For employers, managing payroll is a critical aspect of operations. One essential payroll component is Pay As You Earn (PAYE). Our quick guide aims to help employers understand what PAYE is and how to make it run smoothly for your business.
What is PAYE?
Pay As You Earn (PAYE) is a system used to collect tax and national insurance contributions (NICs) from employee salaries. Instead of employees having to pay their tax and NICs to HMRC themselves, employers deduct the right amounts from salaries and pay them directly to HMRC on the employee’s behalf. In addition to employee tax and NICs, a PAYE calculation can also include:
- Student loans
- Employer National Insurance
- Apprenticeship Levy
- Employment allowance
- Certain statutory payments (not statutory sick pay)
Why is PAYE important for organisations?
PAYE is key because it makes sure employers stay compliant with the law. It makes sure Income Tax, National Insurance and other statutory contributions are accurately calculated and deducted directly from employee wages.
The process makes for more efficient tax collection than employees all submitting tax returns personally, reduces the risk of financial liabilities, and simplifies statutory reporting to HMRC. PAYE also helps manage cash flow, reduces administrative burdens, supports employee benefits like pensions and statutory payments, and fosters trust by ensuring employees’ taxes and contributions are handled accurately and on time.
Setting up PAYE registration
To register for PAYE you can contact us directly and we can do it on your behalf. If you’d prefer to do it yourself, you can register online with HMRC here: Register as an employer – GOV.UK (www.gov.uk).
You need to register before your first payday, and it may take up to 30 days to receive your employer PAYE reference number. However, you can’t register more than two months before you begin paying employees.
Making payments
Your payroll provider will confirm how much you need to pay HMRC each month. This amount needs to be paid by the 19th of the following month for non-electronic payments and the 22nd of the following month for electronic payments.
For example, your PAYE balance for April 2024 would be due by 22nd May 2024.
You can make your payment to HMRC in several ways: online, by phone or through CHAPS or BACS transfers. They also accept credit cards, debit cards and cheques.
Penalties
It’s crucial to pay your PAYE on time because not doing so might result in late payment penalties from HMRC. Daily interest is applied on all unpaid amounts from the due and payable date to the date of payment and can build up.
If you haven’t paid any employees in the month, then you’ll need to let HMRC know this by submitting a NIL Employer Payment Summary (EPS) to avoid a late payment letter.
Help
Understanding and managing PAYE is essential for any UK employer to ensure compliance with tax laws and maintain smooth payroll operations. By correctly calculating and deducting taxes, NICs and other statutory contributions, employers not only meet legal obligations but also create a more efficient and trustworthy payroll system.
Whether you handle PAYE registration and payments on your own or with the help of a payroll provider, staying organized and on top of deadlines will help your business avoid penalties and ensure employees are paid accurately and on time.
If you need any help with PAYE, or want us to register on your behalf, contact us via payroll@ct.me.
