This post is just one part of a 12-part guide to setting up a new business. Download the full business set-up guide to discover everything you need to know about satisfying HMRC and steering clear of any unwanted penalties and fines.
Irrespective of the form of business in which you operate, if you are going to have employees, then you will have to contend with payroll taxes. If you are trading as a limited company then remember that the directors are also employees. The brief summary that follows will give you some guidance in the rules and regulations of HMRC.
Helpful Publications
HMRC publish guidance on their website relating to how PAYE is operated and the legislation that you have to comply with. Not only do you collect and remit PAYE to the Collector of Taxes on behalf of HMRC, you also operate the sick pay scheme and maternity pay scheme. You should run the PAYE scheme in accordance with the legislation and should you fail to comply then HMRC will look to the employer for the tax or NIC you failed to deduct. This can be costly if you are unable to recover the tax and NIC from the employee.
Do You Have Employees?
Whether an individual is an employee or not in a particular situation is a question of fact depending on the terms on which he works. The question of whether an individual is employed or self-employed is very important for the business “employing” him or her, as that business has to comply with the reporting requirements. The “employer” should not just accept that the worker says he is “self employed”.
In certain areas HMRC has placed emphasis on reclassifying individuals claiming to be self-employed and has issued leaflet IR56 entitled “Tax: employed or self-employed”. The booklet sets out the questions that should be answered to determine the problem. If you have treated someone as self-employed and subsequently after a routine visit from HMRC it is clear that they were employees, then the tax and NIC which should have been paid will be assessed on the employer. Therefore it is important to ensure when using the services of self-employed people that they are in fact self-employed. If doubt exists as to the status of an individual, the situation can be clarified with HMRC. HMRC provide an interactive software tool to help employers and workers at: https://www.gov.uk/employment-status-indicator
The Operation of PAYE and Real Time Information
Most businesses operate a computerised payroll system these days and we can advise on the software to use if you wish to run the payroll yourself. Alternatively we can prepare the payroll on your behalf if you provide us with employees’ hours, rates of pay and overtime on a timely basis each week or month.
A system of Real Time Information (RTI) has been introduced which will allow businesses to submit information electronically to HMRC every month. This will in due course eliminate the need for annual end of year returns of wages and salaries. You will need RTI-enabled software provided by several software companies. Alternatively where there are 9 or fewer employees you can use HMRC’s Basic PAYE Tools which can be downloaded from the HMRC website.
The tax and national insurance should be paid to HMRC by the 19th of the month following that in which the salaries were paid (22nd of the month if paying electronically).
Under RTI, the employer tells HMRC about tax, NICs and other deductions when or before the wages and salary payments are made, instead of waiting until the end of the tax year. It is hoped that this system will make the PAYE process simpler and less burdensome for employers and HMRC. It removes the need for the end of year return on P35 and P14, although the end of year form P60 still has to be prepared and given to employees. RTI will also simplify the employee starting or leaving processes.
Pensions Auto Enrolment
Recent changes to Pensions legislation require all employers, with exception of one man band companies, to provide a pension scheme for their employees. This “Auto Enrolment” is already an obligation for medium-sized and larger firms with 50 or more employees.
The date when the obligation applies to a particular employer depends on the “staging date” as the new system gets rolled out. The precise “staging date” will be assigned by the Pensions Regulator on behalf of the Department of Work and Pensions (DWP) as follows:.
PAYE income is first payable
in respect of any member of staff
Staging date
From 1 April 2012 up to and including 31 March 2013
1 May 2017
From 1 April 2013 up to and including 31 March 2014
1 July 2017
From 1 April 2014 up to and including 31 March 2015
1 August 2017
From 1 April 2015 up to and including 31 December 2015
1 October 2017
From 1 January 2016 up to and including 30 September 2016
1 November 2017
From 1 October 2016 up to and including 30 June 2017
1 January 2018
From 1 July 2017 up to and including 30 September 2017
1 February 2018
So the start date for a particular business may be in the future but changes may be required to payroll systems if you are to make deductions from employees’ pay for their pension contributions.
