Payroll For Beginners In The UK - Explained In 60 Seconds

Trying to understand the UK payroll system? This quick payroll for beginners UK guide explains the core things you need to understand in under 60 seconds.
In short, you’ll need to run payroll if you’re a limited company paying a salary to any employees (including yourself!). You’ll need to register details with HMRC and submit a payroll report every month.
📌 Full guide to payroll: www.business4b...
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What is payroll?
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Payroll is how businesses pay their employees. It’s designed to cover employees’ wages, the financial records of the pay, and the process of paying any corresponding tax to the HMRC.
In a nutshell, payroll is the entire process that handles an employee’s wage and tax. The physical payout of wages and taxes is handled by PAYE (Pay As You Earn), which is a UK government scheme administered by HMRC.
Do you need to use payroll?
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If you have any employees, then you need to set up payroll. Failure to do so will result in some hefty fines and penalties against your company, so as soon as you hire someone you need to sort payroll out ASAP.
Generally, this only takes 3 steps.
1) Register your business as an employer through HMRC.
2) Register your employee with the HMRC using a Full Payment Submission (FPS). For this, you’ll need details such as your employee’s full name, address, tax code, date of birth, start date, salary and student loan information. You’ll also need their P45.
3) Set up your PAYE system and begin your payroll process.
The set-up for payroll is relatively simple, but there are steps that you have to do every month to make sure that you pay your employees and tax correctly.
How to run payroll
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A tax month runs from the 6th of one month to the 5th of the next. Each tax month, your business will have to complete some actions to make sure that your payroll is correct and compliant.
These actions can be completed using payroll software. If you don’t have payroll software, you can research and choose one from a list of HMRC-approved software here.
1) Record the pay of all your employees, whether it’s salaried or hourly.
2) Calculate all deductions from their pay, including Income Tax and National Insurance contributions.
3) Calculate the amount of National Insurance that you’ll have to pay as an employer. This is a fixed rate of 13.8% per employee over 21 years old.
4) Produce payslips for your employees.
5) Report all pay and deductions to the HMRC using an FSP (Full Payment Submission).
Once completed, you’ll be sent a balance of what you owe the HMRC in your online account within 2 days. This payment is due by the 22nd of each month unless you pay less than £1,500 a month, in which case you can apply to pay quarterly payments instead.
Any late or incorrect filings can incur a penalty charge, so it’s important that you get this information right and on time.
Can sole traders use payroll?
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No, sole traders can’t pay themselves a traditional wage using PAYE.
As a sole trader, there’s no legal distinction between you and your company. The wages that you pay yourself are from personal drawings of the business, while the Income tax and National Insurance will be based on the profits that your business receives. Although you can’t give yourself a wage through the PAYE system, you will need to keep a detailed record of all the payments you make yourself in order to correctly calculate profits and tax.
Do you have to handle payroll yourself?
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Running a small business, we know you have a lot on your hands. If you don’t have the space or know-how to take on payroll, you can outsource it to other companies or agencies to handle it on your behalf.
However, it’s worth noting that even if you outsource your payroll, it’s still the legal responsibility of your company.
Resources
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How Do Dividends Work: www.business4b...
How To Recruit Employees: www.business4b...
Recommended Accounting Software: www.business4b...
Recommended Accountants: www.business4b...
DISCLAIMER: The information contained in this video is for general information purposes only. Any reliance you place on such information is therefore strictly at your own risk. Always consult with a qualified accountant to get professional advice tailored to your individual situation.
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📌 FULL GUIDE: www.business4beginners.co.uk/accountancy-costs-for-limited-company/
Other Resources:
How Do Dividends Work: www.business4beginners.co.uk/how-dividends-work-uk/
How To Recruit Employees: www.business4beginners.co.uk/recruit-employees-small-businesses/
Recommended Accounting Software: www.business4beginners.co.uk/accounting-software-reviews-uk/
Recommended Accountants: www.business4beginners.co.uk/best-online-accountant-reviews-uk/