PAYROLL & PAYE
If you employ staff, you will need to administer payroll - this involves paying staff salaries, collecting employee taxes, and paying PAYE & employers taxes to HMRC - usually on a monthly basis.
Pay As You Earn (PAYE)
PAYE is the system used by HMRC to collect employee income tax directly through their pay. As an employer, you will pay your employees a gross salary, and you are responsible for deducting PAYE, employees NI (and any other relevant deductions), and passing this over to HMRC.
ACCOUNTING FOR PAYROLL
Once you are registered with HMRC, you will need to start submitting reports known as 'Real Time Information' (RTI) on or before each payday.
To submit compliant RTI for HRMC, you will need payroll software which can:
- Maintain salary records for all staff
- Calculate and manage PAYE liabilities
- Prepare payslip information for staff
- Prepare other payroll documentation e.g. P60 & P11d statements
- Send info directly to HMRC
At Waite Financial, we offer Payroll services which takes care of everything for you - no need to worry about purchasing or using your own software.
Operating a payroll system will impact your cash flows - as you pay your employee's (and/or yourself) you will need to set aside PAYE to pay to HRMC. This process results in the business needing to appropriately account for the payroll costs which are related to the business, and payroll liabilities which relate to employee taxes collected on behalf of HMRC. Knowledge of payroll accounting is required to ensure you make the correct payments to HRMC and settle liabilities on a timely basis.
A popular topic amongst business owners is 'Salary Optimisation'.
If you are a shareholder (most Director's of small businesses are), then you are able to draw money from your business in the form of dividends, which are subject to lower rates of tax.
But is important to maintain a 'token' salary
to most effectively utilise your tax-free
personal allowance, and to ensure you
accrue full state benefits upon retirement.
Read our salary optimisation guide here, for more details
National Insurance Contributions - what roll does NI play in payroll?
National insurance (NI) contributions are essentially contributions towards state benefits. NI is payable by both employees and by employers.
Self-employed individuals most often operate their business as a sole trader. Sole traders are taxed in an identical way to regular employment (through PAYE), however, in addition to paying Class 1 NI, sole traders will also need to pay Class 2 and Class 4 NI contributions.
Director of Limited Company -
You will pay National Insurance (NI) on your salary, but not on dividends. At Waite Financial, we can recommend the best salary to pay yourself, to maximise your income tax savings and still be low enough to entitle you to state benefits, without having to pay NI (you only pay NI if you annual salary is greater than a certain amount per month).
Workplace Pension - what do I need to do?
If you employ staff, you will need to offer and operate a workplace pension for all staff members, known as auto-enrolment.
If you already employ staff and operate a payroll system, then it is likely that you are already part of the auto-enrolment scheme, however - if you have recently employed staff or are looking to employ staff in the future, then you need to register for auto-enrolment and from the 'staging date', you will need to account for pension contributions via your payroll.
If you are due to stage auto-enrolment or are looking to employ staff and need advice on setting up your workplace pension, get in contact with us today for advice.
We also offer a full auto-enrolment service where we handle everything for you. We offer this service for £1.50 per employee, per month.
Other factors to consider
Frequency of salary payments - how often you make payments and submit RTI information.
Administration of benefits - whether to 'payroll' benefits or issue P11d's at the end of the year.
Company payroll policy - for example, annual leave entitlements and whether to allow employees to carry-over unused holiday.
Many new directors will hold-off drawing a salary or taking dividends from their new company in it's early days of trading - it is very common with new businesses, for directors to conserve cash to fund growth and not take money out of the business until it is more established.
If this applies to you and your business, then there are a number of things you can do to maximise income tax savings in these early years of trading. Speak with us to find out more.
Could affect you
Are you a...
Looking to employ staff but need someone
to look after your payroll
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us today and we'd be happy to help
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