Setting up a payroll account and running it for the first time can be overwhelming. Check our guide to never feel intimidated anymore.
Setting up payroll for the first time can be daunting for first-time business owners. In the UK alone, there were 32.4 million people on payroll in December 2021. Just before the pandemic, the number was even higher at 33 million in February 2020.
Since then, payrolled employment has only increased, with the most recent reports from HMRC and the Office for National Statistics showing that since February 2020, the number of payrolled employees has gone up by 1.8%. This means it’s now at 33.5 million people, which means that doing it properly is more important than ever.
The first time you set up payroll is the most challenging, as you are still learning the ins and outs of how to do it effectively. Once you settle into a rhythm, you will find that payroll becomes easier. If you’d like, you can choose a payroll provider to take care of it for you or set up payroll yourself.
This article discusses both options for setting up payroll and provides insight into how to set up payroll for the first time.
If you would like to outsource your payroll to a third party, there are a few things that you should keep in mind. This section will discuss what qualities and standards to look for in a payroll service provider and what questions to ask them.
Things to think about when choosing a payroll provider are:
Here are some questions to ask a payroll service provider before you commit to outsourcing your payroll to them:
If you find a payroll services provider that can do the above, you will be well on your way to success. If not, it’s time to start again from square one and find another service provider.
Are you planning to set up payroll yourself? In this section, you’ll find out which steps to take the first time you set up payroll for your business.
First, you’ll need to register with HMRC. If you click the link provided, you’ll be led to the www.gov.uk site to register as an employer. There are two options there: the first is for limited companies with one to nine directors. If you’re another type of business, click the “Next” link under that heading.
Don’t register yourself (the company director) as an employer - the employer name you list should be that of your company. You shouldn’t register too far in advance or too late - so a good rule of thumb is to register one month before your first employee payday.
Once you’ve answered the questions, you’ll be given a 12-digit government gateway number and be asked to log in. You should see PAYE information, but if you don’t, you’ll need to enrol in PAYE to gain online access to the information.
Once you’ve registered, getting your PAYE online login information will take some time. Once you’ve got your employer PAYE reference and an accounts office reference. (Those two numbers will not be the same.)
Think about the payroll features you want for your software and make sure it reports PAYE information online. Here are some things to ask yourself:
If you’d like an HMRC-approved software option, there are several for you to choose from.
If you switch to another software option during the year, you must take specific steps to avoid incorrect calculations or record duplications.
Here is what you’ll need to keep records of:
Your records must be accurately maintained for three years. If your records are lost, stolen, or destroyed, you must report them to HMRC immediately. You must also do your best to recreate them - but HRMC may be able to help if you’re not sure how much you paid employees.
Provide existing and new employee information to HMRC. Here are some things you should do:
You’ll also need to ensure that they have the right to work in the UK and follow other necessary steps to get them set up as employees.
On or before the first payday, you’ll need to record your employees’ salary/wages, calculate deductions (tax and National Insurance), and calculate the National Insurance contribution that you’ll need to pay on their earnings.
You’ll need to produce payslips for employees (use another software if your payroll platform doesn’t have this option) and report pay and deductions to HMRC in a Full Payment Submission.
(Note: if you pay an employee less than £123 a week, you will only need to record and report their pay unless they have other situations that would require you to follow the above steps.)
Every month, you must pay taxes and National Insurance on the income you report on your Full Payment Submission (FPS), minus the reductions on any Employer Payment Summary (EPS) that you sent before the 19th in the current tax month.
You must pay what you owe by the 22nd of the month (and if you’re paying by post, you should pay by the 19th to avoid being penalised). If you pay less than £1,500 a month, you may be eligible to pay quarterly instead of monthly. To find out more, contact the payment helpline.
You have several different options when it comes to making your PAYE payment:
Keep in mind that late or incomplete payments may result in penalties.
Before starting the next tax year (6 April), you’ll also want to complete your annual reports. Here are some of the things you’ll need to do:
Would you like to set up payroll in the most convenient way possible? You can do that with Moonworkers. Here are some of the things you can do:
Would you like Moonworkers to save you from the drudgery of setting up payroll for your business? Let’s talk! Schedule a Zoom call to find out more about how we can help you.