PAYE is a taxation mechanism by HMRC that allows employers to deduct income tax and national insurance contributions from employees’ salaries. Pension contributions and student loans also fall under the PAYE category. These deductions are made while preparing employees’ payrolls on a monthly basis. Under the UK’s business regulations, every registered business is required to be enlisted with HMRC as an employer, even if it contains only one employee. As an employer, it will allow you to collect tax codes of your employees and make tax deduction according to their incomes and specified criteria set by HMRC.
How to register as an employer?
A business is required to be registered with the HMRC the moment it hires workers, even if it is only one. According to the HMRC’s regulations, the business must be registered before the first payday. During the PAYE registration process, the employer is required to provide all the essential details of the business and its employees for the preparation of an effective payroll system. There are certain other requirements for PAYE registration that are expected to meet. These are:
- The employee must be earning annually equal or above the PAYE and lower national insurance.
- The employee is getting employee benefits such as insurance, pensions, and car.
- The employee is employed anywhere else too.
There is no strict date for compulsory registration, but it is essential to be done before the first payday. Do not go for earlier than two months before payday, as if you will register yourself too early and do not pay anything to HMRC, it will cancel your registration automatically. In certain cases you can consult with HMRC officials as if;
- You have a business with an unusual structure with 110 or fewer directors who do not qualify for National Insurance or not residing in the UK.
- Your business has an unusual payment structure.
How Employers Deduct PAYE Tax?
HMRC provides tax codes to employers that guide them in knowing the mode and level of PAYE deductions from each employee. If by any chance, HMRC does not have enough information about your workers’ PAYE particulars, HMRC allows you to make use of the emergency tax code of PAYE deductions. For filing PAYE to HMRC, employers are provided with a tax code that can be found on payslips, mails from the tax office, or pension statement. Taxing on the provided emergency code will be stopped as soon as it gets a tax code by HMRC. In case an employer made overpayments to HMRC by using an emergency tax code, it can be refunded later on.
What is the Employer Reference Number (ERN)?
When a business is registered with HMRC as an employer, it is provided with an employer reference number that is used by the tax department and other lawful entities to recognize respective businesses among employers. The ERN is a combination of numbers and letters and comprises of two parts that contain 3 digit HMRC office number and a unique number for the business. If a business does not hold ERN on the PAYE returns, the HMRC will reject them.
What if I lose my ERN?
ERN is very beneficial for a business to deal with PAYE through the tax year. Being an employer, if you lose it, you should be considering for employer reference number. You can also go for corresponding HMRC to get the forms P45 and P60 of your previous employees.
How can I set a PAYE for a limited company?
If you are running a business with limited company status, then you are required to set up a payroll system that should reflect the PAYE number of every employee. The following steps can help you in doing so.
- Make sure you are registered as an employer With Her Majesty’s Revenue and Customs.
- Your employees must be registered with HMRC.
- Make sure that your accounting software is capable of transferring all the required details to HMRC automatically.
- Your employees must be paid any debts that they owe to HMRC within the specified time.
How do PAYE schemes work?
If you are registered as an employer with HMRC, you can apply for the PAYE schemes online. You will be provided with a unique reference number from HMRC. Your accountant will be using the latest accounting and payroll software for setting up your payroll system. You can make use of forms P45 and P60 to ensure the accuracy of your PAYE calculations and National Insurance Contribution deductions and for adding new employees, respectively.
Frequently Asked Question about PAYE Scheme
Is it compulsory to set a payroll system?
Being a business, even if you have a single employee, you are required to be registered with HMRC for PAYE; otherwise, there is no need for it.
Are company directors considered employees?
The director of the company is a separate entity and will be considered as an employee to the company.
What is the procedure of developing a payroll?
Initially, you are required to be registered as an employer with HMRC, and then you will be using your employer reference number to registering for the HMRC’s Payroll system.
How frequently should you pay your staff and the HMRC?
It majorly depends on your business’s cash flow. Basing on it, you can pay on a daily, weekly, or monthly basis, but make sure your paying frequency is not ending up in the form of difficulties.
Can I fill my payroll online?
Yes, you can. Filling your payroll online will be beneficial for you in saving time as well as avoiding failures to meet deadlines or making late payments.
How can ProAccountax Help You?
ProAccountax is serving a broad range of businesses from different industries. Our team of professional and highly experienced accountants and payroll solicitors can help your business in every possible way regarding getting your business registered with HMRC. Our Payroll and taxation agents are knowledgeable enough to make the whole registration process easy for you. Our team of accountants can help you in managing all accounting and payroll management matters efficiently. ProAccountax offers its accounting and payroll management services at very affordable rates.