Running payroll

Overview

As an employer operating PAYE as part of your payroll, you need to complete certain tasks during each tax month. This runs from the 6th of one month to the 5th of the next.

On or before your employees’ payday

Every time you pay your employees, use your payroll software to:

1. Record their pay - include their salary or wages and any other pay.

2. Calculate deductions from their pay, like tax and National Insurance.

3. Calculate the employer’s National Insurance contribution that you’ll need to pay on their earnings above £156 a week.

4. Produce payslips for each employee (you can use different software if yours doesn’t have this feature).

5. Report their pay and deductions to HMRC in a Full Payment Submission (FPS).

In the next tax month (starting on the 6th)

You can view what you owe from your FPS online from the 12th.

1. Claim any reduction on what you’ll owe HMRC (eg statutory pay) by sending an Employer Payment Summary (EPS) by the 19th.

2. View the balance of what you owe in your HMRC online account, within 2 days (or by the 14th if you sent the EPS before the 11th).

3. Pay HMRC by the 22nd (or the 19th if paying by post) - you may have to pay a penalty if you don’t.

Late reporting

If you’ve paid any employees and don’t send an FPS or send one late, HMRC will send you a late filing notice. They can also charge you a penalty, unless you have a valid reason for reporting late.

Employees' pay

Record your employees’ salary or wages in your payroll software. Include everyone you pay, even if they get less than £112 a week.

Recording other types of pay

Statutory pay

You may have to pay your employee:

• Statutory Sick Pay (SSP)
• statutory pay for parents (maternity, paternity, adoption or shared parental pay)

Record these in your software, as they’re taxed like normal pay.

Expenses and benefits

Expenses or benefits like uniforms or company cars are reported separately at the end of the tax year. Check the rules to find out what counts as expenses and benefits, and what you should record in your software as normal pay.

Tips and other pay

Treat tips to your staff as normal pay if they’re paid into your till - this includes tips added to your customers’ card or cheque payments. The rules are different if tips are given straight to your employees by customers or paid into a tronc.

Other payments you may give your employee that you should record as normal pay include:

• bonuses
• commission
• holiday pay (unless you pay it in advance or use a holiday pay scheme)
• payments for time your employee has spent travelling
• medical suspension payments, given to an employee you’ve suspended for health reasons
• maternity suspension payments, given to an employee you’ve suspended for her, or her baby’s, health
• guarantee payments, paid to an employee for a day they don’t work (and not paid holiday)
• office holders’ payments (honoraria), given to employees for providing a service, eg being your company’s sports-club secretary
• payments that can be converted into cash, eg cheques, Savings Certificates or Premium Bonds
• inducement payments (‘golden hello’ payments)
• cash prizes for competitions you run

The rules are different for non-cash payments like shares or commodities, cash-in-hand or guarantee payments and employee incentive awards.

Deductions

Your payroll software will calculate how much tax and National Insurance to deduct from your employees’ pay. These deductions are worked out using each employee’s tax code and National Insurance category letter.

You may also need to deduct student loan repayments, pension contributions, Payroll Giving donations and child maintenance payments.

Student loan repayments

Use your payroll software to:

• record if your employee needs to make student loan repayments - both in your software and on payslips
• calculate and deduct how much they need to repay (9% of their income above £17,335 a year)

Pensions

Make pension deductions after you take off National Insurance. You normally 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.

Payroll Giving

With a Payroll Giving scheme, your employees can donate to charity directly from their pay before tax is deducted.

Register with a Payroll Giving agency to set up a scheme. They’ll let you know how to make deductions.

As well as the usual payroll records, you must also keep the agency contract, employee authorisation forms and details of payments to the agency.

Child maintenance

You may need to deduct child maintenance directly from a paying parent’s earnings or pension.

Payslips

You must give your employees a payslip on or before their payday.

What to include

Payslips must show:

• pay before any deductions (‘gross’ wages)
• deductions like tax and National Insurance
• pay after deductions (‘net’ wages)

Payslips can also include information like your employee’s National Insurance number and tax code, their rate of pay, and the total amount of pay and deductions so far in the tax year.

Producing payslips

You may be able to produce payslips using your payroll software, if it has this feature. You can use different software if it doesn’t.

You can either print payslips to give to your employees, or you can send them electronically.

Reporting to HMRC: FPS

Use your payroll software to send a Full Payment Submission (FPS) to tell HMRC Revenue and Customs (HMRC) about payments to your employees and what deductions you’ve made.

FPS deadlines

You should send the FPS on or before your employees’ payday - but there are some exceptions.

Early reporting

You can send an FPS in advance, eg if your payroll staff are going on holiday. Don’t report too early - you’ll need to send a corrected FPS to update HMRC if information changes, eg an employee leaves or changes tax code. You can’t send reports for the new tax year before March.

