We Want You To Get Your Payroll Right
This page covers almost everything you will need to know about your payroll, such as:
- Data we require along with how & when to supply it.
- What we will supply to you once the payroll is undertaken, how to use this information.
- How and when to pay HMRC.
Simply click on the "+" symbol beside each section to get further detail.
New Start Employees
There is a lot of data that is required on new start employees. Our system below ensures that all of this is captured in "one go" allowing you to focus on your business.
Every employee added to a payroll scheme must supply core information about themselves as well as their previous employment earnings and tax deducted.
For each new employee fill in this form;
- There is no rule saying you cannot pay employees in cash. Indeed this lessens banking fees for many businesses who are paid in cash. However, HMRC take a lesser (and naturally suspicious) view of cash paid employees so it is advisable if possible to pay by bank transfer as this produces a perfect audit trail.
- However, it is commonly understood that "cash in hand" means no declaration on payroll submissions and no tax/ni/auto enrolment deductions either. This is illegal, inadvisable and will land you in trouble with HMRC. Further, it bypasses many rights that workers have, if they leave disgruntled you can be sure a tribunal will follow.
- Undeclared paid employees also result in either (a)undeclared sales or (b) higher taxes on the business owner due to not claiming this cost. Either way it's a lose-lose and we advise against it.
Most employers are now required to have a workplace pension scheme in place and to automatically add employees to it (called "auto-enrolment"). Non compliance fines are automatic and quickly reach £5000 so this area of employment law that cannot be ignored.
- If you have employees, you must have an auto enrolment scheme setup and in place. The logic (from The Pensions Regulator viewpoint) appears to be that an employee cannot be auto-enrolled (or indeed voluntarily enrol) without the scheme already in existence.
- Therefore, you cannot put the scheme in place when the first person requires it, by virtue of being an employer the scheme must already be setup so that it can be used when requested.
- Fines for non compliance can quickly reach £5000 so compliance is cost effective and a must.
- All employers are required to have an auto-enrollment scheme in place.
- Qualifying employers can opt-out of having a scheme in place.
- Qualifying employees must be "auto-enrolled" in a scheme (but can opt out).
#Therefore, all new employees who qualify to be auto-enrolled (various criteria they must meet, published on the governments website) must be "auto-enrolled". If they fill out and sign an "opt-out" form then they can opt-out, however the obligation is on the employer to have an auto-enrollment scheme in place and to auto-enroll each qualifying employee.
- By law, all employees must first be enrolled into an auto enrolment pension scheme.
- They can leave the scheme (immediately if required) by stating this in writing to the employer who will then un-enrol them.
- If an entire workforce decides that they do not want to be enrolled into the AE pension scheme, a scheme still requires to exist (i.e the employer still has an auto-enrolment obligation and cannot bypass it).
- Employees not wanting to be in the scheme can leave the scheme immediately.
- Employers cannot use coercion or bribery to influence an employees rights (i.e offering them a cash in hand substitute etc). This can land the employer in court very quickly!
- A director (i.e not just in name but an office holder) who holds a written contract of employment with the company is classed as "a worker" by The Pensions Regulator and is therefore entitled to be treated like any other employee under auto-enrolment regulations.
- A director/owner (who, rarely, has a written contract of employment..with themselves) is therefore exempt from Auto Enrolment regulations.
Regular Payroll Data
Payroll is the trickiest of all tasks to correct. Accuracy first time is critical, so please take a moment to read the info we require to maintain this and ensure corrections are not required to be added on to following payrolls.
- If your employee is not paid a fixed payment per pay period but rather is paid hours x pay rate, please provide the hours.
- If there are any changes to the employees pay rate (including statutory ones when the National Minimum Wage increases, please notify us of this.)
- If the employee has 2 pay rates i.e standard rate and overtime rate, please advise us of any changes to either.
- As employer you (and not us) must keep relevant records.
- These records would be accrued holiday pay (holidays earned) and holiday pay given. Alternatively, this could also be days earned versus days taken.
- Each time an employee is to be paid holiday pay please tell us either hours x pay rate or the total holiday pay to be entered. Telling us "please pay x days holiday" is not enough data for us to process, we need it in the prescribed format as mentioned.