For automatic enrolment there are minimum contributions you must pay in order to comply with your duties. These are a percentage of earnings and are shown in the table below.
Date
Employer minimum
Contribution
Total minimum
contribution
Currently to 05/04/18
1%
2%
06/04/18-05/04/19
2%
5%
06/04/19 onwards
3%
8%
Your worker may also wish to pay additional pension contributions, which you will need to make sure you deduct and pay to the scheme on time. Ongoing automatic enrolment responsibilities: www.tpr.gov.uk/ongoing
After you have automatically enrolled your staff members, they may ask to ‘opt out’ of the pension scheme. You must then stop deductions of contributions and arrange a refund of any contributions they have paid to date.
You must set up a workplace pension scheme before your staging date, if you don’t already offer one. If you already have a pension scheme, you may be able to use that scheme. Robinsons can advise you on your obligations and assist you in complying with the new rules.
Benefits in Kind
In most businesses, the directors, and often the employees, have benefits that are not immediately taxed through the PAYE system, the most usual being the provision of a car and possibly fuel. Class 1A national insurance contributions (currently 13.8%) are due on the taxable value of these benefits in kind and are due on the 19 July following the fiscal year in which the benefits are made available. In addition, HMRC requires on an annual basis a form P11D (Return of expenses payments and benefits). The form is also used to report reimbursed expenses, such as employee travel and subsistence, although it is possible to apply to HMRC for a dispensation from reporting such items where good internal controls for approving expenses are in place. In addition, one form P11D(b) is required to declare the overall amount of Class 1A National Insurance contributions due on all the expenses and benefits you have provided.
Payroll Software
If you plan to operate and process your own employee payroll there are various software packages available including the free software from HMRC “Basic PAYE Tools” referred to above.
However, operating a payroll system can be complex and time consuming. Robinsons Accountants offer a bureau facility for processing your payroll and supplying you with reports, payslips etc. Contact us if you would like further details.
How to set up payroll taxes and pensions for your new business
Payroll Taxes and Pensions
This post is just one part of a 12-part guide to setting up a new business. Download the full business set-up guide to discover everything you need to know about satisfying HMRC and steering clear of any unwanted penalties and fines.
Irrespective of the form of business in which you operate, if you are going to have employees, then you will have to contend with payroll taxes. If you are trading as a limited company then remember that the directors are also employees. The brief summary that follows will give you some guidance in the rules and regulations of HMRC.
Helpful Publications
HMRC publish guidance on their website relating to how PAYE is operated and the legislation that you have to comply with. Not only do you collect and remit PAYE to the Collector of Taxes on behalf of HMRC, you also operate the sick pay scheme and maternity pay scheme. You should run the PAYE scheme in accordance with the legislation and should you fail to comply then HMRC will look to the employer for the tax or NIC you failed to deduct. This can be costly if you are unable to recover the tax and NIC from the employee.
Do You Have Employees?
Whether an individual is an employee or not in a particular situation is a question of fact depending on the terms on which he works. The question of whether an individual is employed or self-employed is very important for the business “employing” him or her, as that business has to comply with the reporting requirements. The “employer” should not just accept that the worker says he is “self employed”.
In certain areas HMRC has placed emphasis on reclassifying individuals claiming to be self-employed and has issued leaflet IR56 entitled “Tax: employed or self-employed”. The booklet sets out the questions that should be answered to determine the problem. If you have treated someone as self-employed and subsequently after a routine visit from HMRC it is clear that they were employees, then the tax and NIC which should have been paid will be assessed on the employer. Therefore it is important to ensure when using the services of self-employed people that they are in fact self-employed. If doubt exists as to the status of an individual, the situation can be clarified with HMRC. HMRC provide an interactive software tool to help employers and workers at: https://www.gov.uk/employment-status-indicator
The Operation of PAYE and Real Time Information
Most businesses operate a computerised payroll system these days and we can advise on the software to use if you wish to run the payroll yourself. Alternatively we can prepare the payroll on your behalf if you provide us with employees’ hours, rates of pay and overtime on a timely basis each week or month.
