Register for payroll – When, how, and detailed set-up FAQ for new employers

Navigating the realm of payroll can appear daunting for new employers in the UK. It’s a crucial step in ensuring that you’re compliant with HM Revenue & Customs (HMRC) regulations and that your employees are paid accurately and on time. This article aims to demystify the payroll set up process, outlining when and how to register for payroll, alongside answering frequently asked questions by new employers.


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When to register for payroll – Do you need to set it up?

You need to register for payroll before the first payday. It’s important to note that this should be done after you have hired your first employee but before you actually pay them. The registration process can take up to 10 days, so it’s advisable to allow sufficient time to complete this task.

How to register for payroll

To register for payroll, you must have a PAYE (Pay As You Earn) online account. The steps are as follows:

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  1. Get your business ready

    Ensure you have a business set up and know your legal structure, as this affects your tax responsibilities.

  2. Sign up for a PAYE Online account

    If you don’t already have one, you’ll need to create a Government Gateway user ID and password. This can be done on the HMRC website.

  3. Register as an employer with HMRC

    You can do this online through your PAYE Online account. During this process, you’ll be asked for information about your business and your employees.

  4. Receive your employer PAYE reference number

    HMRC will provide this once your registration is complete. It’s used to identify your business as an employer to HMRC.

  5. Set up your payroll process

    Decide whether you’ll handle payroll yourself using software that’s HMRC compliant or if you’ll hire a payroll provider.

Key facts that new employers must know for first-time payroll setup

Setting up payroll for the first time can be an intricate process. Here are some key facts that every new employer in the UK should be aware of to ensure a smooth and compliant payroll setup:

Understand PAYE

PAYE (Pay As You Earn) is the system HMRC uses to collect Income Tax and National Insurance Contributions (NICs) from employment. As an employer, you are responsible for deducting these from your employees’ wages and paying them to HMRC.

Choosing payroll software

Selecting the right payroll software is crucial. Your payroll software should be HMRC-compliant to ensure it can report to HMRC via Real Time Information (RTI). Many software options can automate calculations, generate payslips, and submit the necessary reports to HMRC.

Employee classification matters

Correctly classifying workers is vital. Misclassifying employees as independent contractors (or vice versa) can lead to significant legal and financial repercussions. Ensure you understand the differences and classify your workforce correctly.

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Employment Allowance

You may be eligible for the Employment Allowance, which can reduce your yearly National Insurance liability by up to £4,000. Small businesses and charities often qualify for this relief.

National Minimum Wage compliance

Ensure you pay your employees at least the National Minimum Wage or the National Living Wage, depending on their age and if they are an apprentice. These rates are updated annually, so it’s important to stay informed of the current rates.

Auto-enrolment pensions

Auto-enrolment is a government initiative that requires employers to enrol eligible employees into a workplace pension scheme automatically. You need to assess your staff and enrol those who are eligible, then make contributions to their pensions.

Keep accurate records

You must keep payroll records for at least 3 years from the end of the tax year they relate to. These records include details about pay, deductions, and leave, among other things. Accurate record-keeping is essential for compliance and for resolving any disputes that may arise.

Reporting to HMRC

Through the RTI system, you must report payroll information to HMRC every time you pay your employees. Failure to report accurately and on time can result in penalties.

Handling expenses and benefits

Any expenses or benefits provided to employees, such as company cars or health insurance, must be reported to HMRC. Some expenses and benefits are taxable, and you may need to pay National Insurance on them.

Continual learning and updates

Payroll legislation and guidelines change frequently. As an employer, it’s your responsibility to stay updated with the latest changes to ensure compliance. Regularly consult HMRC’s website, attend webinars, or subscribe to newsletters that focus on payroll and employment law.

Incorporating these key facts into your payroll setup process can significantly reduce the risk of errors and non-compliance. Payroll is a complex but manageable aspect of running a business, and understanding these basics will provide a solid foundation for new employers embarking on this crucial task for the first time.

Detailed FAQ for new employers

Do I need to register for payroll if I only hire freelancers or contractors?

No, if you’re only hiring freelancers or contractors who are responsible for handling their own tax and National Insurance Contributions (NICs), you don’t need to register for payroll. However, ensure your contracts clearly define them as self-employed.

Can I handle payroll myself, or do I need an accountant?

Many small business owners handle payroll themselves using HMRC-approved software. This software can automate much of the process, making it manageable. However, if you find payroll duties complex or time-consuming, you might benefit from hiring an accountant or a payroll service provider.

What information do I need from my employees?

You will need their personal details (name, address, date of birth), their National Insurance number, and their P45 from their previous employer. If they don’t have a P45, they’ll need to complete a Starter Checklist.

What are my ongoing responsibilities once I’m registered for payroll?

You must regularly report to HMRC through a Full Payment Submission (FPS) every time you pay your employees. You also need to make deductions for tax and National Insurance and keep records for at least 3 years.

What happens if I register for payroll late?

Failing to register on time can result in penalties and interest charges from HMRC. It’s important to register before you need to run your first payroll to avoid these fines.

In conclusion, registering for payroll is a significant step for new employers in the UK. By understanding the when, how, and common concerns associated with the set up process, you can ensure a smoother transition into your responsibilities as an employer. Payroll compliance not only keeps you on the right side of the law but also establishes trust with your employees by ensuring they are paid correctly and on time.

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