- Please also provide the dates of the employees holidays.
If you are not already keeping records on holidays earned and holidays paid, you must undertake thisas this is an HR obligation of the employer (and not an accountants obligation) If you need guidance on how to do this, please let us know and we will be happy to provide a relevant spreadsheet.
- Please details the dates that SSP should be paid from and to (both dates inclusive).
- We need to know whether the Statutory Sick Pay amount is to be applied or an enhanced rate (as decided by you).
Maternity & Paternity Pay
- Please provide any detail of employees paid any of these amounts. We need to know the day from and the day to (both dates inclusive).
To ensure that payroll leavers are correctly and legally dealt with, please review our requirements below.
- When an employee leaves, we need to know the last day they worked. If they are being given "pay in lieu of notice" we need to know what date the last day of that notice period is.
- If you have a leaver in the pay period, we require to know their final regular pay data.
- Leavers are entitled to any untaken holidays they have earned. Please provide us with the balance of this. (i.e x days at x per day, or perhaps the total amount to be paid to them) or perhaps holidays earned less holidays taken.
Arrangements around directors payroll tend to be different to regular staff. Optimise your directors payrolls by considering the aspects below.
Salary Versus Dividend
- A sole owner/director is not legally bound to receive any remuneration at all.
- A director will normally take salary to reflect paid work done
- A shareholder will take dividends - to reflect the return on investment in the company.
# Therefore a Ltd co owner, being an owner will take dividends and also as a worker will take a salary. HMRC can have issues where dividends are "excessively high" compared to salary, they view this as potential tax evasion. If you are entering this scenario, take specialist advice from us first to ensure best practice.
- The tax-free allowance is taken via payroll. This keep Ni contributions up to date.
- Extra amounts are taken (initially as a directors loan) and will then be offset to a "dividend declaration".
Although payslips are produced during the year, some directors opt to not pay this exact amount every month but rather draw monies when required.
This is fine, at year end we add up all the directors’ drawings, deduct the net pay due (from the payslips), the rest is then declared as dividend.
- National Insurance kicks in once a certain threshold has been reached. For most directors, they experience a sharp rise in National Insurance around December. This continues until March at which point the new payroll year in April resets this to zero.
What is An Illegal Dividend
- A business owner must beware of draining the cash reserves of a company. If the company cannot meet its obligations it is technically insolvent.
- There is a risk that a business owner (being a shareholder) takes too much out of the company during the year. This is likely to happen where they employ the services of an accountant purely for compliance (i.e vat returns, accounts and tax) but do not consult the accountant during the year to see what is available to be taken as dividend.
- In saving on accounting fees by not performing the above, the business owner is at risk of taking more dividend than they are entitled to thus creating an "illegal dividend".
- The word "illegal" is used not so much in the legal sens i.e fines, court etc but in the sense the owner took more than they were entitled to.
Outcomes Of Illegal Dividends
- If an illegal dividend occurs an not immediate strategy is possible to either settle the outstanding amount or treat it in any other way, then penalty tax will be due on it at 30%. This can be avoided or refunded if the outstanding amount is repaid back to the company within 9 months of year end.
- If ever there was a case for having interim accounts and advice "in year" then this is it. Ignore at your peril!
If you operate as a contractor in the Construction Industry Scheme (CIS), this section will cover most common queries.
Already Registered For PAYE?
If you are registered already for PAYE before becoming a Contractor, then call the CIS helpline (0300 200 3210) and register as a Contractor under the CIS scheme.
Not Already Registered For PAYE?
If you do not have a PAYE registration already in place this will require to be undertaken first. At the same time, HMRC can be instructed to also register you as a CIS Contractor.
A business operating in the construction industry sector becomes a Contractor when they appoint Subcontractors to carry out some of the work.
When this happens you must register as a Contractor.
We can do this for you, just ask!
Once we submit the application to HMRC, registration for CIS can take up to 4 weeks to complete but often is is completed within 2 weeks.
A CIS registration number and a UTR (Unique Tax Reference) are one and the same thing. Both are a 10 digit number that can look like this "01234556789" or "01234 56789". Occasionally there is a 3 digit tax office reference in front with a slash, like this 999/01234556789.
