Answers to some of the most frequently asked questions about payroll...
- How do I pay myself through the company?
- When should payroll be paid?
- How do I set it up?
- How do I pay HM Revenue and Customs (HMRC)?
- When paying an employee, what is the cost to the employer?
- What information do I need to process an employees pay?
- What is the difference between a P45 and a P46?
- What is a P35?
1. How do I pay myself through the company?
Typically as a limited company you will pay yourself from your own company by way of a salary, plus if you make a profit you will also pay yourself by dividend. If you are paid as salary from your own company normal PAYE rules apply. Income tax and employees National Insurance is taken out of your gross salary to give you a net salary and you as the employer pay employers NI.
2. When should payroll be paid?
In regards to salary it can be weekly, fortnightly or monthly- it can be paid whenever you choose.
With income tax and NI this has to be paid either monthly or on a quarterly basis. Your payroll can be done quarterly if the monthly due figure is not more that £1,500. If it is over £1,500 it has to be done monthly.
The money you need to pay to HMRC is always due on the 19th of the following month. For example if you have just had the June payroll, the money due will be by July 19th.
For a quarterly payroll, it always runs per tax year (from 6th April 2010 to 5th April 2011) and there are four set quarters in each tax year, always as follows:
1st quarter – April, May, and June – pay PAYE & NI by 19th July.
2nd quarter – July, August, and September – pay PAYE & NI by 19th October.
3rd quarter – October, November, and December – pay PAYE & NI by 19th January.
4th quarter – January, February, and March – pay PAYE & NI by 19th April.
3. How do I set it up?
The easiest way to set up payroll is to ask your accountant to help you, failing this you can go on to the HMRC website and fill in the forms, which includes basic information about your company, directors or proprietor’s details and registered address.
They will get back to you with a reference number for PAYE and an accounts office reference number- you need to use this number when you make payments of the PAYE and National Insurance. The PAYE number is used when the yearend payroll is completed; it will also indicate which PAYE office you belong to. Once you have these details you can start running payroll.
4. How do I pay HM Revenue and Customs?
To pay HMRC there are 6 methods which they recommend using to ensure your payment reaches them.
HMRC recommend payment methods 1-5 below, these are the most secure and efficient.
- By direct debit: You will need to set this up through www.hmrc.gov.uk and select paye for employers and the do it online menu. Log in on the welcome to the online service page and select Direct Debit payment from the Main Menu. If you are a new user you first have to register and enrol for the PAYE for Employers service.
- Direct payment: Use the internet, telephone, BACS Direct Credit or CHAPS to make payment. Provide your bank or building society with the payment amount, HMRC bank account details and your Accounts Office reference.
- BillPay: You can pay by Debit Card or Credit Card over the Internet. Visit www.billpayment.co.uk/hmrc/scripts/index.asp and follow their guidance.
- Your bank: If your bank offers this service, take the payslip and payment to any branch of your bank. Any cheque must be drawn from your bank and made payable to ‘HM Revenue and Customs only’. Other banks may refuse to accept payment.
- Post office: Take your Employer Payslip Booklet along with your payment to any participating Post Office. If paying by cheque, make your cheque payable to ‘Post Office LTD’. The post office will also accept payment by Debit Card.
- By post - If you use this method:
- Make your cheque payable to ‘HM Revenue and Customs only’.
- Include your payslip reference after ‘HM Revenue and Customs only’.
- Send the payslip and your cheque, both unfolded, to the Accounts Office.
- A stamp for the correct postage is required.
5. When paying an employee, what is the cost to the employer?
You take the gross amount, plus the employers National Insurance. This is 12.8% of the gross annual wage less the National Insurance threshold of £5,715.
For example: If you were doing payments on a monthly basis and the gross monthly wage was £1,000 to your employee you would deduct £475 (this is calculated over a 12 month period) which gives you £525.
12.8% of £525 is £67.20. This is how much you as an employer would pay in National Insurance. As long as the salary is the same every month and is paid for the whole tax year.
6. What information do I need to process an employees pay?
The only information you need to set up a new employee on the payroll would be:
- Full name
- NI number
- Date of birth
- Start date
- Payroll frequency
- Tax code
- Job title
- Annual salary or Hourly rate of pay
7. What is the difference between a P45 and a P46?
You get a P45 when you leave employment and you complete a P46 when you start employment should you not have a P45 from a recent previous employer.
Your P45 will show various pieces of information including your PAYE reference code and how much you earned and paid in tax during the tax year. Your P45 will be in 3 parts. When you find another job you should give parts 2 and 3 to your new employer. This will allow them to see how much tax you have paid and put you on the correct tax code. Often people lose their P45 or forget to give it to their employer. When this happens the employer is forced to put you on an emergency tax code which often means that you end up overpaying tax until you claim a tax refund at the end of the tax year.
If you do not want to show your employer your P45 because you want to keep your previous wage confidential then you can get around giving them your P45 by sending parts 2 and 3 to your tax office telling them where you are working. You should make sure that you do this as soon as possible otherwise you could be put on the wrong tax code.
If you lose your P45 or were not given one by your employer, because they say, went bankrupt. You can give your new employer a P46 instead. You need to complete the P46, and once you have, give it to your new employer so that they can put you on the right tax code.
8. What is a P35?
A P35 is a yearend return completed by all employers. The P35 is a summary of the deductions made from the employees’ salaries reconciled to the payments made to HMRC during the tax year. Any difference in the reconciliation between the PAYE payments due and actually paid can then be identified. The P35 is completed for each individual tax year and is submitted to HMRC together with the employees P14 (The P14 is similar forms to that of the more well known P60).
The P35 must be submitted to HMRC no later than 19th May after the previous tax year. The P35 can be submitted using the HMRC website, direct from the payroll software or by paper if allowed.
Hopefully the above information has helped give some clarity on some of the most common questions asked about payroll. For more information or a general chat about your business plans please call us on 0500 234111 / 01442 275767 or email firstname.lastname@example.org.
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