Finance · 16 April 2021

How can I set up payroll without an accountant?

How can I set up payroll without an accountant?

Small business owners are entrepreneurs who are not afraid of hard work. A taxing (no pun intended) part of the hard work is admin and accounting. SMEs initially keep their accounting functions in-house and, mostly, under their personal control.

Personal control of finances is advantageous up to a point.  It’s cost-effective, and it keeps your finger on the pulse. The cost-saving might seem obvious however an accountant does bring strategic insight to business plans, company formation, loan applications, merchant account selections and HMRC communications. They also keep finances tactical and accurate whilst making an entrepreneurs life easier. The cost of an accountant is repaid in loss avoidance, profit generation and work-life balance for the business owner.

Perhaps the most important reason to appoint an accountant is so that you can focus on running your business.

How can I do payroll on my own?

Perhaps, however, it is still not time for your business to bring in an accountant. One of the things an accountant does is set up your payroll and manage all the related statutory items. You can attempt this yourself.

You would need to have good computer skills and be comfortable navigating through and installing new software.

One of a few important steps towards independently handling your payroll is to choose which software you will be using. You can either buy an off-the-shelf payroll software package, use a cloud-based solution or use the HMRC online payroll scheme.

There is also a very helpful guide from the HMRC, which is a highly recommended starting point and which we recommend you check out prior to taking any further steps. The guide is simply titled: PAYE for employers.

The objective of the guide is to direct you through the processing of certain tasks for paying each of your employees for the first time. The setup of most payroll systems will allow you to choose when you want to pay employees and how regularly.

To get started with your payroll, here is a list of actions that you need to take to get you up and running independently. Some are once-off actions, and some are recurring:

Registration: Firstly, get yourself, or your limited business, registered as an employer with HMRC and set up your login for executing PAYE Online.

Software: Next (this might have been done already), research thoroughly and choose which payroll software will suit your business needs. HMRC have collated a list of options to help you choose payroll software. The software will be utilised to record employee’s details, calculate pay, calculate the statutory deductions, and interface with the HMRC with reporting.

Record keeping: An ongoing action is to collect and keep records of what you pay out to your employees even if they get <GBP120/week. Also, record the deductions you have made.  Supporting documentation for these must be filed, hard or soft copy. The payroll software will calculate income tax and National Insurance deductions as these are worked out using each employee’s tax code and National Insurance category letter.

Deductions may also include repayments or contributions such as student loan repayments, company-employee loan repayments, pension contributions, Payroll Giving donations and child maintenance payments.

Reporting: Your payroll software will assist you significantly with sending Full Payment Submissions (FPS) to tell HMRC) which collate information on payments and deductions.

The FPS must be sent on or before the date you have nominated as your employees’ payday, regardless of whether you pay HMRC quarterly instead of monthly. Always enter the usual date that you normally pay your employees on, even if you pay them earlier or later due to a Bank Holiday or something similar.

Early reporting: An FPS can be submitted before your regular payday in instances when staff are going on holiday etc. Don’t report too early, though as this increases the chance of needing to make changes. This will require a corrected FPS to be submitted. Note: reports for the new tax year may not be sent before March.

Late reporting: This usually is not accepting. However, HMRC has published exceptional circumstances when this is permissible.

Reporting requirements: All your FPS submissions must have your PAYE reference and Accounts Office reference entered into your payroll software. These references are regenerated after your registration as an employer with HMRC. Your payroll software will have automatic instructions for you to follow to assist with the completion and submission of the FPS.

If you are in any doubt, the HMRC website has guidance on what each FPS field needs to contain, such as information of employees paid, the wages or salaries, the deductions, NI etc.

The HMRC allows for the splitting of FPS into batches if it better suits your accounting practises, such as a batch for employees and a batch for directors.

Each tax month starts on the 6th.  After that time, you can ascertain, from your FPS, how much tax and National Insurance are owed based on the amounts in your HMRC online account from the 12th. You can then initiate any reduction claim against what is showing as owings to HMRC. This needs to be sent by the 19th of that month. If there are outstanding owings, this needs to be paid by the 22nd or, if you are paying by post, this will need to be sent by the 19th.

You must also capture your employees’ leave days, whether it’s sickness, maternity, compassion, vacation etc.