Sending an FPS

You’ll need to enter your PAYE reference and Accounts Office reference in your software. HMRC will have sent this to you after you registered as an employer.

To complete and send the FPS, follow your payroll software’s instructions. If you need help, HMRC has guidance on what to put in each field on an FPS, including:

• employer information
• employee information - only include employees you’ve paid
• pay and deductions
• National Insurance information

You can split your FPS into batches if it’s easier for you, eg one for employees and one for directors.

There are special rules for calculating deductions if your employee has more than one job with you.

After you’ve sent your FPS

In the next tax month (which starts on the 6th), you can:

• view your FPS and how much tax and National Insurance you owe in your HMRC online account from the 12th
• claim any reduction on what you’ll owe HMRC (eg statutory pay) by sending an Employer Payment Summary (EPS) by the 19th
• pay HMRC the balance by the 22nd (or the 19th if paying by post)

If you need to make an extra payment to your employee, send an extra FPS before your next regular report (if your software has this feature).

If you made a mistake in your FPS

You should correct any errors in your FPS as soon as you find them.

Reporting extra information

You need to report more information on an FPS if:

• it includes a new employee
• an employee leaves
• you start paying someone a workplace pension
• it’s the last report of tax year

You may also need to report extra information about certain employee changes, eg they take a leave of absence or become a director.

Reporting to HMRC: EPS

Use your payroll software to send an Employer Payment Summary (EPS) as well as a Full Payment Submission (FPS) if you:

• reclaim statutory maternity, paternity, adoption or shared parental payments - even if you got an advance payment from HM Revenue and Customs (HMRC) to cover them
• claim the Employment Allowance - only do this once
• can reclaim Construction Industry Scheme (CIS) deductions as a limited company
• claim National Insurance contributions holiday for previous tax years

EPS deadlines

Send an EPS by the 19th of the following tax month for HMRC to apply any reduction (eg statutory pay) on what you’ll owe from your FPS.

The tax month starts on the 6th.

Sending an EPS

To complete and send the EPS, follow your payroll software’s instructions. If you need help, HMRC has guidance on what to put in each field on an an EPS.

Not all payroll software can send EPS reports. If yours can’t, you can use HMRC’s Basic PAYE Tools.

After you’ve sent your EPS

Once you’ve sent your EPS, you can:

• view what you’ve claimed and the balance of what you owe on your HMRC online account within 2 days (or by the 14th if you sent the EPS before the 11th)
• pay HMRC by the 22nd (or the 19th if paying by post).

If you made a mistake in your EPS

You should correct any errors in your EPS as soon as you find them.

If you don’t pay any employees in a tax month

Don’t send an FPS. Send an EPS by the 19th after the tax month you didn’t pay any employees. The tax month starts on the 6th.

HMRC has guidance on what to put in your EPS if you haven’t paid anyone.

If you don’t send an EPS, HMRC may send you a notice through PAYE Online and estimate how much you should pay.

If you don’t pay anyone for a longer period

You can tell HMRC up to a year in advance that you won’t pay any employees. To do this, enter dates in the ‘Period of inactivity’ fields in your EPS.

Paying HMRC

Every month you have to pay HM Revenue and Customs (HMRC):

• the tax and National Insurance (and any other deductions) you owe as reported on your Full Payment Submission (FPS) in the previous tax month
• minus the reductions on any Employer Payment Summary (EPS) you sent before the 19th in the current tax month

Pay what you owe by the 22nd of the month (or the 19th if paying by post) - you may have to pay a penalty if you don’t.

Viewing what you owe

View your HMRC online account to see the reports you’ve sent and to find out what you owe.

If the amount isn’t what you expected

Check that you sent your FPS or EPS in time for the account to update.

Your PAYE bill may be calculated incorrectly, and payroll records duplicated, if you made a mistake when reporting employees starting or leaving. HMRC usually removes duplicates and corrects your PAYE bill automatically, which you can view by the 12th of the following tax month.

You may also need to correct an error in your FPS or EPS, or make an additional payment.

If you still need help, contact HMRC’s employer helpline.

How to pay

You can pay your PAYE bill in a number of different ways.

Interest and penalties

HMRC will usually tell you if they think you’ve paid late - either in a letter or a notice through PAYE Online. Interest is charged daily at 3% - HMRC has guidance on how and when this is applied.

You may be charged a penalty if you don’t pay on time or in full.

Sending an FPS after payday

If you send a late Full Payment Summary (FPS) without a valid reason, you may get:

• an online penalty warning message for the first late FPS you send each month
• a penalty for reporting late

When you can send a late FPS report

In certain situations you can send a Full Payment Summary (FPS) after you pay your employee.

