Unless you’re set up as a sole trader, you’re probably going to need to start running a payroll. That’s right: even if you’re the sole director of a start-up limited company, you’ll need to send a PAYE return to HMRC every time you want to pay yourself because the company is a separate legal entity to you.
Every time, we hear you say? Yes, each and every time: whether you pay annually, monthly, weekly or daily. It’s a legal requirement.
In 2014, HMRC introduced Real Time Information (RTI) - its most radical shake-up of the PAYE (pay-as-you-earn) system to date. And guess what? It does what it says on the tin, so that means reporting to HMRC in real time every time you pay one of your employees, rather than just once a year. And the rule is that HMRC has to have the information on or before the day that you make the payment.
It probably sounds like you’re about to be mummified in red tape. But before you break out in a cold sweat and contemplate running for the hills, take a deep breath and read on. It’s actually all pretty straightforward.
Let’s start with some common questions.
How much should I pay my staff?
The only legal requirement to bear in mind is the National Minimum Wage. Other than that, you can set your salary scale however you choose.
What should I pay myself?
As the director of a limited company, you can elect to pay yourself partly in dividends as well as, of instead of, drawing a salary. Seek advice from one of Numberworx’s team of accountants to make sure your own pay works for you and your business.
What should my pay period be?
Again, this is up to you. Options include weekly, fortnightly, 4-weekly and monthly. You also need to decide what day of the week/month you are going to pay. Make this a strategic decision rather than plucking a day/date out of the air: consider your business’s cash flow situation and any significant incomings/outgoings that could affect your company’s bank balance.
Here’s our guide to running your payroll for the first time in 4 easy steps:
1. Register as an employer with HMRC and get a login for PAYE online
This has to be done before your first pay day but be warned: it can take up to six weeks (but you can’t do it more than two months before you start paying yourself or others). Luckily, you don’t have to worry about any of it if you choose Numberworx: we’ll liaise with HMRC on your behalf and set you up with PAYE. You can just get on with growing your business whilst we sort out the admin for you.
2. Hook yourself up with a payroll system
You’ll need various details to get yourself up-and-running, including your employees’ specifics and your company information. This will enable you to calculate your employees’ net pay and deductions owed to HMRC in the form of tax and NI contributions.
You’ve got four options here:
a) Use HMRC’s free payroll software to make your submissions
HMRC can provide you with a free, basic system (unsurprisingly called Basic PAYE Tools) but (equally unsurprising) it only fulfils HMRC’s minimum reporting requirement. It’ll calculate pay and deductions and file your reports to HMRC but it won’t let you generate payslips or other useful things like that.
b) Pay for more sophisticated payroll software
Plenty of accounting tech companies have jumped on the RTI bandwagon and produced software that you can use to run your pay roll. For a fee, you’ll get access to more sophisticated tools and features but – and there are two pretty big buts – you’ll have to do all the donkey work yourself. And you’ll be responsible for any mistakes.
c) Ask your accountant to manage your payroll for you
Great – someone else to do all the hard graft for you. It can be expensive though. Oh, and there is still a breed of accountant who still lives in the dark ages and will want you to fill in a lot of (hard copy) paperwork.
d) Use Numberworx’s cloud-based payroll service
Just give us your employee’s details and how much you want to pay them and we’ll do the rest. One of our highly qualified payroll managers will run your payroll from our lovely offices in sunny Kent and do everything required to keep HMRC sweet. We’ll email you and your employees payslips every time your payroll runs and send you a monthly report telling you how much you need to pay HMRC.
3. Provide RTI to HMRC
Acronym overload alert! But as we said above, you have to report back to HMRC on or before the day you pay your employee(s). If you use your own software, you’ll have to make sure that you do this on time. If you use Numberworx, you can rest easy: it’ll all be taken care of for you. So sit back, have a cup of tea and allow yourself to be just a little bit smug.
You have until the 22nd of the next month after your payroll has run to pay HMRC any tax and NI that you owe them. You can do this by BACS, Direct Debit or card payment.
For further information on Numberworx’s payroll services, click here.