Setting up your company in the United Kingdom is a savvy business decision. It has a strong and dynamic economy, with close proximity to the rest of Europe.
Once you’ve done everything to establish your business (licensing, facilities, and so on), it may be time to hire additional employees. And with employees, you suddenly become not just a business owner, but an employer, too. You need to take responsibility for your staff in terms of salary and deductions. So, how do you run your business’s payroll in the UK? Read on.
Step 1: Register as an Employer
Once you employ someone (even if only yourself sometimes), you need to officially register as an employer with HM Revenue & Customs (HMRC). In most cases, this can be done online, although certain situations may require you to register by telephone, email, or at an HMRC office. In order to register, you’ll need to provide:
- Business name, your name, partner’s name (if applicable)
- Business address and telephone number
- Contact email address and telephone number
- Date of your first payday
If you can register online (check out the list of exceptions here), you register as an employer with HMRC and are automatically enrolled for the online PAYE (Pay As You Earn) system. Follow the instructions, and upon successful completion of the online application, you’ll receive an activation code for PAYE via the post (so make sure and give yourself enough time). The first time you log on to PAYE, you’ll be asked for that code.
The PAYE Online service is connected to your payroll, and allows you to send payroll reports to HMRC, as well as receive tax codes and notices from HMRC about your employees.
Step 2: Designate Your Payroll and PAYE Supervisor
As a business owner, you can choose to manage your PAYE yourself, or assign it to your accountant, or to a payroll service provider (more on them later).
Step 3A: Payroll Software
If you or an in-house accountant manage payroll and PAYE, you’ll need to use payroll software that is compatible with HMRC’s real time information (RTI) system. The HMRC does provide a list of both free (ten or fewer employees) and paid programs that integrate well with their system.
Free software approved by HMRC includes:
This software handles your employee information and keeps track of their pay and deductions for tax purposes.
The list of HMRC tested and approved paid software is much longer, so be sure and check out a few to find exactly what you need. All programs are not created equal, and you don’t want to pay for features you don’t need.
Step 3B: Payroll Service Providers
If you don’t want the hassle and headache of managing your own payroll, or if you don’t have an in-house accountant, you’ll want to find a payroll service provider. There are many to choose from - far too numerous to list here - and you’ll obviously want to find one near to where you’re located. As is often the case, Google to the rescue. A quick search with the keywords “payroll service provider [name of town or city]” should do the trick.
A few well known examples include:
These providers will take care of everything for you, from calculating deductions, to issuing pay (cheque or deposit), and meticulous record keeping for tax time. You’ll be paying a monthly (or in some cases per pay period) fee, but the peace of mind and ease that you get in return is well worth it.
Other Useful Links
Once you’ve registered as an employer, activated your PAYE Online account, and selected either payroll software or a service provider, the rest is simply follow the instructions (or turn over responsibility completely in the case of a full-service provider). The HMRC and PAYE websites are wonderfully informative and user-friendly, so even those who don’t consider themselves tech-savvy shouldn’t have any great difficulty. Everything integrates and works together quite nicely, resulting in one less stress for you, the frazzled business owner. Finally, as the business owner, you are ultimately responsible to make sure everything is above board and legal. Never hand over control of something as important as payroll and taxes without at least personally keeping an eye on things.