New employers – the basics

New employers – the basics


This is one of a series of videos aimed at
new employers. So you’ve taken someone on and registered as an employer with HMRC. You’ll
probably have a few questions about what happens next. Well, in this series of short videos,
we’ll be showing you some of the things you need to know as a new employer. Firstly,
you’ll normally have to operate ‘PAYE’ as part of your payroll – but what is PAYE?
‘Pay As You Earn’ is HMRC’s way of collecting Income Tax and National Insurance from payments
you make to your employees. Payments to your employees include their salary or wages, as
well as things like any commission and bonuses. From these payments, you’ll need to deduct
tax and National Insurance. There are other deductions you may need to make including
Student Loan repayments or pension contributions. Before you can set your employees up on your
payroll, you need to get certain information from them. You’ll usually get most of this
from the employee’s P45, but if they don’t have a recent P45 they’ll have to fill in
a ‘starter checklist’. You’ll need information such as your employee’s full name, date
of birth and National Insurance number, along with a number of other important details.
Every time you pay your employees, use your payroll software to record their pay and calculate
any deductions, like tax and National Insurance. You’ll use an employee’s tax code to work
out how much to deduct. A new employee’s tax code can be found on their P45 if they’ve
had a previous job. It’ll show details such as the date they left their previous job,
their total pay and tax to date, as well as their existing tax code. The code will usually
be made up of several numbers and a letter, such as 1100L. The numbers in an employee’s
tax code show how much tax-free income they get in that tax year. If your employee doesn’t
have a P45, you can use an emergency tax code. Week 1 and Month 1 are emergency tax codes,
and look like this. This means your employee’s tax is calculated only on what they’re paid
in the current pay period, not the whole year. You’ll also need to: calculate the employer’s
National Insurance contribution; produce payslips for each employee; report their pay and deductions
to HMRC in a Full Payment Submission, or FPS. If your new employee doesn’t give you a
P45 that’s been issued in the current tax year, ask them to complete HMRC’s ‘Starter
Checklist’. This will provide the information you need for your first Full Payment Submission
for that employee. Getting the right information from your employees is important as we need
to match their payroll information against the correct records. You can operate PAYE
by either: paying a payroll provider to do it for you; or doing it yourself using payroll
software. If you decide to use a payroll provider – such as an accountant – you’ll still be
responsible for collecting and keeping records of your employees’ details and your payroll
provider will need these to run your payroll. If you want more support, some payroll providers
will keep employee records for you, provide payslips and make payments to HMRC on your
behalf. But remember that as an employer YOU are legally responsible for completing PAYE
tasks, even if you pay someone else to do it. There’s more information available and
plenty of guidance on the GOV.UK website. If you want to run payroll yourself, you’ll
need payroll software to be able to work out your employees’ pay and deductions and report
payroll information to HMRC. The software will help you with this and other relevant
tasks. If you have fewer than 10 employees you may want to use HMRC’s free Basic PAYE
Tools (BPT) which can be downloaded from the GOV.UK website. There is also commercial software
available, some of which is also free. Take a look at our YouTube video to find out more
about this. Telling HMRC you’ve taken on a new employee is easy – it’s done automatically
when you include their details on a ‘Full Payment Submission’ the first time you pay
them. You’ll need to include: information you’ve already gathered from them; the tax
code and starter declaration that you’ve worked out; and pay and deductions since they
started working for you. You don’t need to include any information from their previous
job. So, that’s the basics for new employers. If you want to know more about any of these
things, or further information on PAYE in general, check out the other videos in this
series. Thanks for watching.

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