Situation	When to report
Your employee doesn’t give you a P45 and is either paid less than £112 a week or has worked with you for less than a week	Within 7 days of paying your employee
Your employees’ payday is on a non-banking day, eg weekend or bank holiday	On the next banking day - but enter the regular payment date in the ‘payment date’ field and select ‘Late payment reason’ code G
You make an ad hoc payment outside of your regular payroll, eg you’re told after you’ve sent your FPS about a new starter or a missed overtime payment. (Payments made regularly outside your normal payroll run aren’t ad hoc)	In your next regular FPS or an additional FPS
You pay your employee an expense or benefit where you must pay National Insurance, but not Income Tax, through payroll. This depends on the benefit.	Within 14 days of the end of the tax month
You can’t calculate or report your employee’s pay in advance because it’s based on their work on the day, eg harvest workers paid based on how much they pick	Within 7 days of paying your employee
You make certain non-cash payments to your employee	As soon as possible within 14 days of the end of the tax month, or when you deduct tax and National Insurance (if earlier). For complex situations (eg when exercising share options) contact HMRC
HMRC let you report monthly instead of the normal way because you were an existing employer on 5 April 2014 and had fewer than 10 employees on 6 April 2015.	Until 5 April 2016, you can choose to report monthly, on or before the last payday in the tax month. There are different rules for what to report in your FPS

Put the reason for reporting after payday on your FPS for each late payment. If you don’t, or if HMRC disagrees with the reason or you don’t send an FPS, they may send you an online penalty warning message and a penalty.

Viewing late FPS reports in your HMRC online account

If you send an FPS in the same tax month as you paid your employees, you can view the report in your HMRC online account from the 12th of the next tax month.

This is different if you send an FPS in the tax month after payday.

Late FPS sent (in tax month after payday)	HMRC online account updated
Between 6th and 11th	By the 14th
Between 12th and 19th	Within 2 days
On or after the 20th - and you didn’t send a FPS the previous tax month	Within 2 days
On or after the 20th - and you sent a FPS the previous tax month	By the 12th of the next tax month

Reporting employee changes

You need to report more information on a Full Payment Submission (FPS) if:

• it includes a new employee
• an employee leaves
• you start paying someone a workplace pension
• it’s the last report of the tax year
• an employee changes their address

You may also need to tell HM Revenue and Customs (HMRC) if an employee:

• becomes a director
• reaches State Pension age
• goes to work abroad
• goes on jury service
• dies
• joins or leaves a contracted-out company pension
• turns 16
• is called up as a reservist
• changes gender

Employee takes a leave of absence

Once your employee has started their leave of absence, put ‘Yes’ in the ‘Irregular payment pattern indicator’ in all FPS reports you send to HMRC until the employee returns.

Changing paydays

You can move your payday to a different day or change how often you pay your employees.

Moving your payday

If the new payday is in the same tax month or week, treat the first new payment as an extra payment for that period.

You don’t need to do anything special when recording pay if the new payday is in a different tax month or week.

HM Revenue and Customs (HMRC) has guidance on how to calculate National Insurance for your employees after changing paydays.

Changing how often you pay your employees

You must contact the employer helpline if you pay employees less often so HMRC don’t send you a non-filing notice through PAYE Online.

Most payroll software can automatically manage any changes to how often you pay your employees (eg from monthly to weekly) and work out deductions correctly.

Using Basic PAYE Tools

If you use HM Revenue and Customs’ (HMRC) Basic PAYE Tools, there are some limitations on when you can make these changes.

Paying your employees more often

If you’ve not already paid your employees, use the new earnings period (in the ‘Pay frequency’ field) in your Full Payment Submission (FPS) when you next pay them.

If you’ve paid your employees, you can use the new earnings period from the next tax month.

Paying your employees less often

If a payment from your old pay period also takes place in your new pay period, calculate and deduct National Insurance on both. Don’t deduct more National Insurance than would’ve been due on the combined total of both payments.

If an employee also joins your contracted-out pension scheme during this period, deduct National Insurance at the contracted-out rate on the total of both payments.

Deduct tax based on the new earnings period the next time you pay your employees.

Annual payroll scheme for PAYE

If you pay your employees only once a year, and all in the same tax month, you can register with HMRC as an ‘annual scheme’.

This means you send reports and make payments to HMRC annually. If you pay your employees on different days in the same tax month, you need to send an FPS on or before each payday. You don’t need to send an Employer Payment Summary (EPS) for the months when you don’t pay your employees.

To register, contact HMRC’s payment enquiry helpline and tell them which month you pay your employees. You’ll need your 13-character Accounts Office reference number - this is on the letter HMRC sent you when you registered as an employer.

Changing when you pay your employees

If you change the month you pay your employees, send an FPS in the month that you want the new annual payment month to move to. If it’s later than the month you usually pay your employees, you’ll need to send an EPS for that month to tell HMRC you’re not paying anyone.

If you send more than one FPS in a year, HMRC will assume you no longer wish to operate as an annual scheme and send you a letter to confirm.