You can. There is a "but" though. The self employed worker within the confines of CIS must now suffer 30% tax deductions instead of 20%. Once he becomes registered with HMRC (i.e has a UTR or CIS number which is the same thing) he will then be taxed at 20%.
Scenarios Where Gross Status Could Be Beneficial
It's possible that you operate both as a Contractor (i.e employing sub-contractors) whilst simultaneously being a sub-contractor to another company.
Or perhaps you are simply a sub-contractor.
Applying for gross status (i.e being paid without deductions) is very beneficial in this scenario.
How To Apply For CIS Gross Status
- Sign in to Government Gateway.
- From 'Your tax account', go to 'Other services'.
- Choose 'Construction Industry Scheme – Subcontractors'.
There are criteria to meet in order to get gross status, this are listed in detail here
- Each time you pay a CIS sub-contractor, please provide the Gross wage amount (before CIS deductions) you paid them. Our payslips will then advise the Net amount (after CIS deductions) to pay them.
- If you are reimbursing them for materials etc, please detail this separately 9as it is not subject to CIS deductions).
What We Will Supply To You
Once we run payroll, here are the key documents we will email back to you along with an explanation of key info within them.
- Payslips will be sent to you in PDF format. We can provide either an individual PDF for each payslip or all payslips on a single PDF. Just let us know which you prefer.
- When you receive the payslips, simple print them out and give to each employee (or if individual PDF's are supplied you can forward each one to the relevant employee).
RTI stand for "Real Time Information" i.e HMRC is updated in "Real Time" each time a payroll is run.
We profide a PDF RTI report each time a payroll is run.
The report give you an overview of your payroll and will also tell you:
- What to pay HMRC
- What to pay your auto-enrolment pension provider.
Each time we undertake a payroll we will provide an auto-enrollment payment report to you (if relevant).
This report will tell you;
- The amount of employee payroll deductions
- The amount of employer payroll deductions
- The total amount due to the pension provider.
If and when relevant these will be supplied to you. It is the legal responsibility of the employer to provide an employee with these at the appropriate time.
For each sub-contractor you engage under the CIS scheme, we will provide a CIS payslip. We will also complete the monthly CIS300 return to HMRC. A PDF copy will be emailed to you.
How To Pay HMRC Your Payroll Taxes
Paying HMRC on time is imperative. The detail on what to pay them, when to pay it and how to pay it is all covered below. It is critical to be aware of this as the duty to pay HMRC on time falls on the business owner.
- Please be aware that there are many scams that are being run everyday in an attempt to obtain your bank details. These could be tax demands, threatening messages and even tax rebate notices. Scammers use SMS test messages (HMRC do not use these) as well as email (HMRC do not use this either).
- Make it a habit to ignore ALL messages purporting to be from HMRC on SMS and email. Any paper letters are far more authentic and less likely to be used by scammers.
- Never click on a link provided by anyone (including us!). Links to webpages can bear one address but subvert you to another "look-a-like" website. Messages can be intercepted too, your best defense is to manually type in a web address into the browser.
- Your absolute best defence against scammers is to have a Government Gateway account and to login to this to pay PAYE and any other tax. (It's also the best way to pay your PAYE!)
Paying PAYE That Is Due
PAYE is made up of ;
- Employees tax deductions & Ni deductions
- Employers Ni
To pay the amount of PAYE due to HMRC each pay period you will need;
- The RTi report we provide you each pay period
- A bank card
- The PAYE due will show on your Govt gateway account 12 days after RTi submission
- Go to your government gateway account login here
- Browse to section called "PAYE for employers"
- Review "Upcoming Payments" and "Your Overdue Payments"
- Locate each outstanding PAYE bill and pay it separetly
- TIP! Only make payment against specific amounts, never make a "payment on account" to PAYE because it will be "unallocated" by HMRC resulting in debt letters still being sent to you for alledged unpaid PAYE bills.
Strategy For Never Missing A PAYE Payment
PAYE amounts due take around 12 days after RTi submission to appear on your PAYE account within Government Gateway.
Whether you use a digital diary or a good old paper one, here are the entries you need to make to ensure your PAYE never falls behind:
- Monthly Payrolls - 12th of each month
- Weekly Payrolls - Setup a recurring fortnightly reminder.