It’s important to set off on the right foot when it comes to your start-up. Whether that’s through finding a niche in the market or conducting thorough market research, it’s paramount to ensure your business has a direction.
However, it’s not all to do with your product or services… understanding the way that employees are to be paid is essential as a start-up; no matter the size of your company, or your particular industry, your staff need to be paid!
Setting up a PAYE scheme for your employees allows your team to receive pay with the correct deductions, such as National Insurance and income tax. And while PAYE is essential, it’s understanding it that’s crucial.
How to set up a PAYE scheme
When starting up your company, it is important that you contact HMRC and ask for them to send you an employee starter pack. This should cover most questions that you may have about the scheme, and help you to understand how you and your business fit into the system.
This starter pack will also contain your company’s PAYE reference number; make sure to keep this protected and to hand, as it is the main reference point for HMRC to be able to find your records. To request this, you should call the dedicated HRMC employers helpline, or register as an employer on the HMRC website.
How to pay and when to pay it
Through the PAYE scheme, you will be deducting the necessary National Insurance payments and income tax from your employees’ salaries. These deductions will need to be paid directly to HMRC, but how do you know when to pay it?
Payments must be made monthly to HMRC, and the amount that must be deducted from each employee should be calculated using the information included in the employee starter pack. There are also many software packages available which are able to calculate these for you.
If you have less than 250 employees, you can pay online via Direct Debit each month to make the process even smoother, but there are other methods available to you if you prefer; you can pay in cash at the Post Office, BACs, cheque, CHAPS or even bank giro.
There are circumstances where you may be able to pay quarterly, rather than monthly – mainly when your payments are less than £1,500. However, all payments must be made by the 22nd of each month if completed via an electronic method – if you are submitting by a different method, the final date for completion is earlier, landing on the 19th of each month.
Some of the yearly paperwork you need to submit to HMRC needs to be completed at the end of the year, whereas others need to be completed throughout, as required.
At the end of the year, you must complete the following, which can be obtained from HMRC’s Orderline:
- P35 showing the PAYE deductions for all of your employees
- P14 detailing all the payments made to each full time employee as well as their total deductions
- P38a if you have casual or part time staff
- P60 which is a copy of the P14 but which is given to the employee at the end of the tax year
- P11D which details all the expenses and benefits in kind for employees
- Any P45 sections for new employees which have joined your company over the year.
Throughout the year, you must complete:
- P11 Deductions Worksheet detailing the tax, National Insurance or student loan deductions owed by an employee, and any statutory pay that they receive.
- P32 detailing total payments and deductions for each period of pay, whether it’s weekly or monthly.
- Payslips for each employee – this isn’t a form from HMRC, but it needs to be issued to each employee at the end of a pay period with gross wages before any deductions, any deductions made and the gross wage minus the deductions so that they can see how their wage is broken down.
When setting up a limited company, and using PAYE to control tax deductions and wages, it’s important to know all that’s required of you. While there are glaringly obvious submissions into the system, there are of course certain aspects that you wouldn’t necessarily consider if you didn’t studiously read the starter pack.
PAYE is an effective system that can assist greatly in the efficient and organised payment of your team, but make sure you understand of what is needed from you as an employer. It’s imperative to hit all the dates, and to request and submit the correct forms, as it’s one of your most important assets that can suffer – your employees.
Quality Formations are a professional company formations agent who provide valuable business formation support and advice. Specialising in the registration of new businesses, the Quality Formations experts are able to help with everything you need to get your new business off the ground.