Meaning Of Payroll

Payroll is all about calculating, paying, and recording salary/wages and some related costs of all the employees working for your company. Payroll is an integral part of business it has a direct impact on the morale of an employee.

The payroll calculation will include:

• Calculating every employee’s wages/salary based on the working days and paying them.

• Managing other benefits like bonuses, etc.

• Paying National Insurance and the employee's tax.

• Submitting payroll calculations in detail to HMRC for every employee.

• Filing of individual pensions to the pension scheme on HMRC.

Some Pre-requisition That an Employer Needs to Do:

Every employer must set up a PAYE scheme with HMRC. The employer needs to check every employee’s work permit and right to work in the UK. He needs to calculate taxable salary, deduct the necessary taxes, pay the employees and submit the payments to HMRC.

If you fail to do so you will end up paying a huge amount of fine declared by the HMRC

Always be clear on the employment laws that include pensions, overtime pay, holiday pay, maternity, auto-enrolment and paternity leave.

Payroll Process in the UK:

As we described earlier, in the UK Payroll is processed through PAYE System. Where in you as an employer, you must know how much tax needs to be deducted from an employee’s salary. Deduct the taxes from their salary and submit the payment to HMRC.

For this, the employer should never forget the deadline date for filing payroll to HMRC.

1. If you are paying the amount by post the date by which you need to submit the payments to HMRC is the 19th of every month.

2. If you are paying the amount online the date by which you need to submit the payments to HMRC is the 22nd of every month.

Setting up your business payroll:

Payroll can be time-consuming and tricky if you are a novice to the business. In such cases set up your payroll with utmost care or outsource payroll services to the payroll service provider
According to some surveys in the year 2021-2022 tax year, it was observed that approximately 75% of Big Tycoons in the UK have admitted that they have provided late payments or incorrect payments to the employees which resulted in low morale and bad performance from their employees.




1. Register Yourself as An Employer

Once you have decided to hire employees, the first and foremost thing to do is to register as an employer with HMRC before the first payday(salary day). You can create your account as an employer on the Gov.UK website. Once registration is completed, you will receive an employer reference number and an Accounts Office Reference number. Using these you can set up an account on the HMRC website.

•Possibilities Of Getting Notice From HMRC
  1. Tax Code Notice: Tax codes like P6 and P9 can be received by HMRC. P6 tax code notice is received by employers to provide an employee's tax code details and previous payments and taxes. P9 tax code notice is received by the employer when the employee’s tax code is changed.
  2. Student Loan Notices: SL1 and SL2 are the two types of notices that HMRC sends. SL1 is also known as “Start Notice” which notifies the correct loan type and SL2 is also known as “Stop Notice” which instructs the employee to stop the deduction amount for the loan taken. 
  3. Verification Notices: We have 2 types of NI Verification notices NVR and NOT. 
  4. Alerts or warning notices on late reporting and late payment.

2. Choosing the Best Payroll Software

While starting a business, the primary thing that an employer will do to hire employees. To pay the employees he will either calculate it manually or will choose the best payroll software to complete the calculations. Now the question is what is the cost and how to use this software? What to do if any error occurs in the software? All these are some obvious questions that every business owner can think of.

What can the software do for you:
  • Recording employee details
  • Calculating statutory pay like maternity leave or sick pay
  • Computing how much your tax is to be given to HMRC
  • Calculating employees’ total income and the deductions
  • Payroll information generate pay slips, P45, P60
  • Employee can log in securely to access Pay slips and other reports
  • Prepare and put all the journals in your accounting software
  • Prepare and put the pension data to your pension provider
If any error in this will lead you to a huge amount of penalties. So, it is a better option to hire companies that outsource payroll.

3. Maintaining payroll records

You can manage records of all of the below-mentioned:
  • How much amount you pay to your employees and what deductions do you make
  • Reports can be prepared to submit to HMRC
  • Payments that you make to HMRC
  • Employee sick leave, maternity leaves, paternity leaves and other absences
  • Tax codes and notices are also maintained
  • Taxable expenses and benefits are recorded
Till what time period do the records need to be maintained?

You must preserve the record of 3 years minimum. To be on the safer side few companies preserve the record for 6 years.

4. Provide accurate information about your new employee to HMRC

Being an employer, it is your responsibility to inform HMRC when you have hired a new employee.
Employers must check whether they need to pay their employees through PAYE.
Employers need to pay through PAYE if the employee earns >= £120 per week, which means £520 a month or £6,240 a year.
There is no need for any employers to pay self-employed workers or contractors through PAYE unless and until they fall under IRS35 regulations.
The following details are mandatory to be taken from the employee
  • Date of birth
  • Gender
  • Full address
  • Joining date
  • Last date of their previous company
  • Gross pay and taxes paid for the present tax year
  • Student loan deductions
  • Existing tax code
  • NI number
Don’t forget to include the below in the FPS

  • Collected employee information
  • Tax code and starter declaration
  • Pay and deductions

5. Pension Contributions

Every employee in the UK is entitled to get a workplace pension –as it is a legal obligation.
See to it that you add this to your payment so that your calculations and the employee contributions are accurate.

6. Sending Payroll Reports to HMRC

It is mandatory to send the employee details to HMRC

7. Delay in Reporting

HMRC is strict when it comes to reporting. Reporting late is unacceptable by HMRC.
You will be given a late filing warning from HMRC if you have paid workers but haven’t either filed an FPS or have sent one late.
For some genuine reasons, HMRC will consider late payment without giving you penalties.
Penalties range from £100 per month for businesses with less than equal to 10 employees & £400 per month for companies with more than equal to 250 employees.

To purchase software & taking care of all the above things, you can simply hire the payroll service provider who will take care of all these things. To your surprise, this software is not so cheap. It is quite costly. To know more about this, feel free to call us on 0208 239 4999 or email us at dhruv@doshioutsourcing.com