The UK’s payroll system is one of the most complex in the world. There are numerous tax and social security deductions that must be made, as well as a host of other compliance issues that need to be taken into account.
As an employer, it is your responsibility to ensure that your employees are paid correctly and on time. This can be a daunting task, but fortunately there are a number of payroll services that can help you meet your obligations.
In this guide, we will take you through everything you need to know about payroll in the UK, including how to set up a payroll system, how to calculate taxes and social security deductions, and what compliance issues you need to be aware of.
UK Employment Law
In the UK, employment law is governed by a number of different statutes and regulations. The most important pieces of legislation for employers are the Employment Rights Act 1996, the Equality Act 2010, and the Health and Safety at Work etc. Act 1974.
These laws set out the rights and responsibilities of employers and employees, and cover topics such as working hours, holiday entitlement, sick pay, and dismissal procedures.
As an employer, it is your responsibility to ensure that you are compliant with all relevant employment law. Failure to do so could result in costly penalties, or even criminal charges.
If you are unsure about your obligations under UK employment law, we recommend seeking professional advice.
Employee Contracts
When you are employing staff, it is important that you have a contract of employment in place. This contract should detail the terms and conditions of employment, including the hours of work, pay, and holiday entitlement.
It is important to ensure that all employees have a copy of their contract, and that they understand the terms and conditions that are contained within it. If you do not have a contract of employment in place, you may be subject to a number of penalties, including fines and jail time.
Employer Operating PAYE
When you operate PAYE (Pay As You Earn) in the UK, there are some important things that you need to do as an employer.
- First and foremost, you need to have a PAYE Reference Number from HM Revenue & Customs (HMRC). This is a unique number that identifies your business for tax purposes.
- You will also need to set up a PAYE scheme with HMRC. This will enable you to deduct the correct amount of tax and National Insurance from your employees’ wages.
Once you have these two things in place, you will be able to start paying your employees through the PAYE system.
Calculating Taxes and Deductions
The first step in calculating taxes and deductions is to work out the tax code for each of your employees.
This can be a complex process, as there are a number of different tax codes that can apply. However, there are a number of online tools that can help you to work out the correct tax code for each employee.
Once you have the tax codes for your employees, you will need to calculate the amount of tax and National Insurance that needs to be deducted from their wages. This can be done using a PAYE calculator, which is available on the HMRC website.
Once you have calculated the amount of tax and National Insurance that needs to be deducted, you will need to deduct this from your employees’ wages. This can be done manually, or you can use a payroll software package to automate the process.
Calculating Taxes and Deductions
The first step in calculating taxes and deductions is to work out the tax code for each of your employees.
This can be a complex process, as there are a number of different tax codes that can apply. However, there are a number of online tools that can help you to work out the correct tax code for each employee.
Once you have the tax codes for your employees, you will need to calculate the amount of tax and National Insurance that needs to be deducted from their wages. This can be done using a PAYE calculator, which is available on the HMRC website.
Once you have calculated the amount of tax and National Insurance that needs to be deducted, you will need to deduct this from your employees’ wages. This can be done manually, or you can use a payroll software package to automate the process.
Available Payroll Software
There are a number of payroll software packages that are available on the market. These include:
Paying Employees
Once you have deducted the correct amount of tax and National Insurance from your employees’ wages, you will need to pay them their net wages. This can be done by cheque, direct deposit, or a variety of other methods.
It is important to note that you will need to make sure that your employees are paid at least once a month. If you do not pay your employees on time, you may be subject to penalties from HMRC.
Sending An FPS (Full Payment Submission) After Payday
Once you have paid your employees, you will need to send HMRC a Full Payment Submission (FPS). This is a report that details all of the payments that you have made to your employees in a given tax year.
The FPS needs to be sent to HMRC on or before the last day of the month following the end of the tax year. For example, if you are paying your employees in April, you will need to send the FPS to HMRC by the end of May.
If you do not send the FPS on time, you may be subject to a late payment penalty from HMRC.
Compliance Issues
There are a number of compliance issues that you need to be aware of when operating PAYE in the UK.
1. First and foremost, you need to keep accurate records of all your employees’ wages and deductions. These records need to be kept for at least three years.
2. You will also need to file a number of returns with HMRC, such as the P11D and P60 forms. Failure to file these returns on time can result in penalties from HMRC.
3. Finally, you need to make sure that you pay your employees the correct amount of holiday pay. If you do not comply with these requirements, you may be subject to a range of penalties, including fines and jail time.
Auto Enrolment
As an employer, you also need to be aware of your obligations under auto enrolment. This is a government initiative that requires all employers to provide their employees with a workplace pension scheme.
If you do not comply with the requirements of auto enrolment, you may be subject to a number of penalties, including fines and jail.
To learn more, get in touch with us today.
