You’ve got your business up and running, have been happily outsourcing work to freelancers but now find that you do need to take on your first employee. You have sorted out the HR side of things (contract, proof of eligibility to work in the UK, induction process, training process etc) and now you need to make sure you’re up to date with HMRC. Andrew Logan from TaxAssist Bedford takes us through the key issues.
The rule is that in the four weeks before first paying an employee, you need to tell HMRC and set up a payroll. After that, you need to tell HMRC on or before each time you pay your employee, through a process called real time information (RTI). After the reporting you’ll need to pay over to HMRC any tax and national insurance that is due to them on the payments to the employee. Those are the basic principles – but there can be plenty of practical details to sort out to make the process run smoothly.
Setting up a payroll
Start the process of registering as an employer by visiting this link. https://www.gov.uk/register-employer. You will need your government gateway details (as sole trader, partnership or limited company) as part of this process.
Once this has been completed, the registration process will start and in a couple of weeks you’ll receive a payroll reference number and accounts office reference through the post. Keep these in a safe place – you will need them to file information with HMRC and for making PAYE payments.
Running a payroll
Once the payroll is set up, you are committed to reporting employee pay as often as you pay them (so it makes sense to pay them monthly). NB you must make the reports before you pay them. You must also report if there is no pay. You will need some kind of software to do this - either HMRC’s own software (not user friendly) or commercially available software (some is available free for a small number of employees). You are also committed to paying over any tax/NI due – either monthly or quarterly depending on the amount you need to pay over.
You are required to report yearly on any benefits that the employee receives, for example, medical insurance, company vehicle etc. This is the form P11D.
Other things to think about
Firstly you’ll need to think about holiday pay. Do they get days off or do you add a holiday pay amount (12.07% of pay for employees on the statutory minimum holiday)? This second option is useful for hourly paid workers. At some point, you’ll need to deal with sick pay, possibly maternity/paternity/adoption pay etc.
You will also need to think about auto-enrolment pension schemes as all employers will be required to register and auto-enrol their employees over the next two or three years. There will no doubt be other areas of uncertainty (and rule changes) just to keep you on your toes!
Lots of businesses take on employees successfully, even if it seems daunting at first. It’s always worth talking to an accountant to make sure you’ve got the administration side of things correct and to help out with any new situations. Good luck with the new staff member.TaxAssist Accountants Bedford provide a wide range of accountancy services including tax returns, annual accounts, payroll and bookkeeping.
TaxAssist Accountants in Bedford are a part of the largest network of accountants who offer a huge range of experience and expertise to over 55,000 small businesses right across the UK. www.taxassist.co.uk/bedford
Disclaimer: Advice shared in this blog is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this forum, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
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