How to do my own payroll? Guide & FAQ for how to do payroll yourself

Are you asking yourself, how to do my own payroll? Running payroll is an essential aspect of managing a business, ensuring that employees are paid accurately and on time. For many small business owners in the UK, the question of whether to handle payroll in-house or outsource to a professional service is significant. Wondering how to do payroll yourself? Doing it on your own can offer a sense of control and potentially reduce costs, it also comes with a complex set of responsibilities and risks.


Video: Answering your common questions about payroll prices and costs

In this article, we’ll explore how to manage payroll independently and discuss why engaging a professional payroll service might be a more pragmatic choice for your business.

Understanding payroll basics

Payroll management involves calculating employees’ net pay after deducting taxes, National Insurance contributions, and other deductions. It also includes ensuring accurate records are kept and submitting necessary information to HM Revenue and Customs (HMRC) on time. Here’s a basic guide to doing it yourself:

How to do payroll yourself

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  1. Register as an employer with HMRC

    Before you run payroll, you need to register with HMRC, which you can do up to four weeks before paying your first employee.

  2. Choose payroll software

    Opt for payroll software that is compatible with HMRC’s Real Time Information (RTI) system. This software will help you calculate pay and deductions, generate payslips, and report to HMRC.

  3. Collect and keep records

    It’s crucial to collect accurate information from your employees, such as their National Insurance number and tax code. You’ll also need to keep records of pay, deductions, and reports submitted to HMRC for at least three years.

  4. Calculate pay and deductions

    Determine each employee’s gross pay, then use your payroll software to calculate the deductions, including income tax, National Insurance, and any other contributions or deductions, like pension contributions or student loan repayments.

  5. Report to HMRC

    Submit payroll reports to HMRC every time you pay your employees. This can usually be done directly through your payroll software.

  6. Issue payslips and make payments

    Provide your employees with a payslip detailing their gross pay, deductions, and net pay. Then, proceed to make the payments to their bank accounts.

The challenges of DIY payroll

While the process may seem straightforward, running payroll on your own can be time-consuming and complicated. The need for absolute accuracy and the constant changes in legislation can make payroll a daunting task.

Mistakes in payroll can lead to penalties from HMRC, unhappy employees, and even legal issues. Moreover, managing payroll in-house requires a significant investment in software and training, which can be especially burdensome for small businesses.

The case for professional payroll services

Outsourcing payroll to a professional service can alleviate the burdens and risks associated with DIY payroll. Here are some reasons why hiring a professional might be a better choice:

  • Expertise: Payroll services are staffed by professionals who are up-to-date with the latest legislation and can ensure compliance with all tax obligations and reporting requirements.
  • Time-saving: Outsourcing frees up your time to focus on core business activities rather than administrative tasks.
  • Cost-effective: While there’s a cost to payroll services, this can be offset by the time saved and the avoidance of potential fines for non-compliance or errors.
  • Peace of mind: Knowing that your payroll is in the hands of experts can give you peace of mind, allowing you to concentrate on growing your business.

Conclusion – Should you really do payroll yourself?

While it’s entirely possible to set up and manage payroll on your own, the complexity and potential risks involved make it advisable for most UK businesses to consider outsourcing this critical function.

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By choosing a professional payroll service, you can ensure accuracy, compliance, and save valuable time and resources. Ultimately, the decision should be based on your business size, complexity, and the value you place on your time and peace of mind.

FAQ for doing your own payroll yourself

Do I need to register with HMRC before starting payroll?

Yes. You must register with HMRC before you start paying your employees to ensure you comply with tax laws and regulations.

Can I run payroll manually without software?

Technically, yes, but it’s not recommended. Manual payroll increases the risk of errors. Using HMRC-approved payroll software helps ensure accuracy and compliance.

How often should I run payroll?

This depends on your business agreement with your employees; it can be weekly, bi-weekly, or monthly. Consistency is key for both planning and legal compliance.

What information do I need from my employees to set up payroll?

You need their full name, date of birth, National Insurance number, tax code, and bank account details for payment.

How do I calculate deductions like tax and National Insurance?

Your payroll software will calculate these deductions based on the employee’s earnings and the information provided by HMRC.

What is RTI and why is it important?

RTI, or Real Time Information, is a system used to report wages, taxes, and other deductions to HMRC every time you pay your employees. It’s crucial for maintaining compliance with tax laws.

Are there any penalties for late payroll submissions?

Yes. HMRC can impose penalties for late or incorrect submissions, so it’s important to adhere to deadlines and ensure accuracy.

How long must I keep payroll records?

You’re required to keep payroll records for at least three years after the tax year they relate to, in case of HMRC audits.

Can I issue electronic payslips?

Yes, electronic payslips are acceptable as long as the employee agrees and can access them.

What should I do if I make a mistake in payroll?

Amend the error in your next payroll run and inform HMRC if the mistake affects tax or National Insurance contributions.

How does auto-enrolment for pensions work in payroll?

Employers must automatically enrol eligible employees into a pension scheme and deduct contributions from their pay, which must then be paid into the pension scheme.

Can I outsource payroll if I have only a few employees?

Yes. Regardless of your business size, outsourcing payroll can be beneficial to ensure compliance and save time.

What are the benefits of outsourcing payroll over in-house processing?

Outsourcing can provide expertise, ensure compliance, save time, and often be more cost-effective considering the potential for errors and penalties with in-house processing.

How can I choose a reliable payroll service provider?

Look for providers with strong reviews, a track record of compliance, excellent customer support, and services that match your business needs.

Are there any specific payroll considerations for freelance or contract workers?

Yes, contractors or freelancers invoicing for services are usually responsible for managing their own taxes. However, if using the Construction Industry Scheme (CIS) or if they are deemed employees under IR35 legislation, different rules apply. Always verify the employment status and understand the tax implications.

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