The end of the tax year is the best time to think about payroll, whether you’re switching provider, or setting up for the first time.
Today, we’re guiding you through what payroll is and why it’s essential.
Payroll is crucial because it allows you to pay yourself and your team.
When you run a company, generally the most tax efficient way to pay yourself is via a dividend.
But, you don’t pay National Insurance (NI) on dividends, which means you’ll miss out on certain benefits and State Pension.
So, even if it’s just you in your company, you should consider paying yourself a wage that will attract NI.
By paying yourself £700 per month, you benefit from a Corporation Tax deduction on your wage, as well as not paying Income Tax (subject to your other income). However, you still earn enough to pay your NI contributions for the year.
To do this, you’ll need to run payroll.
Payroll is the process of calculating how much to pay your employees (that includes yourself if you are the director of your company).
Whenever you pay an employee, you run payroll. So, if you pay staff monthly, your payroll will run every month.
As an employer, you’ll need to work out how much you owe each member of staff after the appropriate deductions for tax, national insurance, student loan and ensure the workplace pension has been taken account of.
The money you’ve deducted needs to be paid to the relevant parties, such as HMRC and your pension provider.
On top of this, HMRC wants to know who you’ve paid, when you paid them and how much you’ve paid them. You do this digitally on the day before or on the day your wages go out – this is called Real Time Information (RTI).
The rest goes into your employees’ pocket – hurray!
But, phew, that’s a lot of work to be doing every month, when you’ve got the rest of the business to run, right?
We recommend running payroll digitally through payroll software.
There’s a few out there, including Quickbooks, FreeAgent, Sage and Xero.
Most allow you to integrate with your digital accounting software, so everything is one place. When you run payroll, file your PAYE and NI to HMRC your books update automatically – pretty nifty, eh?
You may consider outsourcing your payroll to save time and ensure you are fully compliant.
VSP Accountancy offers an efficient and flexible solution to ensure you fully comply with employment legislation. You’ll no longer need to stress over calculating PAYE, over time, student loans, holiday and sick pay.
If you do have any questions about setting up or running payroll, do get in touch and we’d be happy to advise you on your next steps.