PAYE and payroll for employers

Introduction to PAYE

As an employer, you normally have to operate PAYE as part of your payroll. PAYE is HM Revenue and Customs’ (HMRC) system to collect Income Tax and National Insurance from employment.

Payments and deductions

When paying your employees through payroll you also need to make deductions for PAYE.

Payments to your employees

Payments to your employees include their salary or wages, as well as things like any tips or bonuses, or statutory sick or maternity pay.

Deductions from their pay

From these payments, you’ll need to deduct tax and National Insurance for most employees. Other deductions you may need to make include student loan repayments or pension contributions.

Reporting to and paying HMRC

Reporting pay and deductions

If you run payroll yourself, you’ll need to report your employees’ payments and deductions to HMRC on or before each payday.

Your payroll software will work out how much tax and National Insurance you owe, including an employer’s National Insurance contribution on each employee’s earnings above £155 a week.

You’ll need to send another report to claim any reduction on what you owe HMRC, eg for statutory pay.

Paying HMRC

You’ll be able to view what you owe HMRC, based on your reports. You then have to pay them, usually every month.

Other things to report

As part of your regular reports, you should tell HMRC when a new employee joins and if an employee’s circumstances change, eg they reach State Pension age or become a director.

You have to run annual reports at the end of the tax year - including telling HMRC about any expenses or benefits.

Choose how to run payroll

If you have to operate PAYE, you can choose how to run your payroll.

Choose how to run payroll

You can operate PAYE by either:

• paying a payroll provider to do it for you
• doing it yourself using payroll software

Paying a payroll provider

If you decide to pay a payroll provider (eg a bureau or accountant) to run your payroll, you’ll need to consider how much support you’ll need.

You’re responsible for collecting and keeping records of your employee’s details. Your payroll provider will need these to run payroll for you.

Some payroll providers can offer you more support if you need it, eg keeping employee records, providing payslips and making payments to HM Revenue and Customs (HMRC).

Running payroll yourself

You need to complete certain tasks to set up payroll and pay your employees for the first time. This includes registering as an employer with HMRC and telling them about your employees.

Exemptions to online reporting

You may be exempt from reporting payroll online if:

• you’re prevented from using a computer on religious grounds
• you’re getting care or support services for yourself or a member of your family
• you’re unable to send reports electronically because you’re disabled, elderly or can’t access the internet

HMRC has guidance if you believe you’re exempt and would prefer to report on paper.

Setting up payroll

If you decide to run payroll yourself, you need to complete certain tasks to pay your employees for the first time. You can choose when and how often to pay your employees.

1. Register as an employer with HM Revenue and Customs (HMRC) and get a login for PAYE Online.

2. Choose payroll software to record employee’s details, calculate pay and deductions, and report to HMRC.

3. Collect and keep records.

4. Tell HMRC about your employees.

5. Record pay, make deductions and report to HMRC on or before the first payday.

6. Pay HMRC the tax and National Insurance you owe.

Keeping records

You must collect and keep records of:

• what you pay your employees and the deductions you make
• reports and payments you make to HM Revenue and Customs (HMRC)
• employee leave and sickness absences
• tax code notices
• taxable expenses or benefits
• Payroll Giving Scheme documents, including the agency contract and employee authorisation forms

Your records must show you’ve reported accurately, and you need to keep them for 3 years from the end of the tax year they relate to. HMRC may check your records to make sure you’re paying the right amount of tax.

If your records are lost, stolen or destroyed

Tell HMRC as soon as possible if you don’t have records and can’t replace them. You must also do your best to recreate them - HMRC may be able to help if you’re not sure how much you paid your employees.

You must tell HMRC if your final payroll report of the tax year includes figures that are:

• estimated - that you want HMRC to accept as final
• provisional - that you’ll update later with actual figures

Data protection

You must follow rules on data protection if your business stores or uses personal information.