A system of Real Time Information (RTI) has been introduced which will allow businesses to submit information electronically to HMRC every month. This will in due course eliminate the need for annual end of year returns of wages and salaries. You will need RTI-enabled software provided by several software companies. Alternatively where there are 9 or fewer employees you can use HMRC’s Basic PAYE Tools which can be downloaded from the HMRC website.
The tax and national insurance should be paid to HMRC by the 19th of the month following that in which the salaries were paid (22nd of the month if paying electronically).
Under RTI, the employer tells HMRC about tax, NICs and other deductions when or before the wages and salary payments are made, instead of waiting until the end of the tax year. It is hoped that this system will make the PAYE process simpler and less burdensome for employers and HMRC. It removes the need for the end of year return on P35 and P14, although the end of year form P60 still has to be prepared and given to employees. RTI will also simplify the employee starting or leaving processes.
Pensions Auto Enrolment
Recent changes to Pensions legislation require all employers, with exception of one man band companies, to provide a pension scheme for their employees. This “Auto Enrolment” is already an obligation for medium-sized and larger firms with 50 or more employees.
The date when the obligation applies to a particular employer depends on the “staging date” as the new system gets rolled out. The precise “staging date” will be assigned by the Pensions Regulator on behalf of the Department of Work and Pensions (DWP) as follows:.
in respect of any member of staff
So the start date for a particular business may be in the future but changes may be required to payroll systems if you are to make deductions from employees’ pay for their pension contributions.
For automatic enrolment there are minimum contributions you must pay in order to comply with your duties. These are a percentage of earnings and are shown in the table below.
Contribution
contribution
Your worker may also wish to pay additional pension contributions, which you will need to make sure you deduct and pay to the scheme on time. Ongoing automatic enrolment responsibilities: www.tpr.gov.uk/ongoing
After you have automatically enrolled your staff members, they may ask to ‘opt out’ of the pension scheme. You must then stop deductions of contributions and arrange a refund of any contributions they have paid to date.
You must set up a workplace pension scheme before your staging date, if you don’t already offer one. If you already have a pension scheme, you may be able to use that scheme. Robinsons can advise you on your obligations and assist you in complying with the new rules.
Benefits in Kind
In most businesses, the directors, and often the employees, have benefits that are not immediately taxed through the PAYE system, the most usual being the provision of a car and possibly fuel. Class 1A national insurance contributions (currently 13.8%) are due on the taxable value of these benefits in kind and are due on the 19 July following the fiscal year in which the benefits are made available. In addition, HMRC requires on an annual basis a form P11D (Return of expenses payments and benefits). The form is also used to report reimbursed expenses, such as employee travel and subsistence, although it is possible to apply to HMRC for a dispensation from reporting such items where good internal controls for approving expenses are in place. In addition, one form P11D(b) is required to declare the overall amount of Class 1A National Insurance contributions due on all the expenses and benefits you have provided.
Payroll Software
If you plan to operate and process your own employee payroll there are various software packages available including the free software from HMRC “Basic PAYE Tools” referred to above.
However, operating a payroll system can be complex and time consuming. Robinsons Accountants offer a bureau facility for processing your payroll and supplying you with reports, payslips etc. Contact us if you would like further details.
HMRC make available a checklist to help ensure compliance with expenses and benefits: https://www.gov.uk/government/publications/hmrc-expenses-and-benefits-from-employment-toolkit
Information about completing forms P11D and P11D(b) can be found at: https://www.gov.uk/employer-reporting-expenses-benefits/overview
You can register online and obtain more details at the HMRC website: https://www.gov.uk/topic/business-tax/paye
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