How to Handle Payroll Taxes for Your Business

Managing payroll taxes is an important responsibility for you as a business owner. It requires precision, understanding of legal requirements, and timely execution.

Mishandling your payroll taxes can result in weighty fines, penalties, and, in the worst case, even legal troubles. This blog post will help you understand the steps for how to handle payroll taxes for your business, covering the registration, calculation, and reporting requirements, so continue reading to find out more.

Understanding Payroll Taxes

Payroll taxes are the taxes that are collected from HMRC from employees’ wages paid through the PAYE (Pay As You Earn) system and paid to the government.

As an employer, you are responsible for deducting tax and National Insurance Contributions from an employee’s pay and informing HMRC about any additional taxable benefits the employee receives. federal income tax

Managing Payroll Taxes

Payroll taxes in the UK refer to these various deductions and contributions that you must handle as an employer:

1. Income Tax: This is deducted from employees’ wages based on their earnings and tax code, using the PAYE system.
2. National Insurance Contributions (NICs): Both employees and employers contribute to NICs. Employees’ contributions are deducted from their wages, and the employer will pay a separate contribution
3. Apprenticeship Levy: This is relevant to employers with an annual pay bill of over £3 million, funding apprenticeship training
4. Student Loan Repayments: If applicable, employers must deduct student loan repayments based on employees’ earnings and repayment plan type
5. Pension Contributions: Employers must enrol their employees in a workplace pension scheme, and both employer and employee must contribute to the pension for the individual

Registering for Payroll Taxes

Here are the steps to take for registering for payroll taxes, from the initial registration stage to paying the tax you owe.

Register as an Employer

The first thing you need to do in handling payroll taxes is to register as an employer with HM Revenue and Customs (HMRC). You can do this online through the HMRC website.

Once registered, you will receive a PAYE reference number and an Accounts Office reference, which you will need for all payroll-related submissions.

Choose a Payroll System

PAYE is the system used by HMRC to collect Income Tax and National Insurance from employment. To set up, you must do the following:

• Choose a payroll system: You can manage payroll manually or use payroll software. Payroll software is recommended as it simplifies and speeds up the process
• Collecting employee information: Ensure you have accurate details for all employees, including their National Insurance number, address, and completed Starter Checklist (or P45 from previous employment)

Tell HMRC About Your Employees

You need to report your employees’ details and earnings to HMRC. Before your employees’ first payday, you need to record pay, make deductions, and report to HMRC.

Ensure you pay HMRC the correct amounts for Income Tax and National Insurance you owe by the deadlines each month or quarter. This helps you avoid penalties and stay compliant with tax regulations.

Calculating Payroll Taxes

Income Tax is withheld from employees’ wages based on their tax code and earnings. You can use the tax tables provided by HMRC or payroll software to calculate the correct amount.

National Insurance Contributions

This is how both employees and employers contribute to NICs:

• Employee NICs: An amount is deducted from employees’ wages based on their earnings. The rates and thresholds vary, so refer to HMRC guidelines or use payroll software for accurate calculations
• Employer NICs: This is paid by the employer based on employees’ earnings above a certain threshold

Apprenticeship Levy

If your annual pay bill exceeds £3 million, you must pay the Apprenticeship Levy. The levy is 0.5% of your pay bill, and you receive an annual allowance of £15,000 to offset your levy payment.

Student Loan Repayments

If employees are repaying student loans, you need to deduct repayments based on their earnings and the type of repayment plan. The thresholds and rates for each plan are provided by HMRC.

Pension Contributions

Under auto-enrolment, employers must contribute to their employees’ workplace pensions. Both employers and employees make contributions, and the minimum contribution rates are set by law.

Reporting Payroll Taxes

Submit accurate and timely payroll tax reports to HMRC to ensure compliance with regulations and avoid penalties.

Real-Time Information (RTI)

RTI is the system used by HMRC to report payroll information. Each time you pay employees, you must send a Full Payment Submission (FPS) to HMRC, detailing the amounts paid and deductions made. This ensures that HMRC has up-to-date information on your payroll.

End-of-Year Reporting

At the end of the tax year, you need to provide each employee with a P60 form, summarising their total pay and deductions for the year.

You must also submit a final FPS or an Employer Payment Summary (EPS) to HMRC, confirming that you have completed your payroll for the tax year.

Benefits-in-Kind Reporting

If you provide employees with benefits-in-kind (e.g., company cars, private medical insurance), you must report these to HMRC using form P11D. You may also need to pay Class 1A NICs on the value of these benefits.

Recordkeeping and Ensuring Compliance

Employers in the UK must maintain payroll records for a minimum of three years. These records should be stored securely and accessible for review.

Stay informed about changes to stay compliant with employment taxes and tax laws, this involves conducting regular internal audits, and seeking professional help when needed, such as hiring a payroll service provider or tax professional.

Haggards Crowther Can Support Your Payroll Management

Our team at Haggards Crowther can help you handle your payroll taxes efficiently. This is a vital element of your business to ensure smooth operation.

Payroll taxes can become overwhelming when juggling the running of your business. A professional accountant and payroll expert can help you manage your payroll taxes on your behalf. Find out more about our payroll services, along with all of our other business and personal accounting services, on our website.

Contact our team at Haggards Crowther today to discuss in more detail what we can offer you. We can be reached by phone at 020 7384 0920 or by email at enquiries@haggards.co.uk, a member of our team will be happy to help you.

Lyndsey Reed

With over 20 years’ experience in the industry, Lyndsey is our dedicated CIPP trained Payroll Manager. Her passion for accuracy and compliance brings a forensic understanding of payroll best practices to the firm. Throughout her career, Lyndsey has worked with various organisations ranging from small businesses to large organisations.

These have provided her with a broad perspective and extensive expertise working with different types of payroll management, like diverse employee populations, including full, part-time and contract workers. Perhaps her most valuable skill is her ability to navigate complex payroll systems and stay up to speed with the ever-changing HMRC regulations.

She ensures everything aligns to strict compliance and legal requirements, and her meticulous attention to detail combined with strong analytical skills make her adept at accurately calculating employee wages, deductions and tax withholdings.