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Payroll for beginners (Running your first payroll)
Payroll for beginners (Running your first payroll)
Rebecca Russell avatar
Written by Rebecca Russell
Updated over a year ago

Congratulations on your new company! 🎉

Exciting times ahead, but for now, we're sure you have a lot of questions about setting up your payroll since after all, UK payroll seems quite complicated and full of jargon.

Summary

Here's a summary of everything that you need to know about payroll. For more information, please scroll down to read about these topics in more detail.

Payroll 101

  • UK Tax year - Starts in April and runs from 06/04/2020 to 05/04/2021.

  • Year-to-date (YTD) - year-to-date information refers to the total accumulated amount of a value since the start of the tax year.

  • Starter declaration - every time you have a new starter, you need to ask them to complete a starter declaration form to determine their tax code.

  • Tax codes - the default tax code for most employees is 1250L. These are used to calculate income tax.

  • Payroll ID / RTI ID - this is assigned by an employer to the employee and is used by the HMRC to identify an employee. By default, it is randomly generated by PayFit, so that no two employees can have the same Payroll / RTI ID.

You need to set up your HMRC account (online tax account) to declare and pay taxes

One of your main obligations as an employer is to submit your monthly Real Time Information reports (RTI) to the HMRC and make any changes to employee tax codes that the HMRC ask you to make. These reports are:

1. Your Full Payment Submission (FPS) which is a detailed breakdown of your employees' gross earnings and statutory deductions

2. Your Employer Payment Summary (EPS) which is a smaller report in which you can reclaim money from HMRC, and declare any apprenticeship levy you need to pay.

At PayFit we call these your declarations.

HMRC (His Majesty's Revenue and Customs) is the UK government's tax collecting body. Creating an online HMRC account (with PAYE for employers) allows you to report your pay information to HMRC every time you pay your employees, to let them know how much you owe.

Don't worry if you aren't able to activate PAYE for employers or register for HMRC online services in time for your first payday. We'll simply submit your declarations to the HMRC as soon as you are able to activate it, but please let us know!

Quick guide for setting up your HMRC account and registering for PAYE for employers

For further information about setting up your HMRC account, please refer to our Help Centre article.

On a monthly basis, your responsibilities include:

  • On the 10th of the following month, you should check your tax account as it will be updated with your most recent RTI submissions. If you find a discrepancy between your HMRC account and your PayFit account please contact us.

  • By the 22nd of the following month, you'll need to pay your taxes via direct-debit or bank transfer through your online HMRC account.

On a monthly basis, PayFit will:

  • Submitting your FPS (full payment submission)

  • Submitting your EPS (employer payment summary)

  • Remind you to activate your PAYE if you haven't done so.

Understanding your workplace pension obligations

In the UK, auto-enrolment regulations state that employers are required by law to enrol qualified staff who normally work in the UK into a qualifying pension scheme. You could be fined if you fail to enrol qualified staff within 3 months of their start date.

Qualifying staff (click here for more information)

  • Anyone (excluding directors who are paid irregularly) earning at least £833 per month / £10,000 per year

  • Is between the age of 22 and 65 (state pension age)

  • Normally work in the UK

Types of pension schemes (click here for more information)

  • Net pay arrangement

  • Relief at source

  • Salary sacrifice

Contributions should be paid on:

  • Standard qualifying earnings (most common) - also known as banded, pension contributions will only calculated based on earnings between £520 and £4167. This is the minimum to be compliant.

  • Full pay - also known as unbanded, pension contributions are calculated based on full pay.

Quick guide for setting up your pension scheme and processing this in PayFit

On a monthly basis, your responsibilities will be to:

  • Opt-in eligible starters on PayFit.

  • Change contribution rates on PayFit if your employee requests this.

  • Pay the pension contributions collected, to the pension provider.

On a monthly basis, PayFit will:

  • Send all the pension information (who is opted in or out / how much each employee is contributing, etc.) in the app to your pension scheme.

  • If we're not able to upload the file directly, a file will be generated in your documents section each month that you can upload to your pension provider's portal.

  • Keep legislation up-to-date on your PayFit account to keep your business compliant. You'll receive a warning in your PayFit account if a setting doesn't follow government regulations

Check if you're eligible to claim employment allowance / small employers' relief

If you're a new company, you may be able to claim employment allowance and small employers' relief on the app. These are tax reliefs that automatically subtract from your tax bill. Something to be excited about right?

  • Check HMRC guidance to see if you're eligible for Employment allowance.

  • Check HMRC guidance to see if you're eligible for small employers' relief.

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