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We will start by summing up the absolute basic requirements every UK employer must know:
- Every UK employee must have a contract of employment that details the rights, responsibilities, duties and conditions of their work. Both parties must agree to it – however, it need not be in writing.
- The UK time directive states that, on average, employees cannot work for more than 48 hours per week, measured over 17 weeks. However, if they want, they can voluntarily opt out of it.
- Payroll can be run either monthly or weekly.
- Employers must report payroll accounting data to HMRC through the Real-Time Information (RTI) online system.
- The first £12,570 of income is not taxed as it is deemed a personal allowance. Income after that is taxed at progressively higher rates depending on how much the employee is earning. In addition, employees older than 16 years who make more than £166 a week must pay National Insurance (NI).
- Employers deduct income tax and national insurance under the Pay As You Earn (PAYE) scheme.
- Employers must process statutory sick pay, statutory maternity leave pay and statutory adoption pay through the payroll. They can recover percentages of this statutory pay depending on how much NI they process in a year.
- At the end of the UK tax year, every employee must be given a form P60 detailing all their pay and deductions for the year. This is also when the employer must submit their final report to HMRC.
- UK national holidays include both religious holidays and “bank holidays,” which may be granted by the government for public events. While there is no automatic right to time off on these days, most working populations are granted time off or extra pay, depending on their contract.
- Statutory sick pay provides eligible employees with £94.25 per week for up to 28 weeks, while statutory maternity and adoption pay allows for up to 39 weeks of payment at 90% of average weekly earnings for the first six weeks and a lower rate for the remaining 33 weeks. Paternity leave is either one or two weeks, with pay at the same rate as the lower rate of maternity pay.
Payroll compliance checklist: an employer’s responsibilities
- Pay taxes to HMRC on time
- Register with HMRC and set up a PAYE system
- Share payroll accounting data with HMRC on time
- Set up and maintain pension schemes as relevant
- Deduct tax and national insurance accurately from employee wages
The two main types of deductions
- Income tax – This is payable on all earnings beyond the personal allowance. The amount of tax each person must pay depends on their tax code.
- NI – This is a mandatory insurance scheme employers, and employees must pay into. The amount owed depends on the employee’s earnings and employment status.
- Workplace/occupational pension scheme
- Stakeholder pension scheme
- Personal pension scheme
Registering with HMRC/setting up a PAYE scheme
- Tax code
- Amount of pay
- Dates of payment
- National Insurance number
- Name, address and date of birth
- Pension scheme details (if relevant)
- Any deductions made towards income tax and NI
When and how to pay HMRC
Calculating employee pay
- Tax code
- Salary or hourly rate
- Any overtime/bonus pay
- National Insurance category
- Deductions, such as pension contributions
Records to be kept
- Records of the PAYE scheme
- Records of all employee wages and taxes deducted
- Copies of tax payments and payroll submissions to HMRC
HMRC penalties for payroll accounting mistakes
Employers who make payroll errors may attract three types of penalties from HMRC depending on the nature and severity of the error:
How to avoid HMRC penalties
- Submitting payroll information on time
- Ensuring their payroll calculations are accurate
- Keeping complete and accurate payroll accounting records
Over to you
Yes, all UK employers must comply with HMRC regulations, including registering with HMRC and setting up a PAYE scheme.
The Employment Allowance is a scheme introduced by the UK government in 2014 to help small businesses and charities with their NI contributions. It allows eligible employers to reduce their annual NI bill by up to £5,000 per year.
Payroll Giving is a scheme by which employees can donate money to charity directly from their wages before tax deduction. Employers who wish to offer this to their employees can set it up with HMRC and it must be paid through PAYE.
No, it is not mandatory to provide employee benefits. However, if you do, you must register with HMRC and provide relevant information about the benefits to your employees.