You will need to keep checking for notifications from HMRC with regards to changes to your employees’ tax codes. This could be triggered if your employee’s tax-free income increases or they have a company car added to their package, or they have the car removed.

Records must be kept of any taxable expenses or benefits you have given to your employees.  These must prove that your reporting is accurate. Those records must be filed correctly as they need to be kept for 3 years from the end of the tax year they relate to and must be easily accessible if asked for.

An example of a taxable expense reimbursement would be if you paid an employee back for travel expenses incurred. In these records, it must show when, where and why the employee travelled. It would be advisable to keep receipts as evidence.

Notifying HMRC of new employees: When each new employee is about to be taken on, you must tell HMRC about them, but prior to that, there are steps that also need to be taken, such as:

  1. Decide on the salary you are paying and check that it is above the National Minimum Wage.
  2. Very importantly, check if the person has the legal right to work in the UK. It would be prudent to do a number of other employment checks as well.
  3. Certain industries and certain brand values require that you need to apply for a DBS check. Industries that require obligatory DBS checks would be working with vulnerable people, precious metal or stones, security or high profile people.
  4. From day one of being an employer, you need to have employment insurance in place. Therefore, you will need to have done the research and contracting prior to that day 1.
  5. Give your employee a written statement of employment if they will be employed for more than 1 month and receive a signed hard copy back.
  6. You can register as an employer for up to 4 weeks before paying new staff.
  7. Prior to taking on new staff, establish a workplace pension scheme. They must be enrolled, and you must make an employer’s contribution for each employee, subject to them:
  • being between 22 years old and the State Pension age
  • earning more than GBP10, 000 a year
  • normally working in the UK, including people who are based in the UK but travel predominantly overseas for work
Now that you have achieved those important setup steps, there are a few more to take before you pay your new employee:

  1. Go to the HMRC website and ascertain if this new employee needs to be paid via PAYE.
  2. Use the employee information to ascertain their tax code. If their P45 is not available, use HMRC’s ‘starter checklist’.
  3. Get written confirmation of whether they are free from student loans or need to repay a student loan.
  4. Set up the employee in your payroll software and register them using an FPS.
Note: you must remember to prepare the annual reports and tasks required for the next tax year (start date 6 April).

What information do I need to set up payroll?

The HMRC guide will supply you with all the information a business owner could possibly need to get started as an employer of staff.

Within the guide, you will find that the HMRC have, skilfully, also created a very handy list of all the best payroll software that is available AND is suitable for United Kingdom small businesses.  This includes the best paid-for payroll software.

If the HMRC guide and all of its information, as well as its handy list and the information on HMRC’s website, doesn’t answer all your questions, you can have your specific queries resolved telephonically.  It is always possible to call the HMRC Employer Helpline. You do, however, need to have your employer reference number on hand when you make the call. The HMRC Employer Helpline number is 0300 200 3200. They have brilliantly flexible operating hours, 8 am – 8 pm Monday to Friday, and 8 am to 4 pm on Saturdays.

How do I register my payroll with HMRC?

As part of your employer payroll setup, you will have to register for the HMRC online payroll scheme. To get this processed, you should have your Employer PAYE reference number on hand as well as your Accounts Office reference number.

The HMRC payroll scheme has loads of information available online, and the online service helpdesk can be reached on 0300 200 3600 between 8 am – 8 pm Monday to Friday, and 8 am to 4 pm on Saturdays.

If at any stage you have a change of heart and want an alternative to using HMRC and setting up payroll yourself, you would then move on to assessing the use of a payroll bureau or an accountant who will manage and optimise your payroll processing.

Luckily for small businesses, there is a significant quantity of payroll bureaus available, so you will be pleased to find that the costs are very competitive. It is very important for you to note, however, that each payroll bureau has a vast quantity of customers. Due to this, in order for them to be effective, correct and on time, they work to strict, not negotiable deadlines so that they can meet all processing requirements. These processing requirements cannot be done by A.I., so human input hours are required, and deadlines are a critical part of the ability to be successful.

In addition to the payroll bureaus, there is a vast quantity of accountants who offer full or partial payroll services. A certified accounting service will tend to be priced at a higher level than the pricing obtained from a payroll bureau. They are, however, generally more flexible and accommodative of the idiosyncrasies of their customer base.

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