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If you're paying an employee for the first time, you'll need to set up payroll. You need to take the following steps:
- Register as an employer with HM Revenue and Customs (HMRC) and get a login for PAYE Online.
- Choose payroll software to record employee’s details, calculate pay and deductions, and report to HMRC.
- Collect and keep records.
- Tell HMRC about your employees.
- Record pay, make deductions and report to HMRC on or before the first payday.
- Pay HMRC the tax and National Insurance you owe.
Download our Ultimate Expenses Guide
Download our Ultimate Expenses Guide
Read More Guides below:
What are PAYE Forms?
There are different forms associated with PAYE. These are:
P45: A P45 form is issued to an employee when he or she stops working for you. It shows how much the employee has paid in tax and NICs throughout the tax year.
P60: A P60 form is an official form issued to employees at the end of the tax year. The form indicates how much the employee has earned over the tax year, as well as the amount they've paid in PAYE income tax and NICs. You need to issue the P60 to your employees by 31st May each year.
If you're a limited company director, you're considered both an employer and employee. As such, you'll have to issue yourself a P60 form.
P11D: The P11D is a tax form that records employment benefits that the employees and directors of a company have received across the year.
A copy of the P11D is to be issued to employees who've received certain benefits by 6 July each year. You should also submit the form online by the same date. If you're paying tax on all their benefits through your payroll, submitting a P11D isn't required.
When do I make PAYE payments to HMRC?
If you're paying salaries to employees or directors, you need to register for PAYE and pay your PAYE bill to HMRC.
- Monthly payments: Your PAYE bill is due on the 22nd of the next tax month.
- Quarterly payments: Your PAYE bill is due on the 22nd after the end of the quarter.
There are various ways to make your payment.
- Same or next day payments: online or telephone banking, CHAPS
- Payments processed in 3 working days: debit or corporate credit card payments (online), Bacs, cash or cheque payments at your bank or building society, Direct Debit, by cheque through the post
- Payments processed in 5 working days: Direct Debit (if it's the first time you're setting up a Direct Debit payment)
How do I hire a new employee?
To hire a new employee, you need to:
- Check if your business is ready to hire a new staff
- Kickstart your recruitment efforts. You can recruit employees on your own, or by using a recruitment agency.
- Check that the candidate has the right to work in the UK
- Find out if they require a DBS check
- Check if you need to enrol the employee into a workplace pension scheme. Here's a guide for first-time employers. If you've already hired employees previously, refer to this resource instead.
- Before carrying out salary negotiations, you need to check the National Minimum Wage for different ages and types of jobs. You'll also need to finalise the employment contract, and provide a written statement of employment particulars within 2 months of the start of employment.
- Notify HMRC that you've hired a new employee. Make sure you're aware of the steps you need to take when you start paying your employee.
If you're hiring staff for the first time, refer to HMRC's guide on the steps you need to take.
What are Directors Loans?
A director's loan is defined as money taken from your company that isn't either of the following:
- A salary, dividend or expense treatment
- Money that you've previously paid into or loaned the company
A Director's Loan Account (DLA) is a record of all transactions between the company and its directors. It records not just the money owed by the directors, but also the money owed to them.
Director's loans can be used:
- when you need to access money in your company-apart from what you take out as a salary, dividend or expense treatment-for personal reasons.
- for a variety of purposes, such as covering the costs of a home repair bill, travel plans or any unforeseen personal expenses that may arise.
How do I pay a Contractor?
You can pay an independent contractor by an hourly or daily rate, or by the project through the contractor's preferred payment method. You won't need to withhold taxes, as they are responsible for paying their own income and National Insurance contributions.
How do I pay a Limited Company Pension?
If you're operating as a sole trader, you can contribute to a personal pension scheme.
If you're a limited company director, you can make pension contributions as an individual (as an employee), as well as through your company (as an employer). For the latter option, your pension contributions are paid directly from your business bank account.
7 ways to improve your monthly cash flow
Healthy cash flow is one of the most powerful weapons in a small company's arsenal.
In fact, cash on hand can be the deciding factor in a customer's choice to buy from your company or a competitor.
For instance, imagine landing the large order of your dreams, but losing the business to a competitor because you lack the capital necessary to prepay for the products needed to fill the customer's order. Fortunately, you can avoid this pitfall by making a few simple changes in your operations.
Below is a look at seven ways to grow your monthly cash flow by reducing expenses.
Contractors - should I be paying myself salary and dividends?
As a contractor, how you pay yourself will vary depending on whether your contract is subject to IR35.
- Contract subject to IR35 (inside): Salary
- Contract not subject to IR35 (outside): Salary, dividends + reimbursing any expenses you have paid for out of your own pocket
We've provided a more detailed explanation in our Forma Help Center resource.
How do I pay national insurance?
How you pay your National Insurance contributions depends on your employment status.
If you're an employee, your National Insurance contributions are deducted from your wages before you receive your salary. Your contributions are reflected in your payslip.
If you're a limited company director, you may also be an employee (at your own company). As such, you pay Class 1 National Insurance through your PAYE payroll.
If you're self-employed, you pay Class 2 and Class 4 National Insurance depending on your profits. The majority of self-employed workers pay National Insurance through Self Assessment.
If you're employed and self-employed, your Class 1 National Insurance will be deducted through your wages. You may also need to pay Class 2 and Class 4 National Insurance depending on your self-employed profits.
How should I pay overseas supplier?
To pay an overseas supplier, you need to:
- Decide on a payment currency
- Select a payment method: There are various payment methods and payment service providers available, including bank transfers, credit card payments, PayPal and TransferWise. When you're choosing a payment method or provider, you need to think about the currencies available, fees, exchange rates, speed of international transfers and payment reconciliation capabilities.
- Obtain the information you need to process the payment: You may need to obtain different types of information from your supplier, depending on the payment method you agree on. These may include their full name and address, bank account number, routing number and branch number and address.
How do I pay myself dividends?
To pay a dividend, you need to:
- Hold a directors' meeting to ‚Äòdeclare' the dividend.
- Keep minutes of the meeting, even if you're the only director. For smaller companies, this may often be just a case of getting the paperwork completed.
- Issue dividend vouchers.
What is a directors loan account?
As a limited company director, you can access the money in your company bank account through a facility known as a director's loan.
This can come in handy in instances when your personal finances are in need of a boost, yet taking out a director's loan is a decision that requires careful consideration. That's because there are tax and accounting implications, and it's best to speak to an accountant so that you fully understand the consequences.
But before you dive into the details, you'll need to have an understanding of the basics-such as what a director's loan account is, what the loan can be used for, tax rules you need to be aware of and more.
Here's where our guide comes in:
How do I pay myself a salary?
If you're the director of a limited company, you're also considered an employee. As such, you may pay yourself a salary through the PAYE scheme-which is similar to how other employees of the company receive their pay.
You'll need to register as an employer with HMRC (even if you're only employing yourself as the sole director of a limited company), set up and run payroll, report to HMRC and abide by HMRC's record keeping requirements.
What is a PAYE scheme?
PAYE-or Pay As You Earn-is a system of income tax withholding by employers.
Tax and National Insurance contributions from your wages or occupational pension and sent to HMRC, before your employer pays you your wage or pension. Student loan repayments may also be deducted in this manner.