Payroll sounds intriguing, but many people don’t even know what it means! However, if you’re starting a new business, you need to know!
Payroll is an important part of running of any business and, if you’ve started running your own, you need to know what it is and how you run it!
Basically, if you have employees, then it’s a legal requirement that you run payroll! Payroll essentially refers to the amount of money you pay your employees during a payroll period. This includes the calculation and distribution of those wages and the taxes incurred by payroll.
‘Running’ payroll is a consequence of operating PAYE (Pay As You Earn) and involves certain administrative tasks before paying employees.
If you hire employees as part of your business, you need to follow these steps either on, or before, every payday for your employee.
- Firstly, you must record how much you are paying each employee. This includes their salary or wages.
- Secondly, you need to calculate how much will be deducted from this salary by HMRC for tax and National Insurance.
- As an employer, you will need to pay National Insurance on your employees wages for earnings over £184 per week.
- After you have calculated this information, you need to produce payslips for every employee in your business. This is a legal requirement, but it’s also useful for both yourself and the employee to keep track of their earnings.
- Next, you need to complete a Full Payment Submission (FPS). This is submitted to HMRC. A Full Payment Submission reports the pay and deductions of your employees.
Completing payroll is a strenuous administrative task which legally, must be fulfilled. It can be time-consuming and must be done accurately. Otherwise it could affect both your business and your employee’s income-related benefits.
The Taxation Period
The ‘tax month’ for employers runs from the 6th of one month until the 5th of the next. During this period, payroll must be ran. After payroll for that period has been completed and your FPS has been reported to HMRC, you can check what you owe HMRC online for the next tax month from the 12th.
Once you’ve viewed your FPS online, you may be able to claim certain expenses from your payroll – like statutory pay – which would reduce the total tax you would pay. This can be claimed by submitting an EPS (Employment Payment Summary) before the 19th of that month.
If you send your EPS before the 11th of the month, you would view what you may owe by the 14th of the month. Otherwise, you can view how much you owe within two days.
You must pay HMRC what you owe by the 22nd of the month – if paying online – or you may have to pay a penalty. If you are paying by the post, it must be paid by the 19th of the month.
Dealing with this on a month-to-month basis can be a bit frustrating; however, if your business pays its employees less than £1500 a month, then you could pay quarterly instead. You can contact the HMRC payment helpline to find out more information.
Our Bottom Line
Running payroll is essential if you have any employees working for your small business. Like many administrative financial tasks, it can be extremely time-consuming and take you away from what you actually started your business to do!
From filling out forms to checking online accounts, running payroll can eat away time that you could be spending bringing in new business.
You didn’t start your business to run payroll, but Count did! Check out our payroll services to see what we can do for you.