Setting up a PAYE (Pay As You Earn) scheme can seem like a daunting task, but it’s a crucial step for ensuring your business stays compliant with tax and payroll regulations. Whether you’re hiring your first employee or expanding your team, here’s what you need to know:
Register with HMRC
The first step to setting up PAYE is to register your company with HMRC. Doing so will mean you can get a login for PAYE Online which allows you to check what you owe HMRC, pay your bill, view payment history, access tax codes, appeal penalties and more.
Choose payroll software
In order to report to HMRC, you will need to implement payroll software. The software helps with tasks such as recording employee details, calculating pay and deductions, reporting payroll information to HMRC, determining your HMRC payments and calculating statutory pay like maternity or sick pay.
It’s important to research software that best suits your business needs, as different options offer varying services. Consider whether you need to:
- Produce payslips
- Record pension deductions
- Make pension payments
- Pay employees on different frequencies
- Send submissions like the Employer Payment Summary (EPS) or Earlier Year Update (EYU) to HMRC
And choose your software accordingly.
Collect and keep records
Maintaining accurate and up-to-date records is essential for running a PAYE system smoothly. You must collect and keep records of:
- Employee compensation and deductions
- Reports submitted to HM Revenue and Customs (HMRC)
- Payments made to HMRC
- Employee leave and sickness absences e.g. Fit Notes & MATB1 Forms
- Tax code notifications
- Taxable expenses or benefits
- Payroll Giving Scheme documents, including agency contracts and employee starter forms
Tell HMRC about your employees
You need to let HMRC know when you hire a new employee. Before paying your new hire, follow these steps:
- Check if you need to pay them through PAYE
- Get the employee’s details to determine their tax code and student loan requirement. If you don’t have their P45, use HMRC’s ‘starter checklist’ (the replacement for the P46)
- Use this info to set them up in your payroll software
- Register the employee with HMRC by submitting a Full Payment Submission (FPS)
Record pay and make deductions
Each time you pay your employees, use your payroll software to:
- Record their pay, including salary, wages and any additional payments
- Calculate deductions like tax and National Insurance (NI)
- Determine the NI contributions on earnings above £242 per week
- Generate payslips for each employee (if your software doesn’t have this feature, you can use a different tool)
- Report pay and deductions to HMRC via a Full Payment Submission (FPS)
- Submit an EPS to send across parental payments and / or CIS figures
Pay HMRC tax and National Insurance
How we can help
Our Payroll team is fully equipped to manage your PAYE scheme, from tax calculations and CIS submissions to HMRC and compliance with tax laws. Acting as your PAYE agent, we handle the complexities so you don’t have to. For more information, get in touch with a member of our team on 01942 816512 or email:
Kirsten Croston, Payroll Manager: [email protected]
