If you’re a small business that employs staff you will need to set up a payroll system to make sure you’re fulfilling your legal obligations and making payroll filings with HM Revenue & Customs (HMRC).
You will therefore need a robust, and ideally online, system in place that stands muster. Here’s where to start – setting up payroll and your definitive checklist.
First things first
The first thing you need to do is to ensure you are registered as an employer with HMRC and register for Pay As You Earn (PAYE) Online.
During this process you will need to decide who is responsible for managing salaries or PAYE in your business, most likely yourself, and use the services of a payroll agency or an accountant like us, Southside Accountants. Please call us to see how we can help.
You will also need to invest in payroll software and to make sure it is compatible with HMRC’s Real Time Information’ reporting requirements and check how it could be linked into your own in-house accounting system.
Next step: Set-up
Next you will need to set up a payroll timetable, in other words, you need to consider the dates each month you plan on making payments to employees, as well as employee related payments you make to HMRC. Your payroll timetable should also include important dates relating to payroll administration including when you need to make PAYE filings and produce employee documents.
During this process of set-up, you will need to be clear on the legal rules and the employee contractual agreements you have set-up with them, which may include payments relating to maternity, paternity and adoption pay, pension contributions and any other deductions taken from an employee’s pay at source.
It is at this stage you will need to be very careful that all employee data is completed accurately on your payroll software system and if needed, gather any missing data from employees so data is ready and complete for submission to HMRC.
It is also important at this stage to write up a procedure for setting up new employees on the system, and also any other procedures dealing with employees leaving, absences for example due to maternity, paternity and adoption leave, and sickness.
Your payroll system should also include a calculation on how to provide employees with additional pay, for example, annual bonuses or commission, and any taxable perks, such as company cars.
Expenses & Security measures
Additional considerations for your payroll system are how you will handle employee expenses on the system, whether you reimburse immediately or once a month when salaries are paid, as well as ensuring your payroll system is configured for employees to send on their expenses to the system via an automated or manual system.
You will also need to put in place security measures to protect the confidentiality of payroll information and guard against fraud both from within and outwith your business. Likewise, you will need to ensure that the payroll system is protected securely but if the system fails for whatever, the data is backed up centrally or in the cloud to ensure you do not disrupt employees payments and your payroll filings to HMRC, which are a legal obligation by you as an employer.
Management system uses
Your payroll system is a useful mine of information on your business and your employees and you can generate management information at different time periods, including review of employee costs as well as reviewing employees records individually. And remember, as an employer, you should keep up-to-date with payroll rules by reading HMRC mailings, which your accountant can do for you and advise you of any important updates.
We can help
We strongly recommend you speak with a tax and accounting specialist like Southside Accountants, your local accountants in Wimbledon and London. Please contact us to see how we as your accountants can help you run your business effectively.
Southside Accountants provide sole trader and limited company services, including tax return services, to small businesses in the UK and are a Xero Certified Advisor.
Written by Shaima Todd.