Do you understand your responsibilities towards your employees and HMRC with regards to payroll?
If you have recently started out in business and are employing at least one other person, then you’ll need to understand and follow your obligations as an employer with regards to handling payroll. If you’ve ever been an employee yourself, then you’ll know how important it is to be paid on time, and you also have a responsibility to liaise with HMRC on behalf of your staff. If accounts and payroll aren’t your specialities, then this guide will assist in getting to grips with the basics. Alternatively, you may wish to outsource this task to a professional accountancy firm to provide you with more time to invest in the start-up of your new venture.
When a new employee arrives at your organisation, your first job is to ask them for their P45 certificate which will include detail vital information such as their NI band and tax code which must be shared with HMRC. They will then inform you how much tax and National Insurance contributions you should pay to the government on their behalf and out of their wages. You should also provide all employees with a workplace pension, although they are able to opt-out if they do not wish to receive this.
During the hiring process, you will have already negotiated a starting wage for your new employees, but it’s important to be aware of the minimum wage requirements in the UK. From 1st April 2020, the national living wage for those aged over 25 years old will be £8.72 per hour, with those aged between 21-24 earning a minimum £8.20 per hour. For 18-20-year-olds, this is set at £6.45 and under 18s must expect to receive at least £4.55 per hour. Apprentices can earn £4.15 per hour. As the age of your employees change, this must be updated in your PAYE software to keep accurate records to share with HMRC.
The Pay As You Earn system, otherwise known as PAYE enables companies to liaise with HMRC and communicate payroll information about their employees with them. This is a convenient way for your employees to pay their tax which is deducted from the regular wages they receive. If you wish to run your own inhouse payroll, you can use a software program that is compatible with HMRC’s PAYE Online system, depending on the size of your organisation. A firm of professional accountants in Peterborough explains that it’s your responsibility to gather PAYE information to submit as Real Time Information (RTI) and to send reports using the Full Payment Submissions (FPS) process.
Mistakes with payroll are not just inconvenient, they are also something that you will receive a penalty for if you make errors in the way you submit this information to HMRC. Late submissions, inaccurate records or repeated problems mean that you could see fines ranging from £100 to £400 per month from HMRC as well as the possibility of an employee taking you to a tribunal if they have filed a grievance relating to payroll.
If you feel that handling payroll is too time-intensive for you as a start-up and is taking time away from your crucial business operations, then it would make sense to outsource your payroll responsibilities. Make sure you have a thorough understanding of what is expected of you and put the necessary measures in place to fulfil your payroll obligations from the beginning of your new venture.