who were on your payroll on the last day of the tax year. The P60 provides a summary of their pay and deductions for the year and must be given to your employees by 31st May.
For more details on payroll forms, see this article.
Summary: Setting Up Payroll Successfully
Whilst there are a few stages to complete, setting up payroll is not scary and by following these steps, you can establish a robust and compliant payroll regime, alleviating your concerns and allowing you to focus on the continued growth and success of your business.