Payroll explained: what a UK businessman must know about it

If you are new to the UK business world, you will always come across some unknown terminology that is obvious to locals. Payroll is one of them.

What does Payroll mean?

Cambridge dictionary offers a few meanings for payroll, here are two main ones:

1. A list of the people employed by a company showing how much each one earns.

2. The total amount of money paid to the people employed by a particular company.

However, for UK businesses, payroll is more than just a number of employees, salaries, bonuses, one-off contractual payments, but also taxes and national insurance contributions paid to tax authorities, HM Revenue and Customs.

What is PAYE?

To do payroll and to pay salary to employees and directors, UK companies must be registered with the HMRC for PAYE. It also applies to companies without any staff but with a salaried director.

PAYE registration is even mandatory for those who employ and pay wages to household staff such as a nanny or a driver.

PAYE is an abbreviation for Pay As You Earn that reflects the main purpose of the system – on time and due payment of income taxes and national insurance contributions.

Apart from making payments for its employees, an employer must pay NI contributions for themselves within 22 days (or 19 days if paying by post) after a reporting month.

Besides, reporting and payment of taxes and contributions are done online every time when salary is paid to an employee. You cannot escape from it. But at the same time PAYE has a lot of advantages:

1. Sending payroll reports electronically.

2. Receiving tax codes and notices online.

3. Appealing HMRC penalties.

4. Receiving real-time notifications from the HMRC if your reports have been filed late or incorrectly.

5. Generating automatic reports to the HMRC through payroll software.

When does a company need to register for PAYE?

HM Revenue and Customs requires companies to register for PAYE not later than the first payment day. It takes around 6 weeks to register. At the same time, you cannot apply more than 2 months before first salary payments are due to employees.

If you have recently opened a business in the UK, you or your accountants might find it hard to understand the HMRC requirements. In this case our lawyers will be happy to help you out by doing payroll and generating payslips for your employees, at least at the beginning.