The Problem with Payroll

Let’s face it, if there’s one thing you need to get right as a business owner, it’s payroll. I mean how would you react if you weren’t paid the right amount come payday? Exactly. Getting payroll right is absolutely fundamental to maintaining trust and a positive, confident workplace.

Unfortunately, while payroll sounds as if it ought to be a simple thing to do it is not always so simple in practice, and many businesses find it confusing and difficult to get right.

At the end of this post, you’ll see a summary of the regular payroll related tasks that we would expect the typical business that operates PAYE as part of its payroll and pays its staff monthly in arrears to be doing. Have a look. How does your business stack up?

The problem with payroll is that it is not just about gross staff pay (employment income) which includes wages, salaries, bonuses and commissions as well as statutory payments such as Statutory Maternity Pay and certain benefits-in-kind and expense payments.

It is also about – in fact it is arguably mainly about – dealing with the many and often complicated tax related duties that come hand-in-hand with this gross staff pay as a result of having to operate PAYE as part of your payroll.

Effectively, operating a PAYE scheme means you collect the Income Tax and NIC payable by your staff as a result of the amounts you pay them on behalf of HMRC.

Tax is complicated, and for the many small businesses without a qualified accountant or payroll specialist, particularly those who employ staff on an ad-hoc basis, it can be difficult to keep on top of the relevant rules, responsibilities and duties.

The first port of call for such businesses should be decent payroll software and many of the latest cloud accounting packages – e.g. XERO and QuickBooks – offer payroll modules  which can make the job easier albeit they still don’t remove the need to properly understand the rules.

Failure to maintain compliance can result in fines and interest becoming payable, and as payroll is a recurring event it’s easy for mistakes to be made again and again before being picked up.

Here’s a simple guide to the payroll tasks that need to be considered.

Payroll – Regular month end tasks

Prior to payday:

  • Calculate gross staff pay*1
  • Deduct allowable deductions*2
  • Calculate Income Tax, Employee NIC and Employer NIC due
  • Produce payslips for each employee
  • Electronically submit your supporting Full Payment Submission to HMRC 2

Post month end:

  • Submit Employment Payment Summary to HMRC by the 19th *3
  • Pay any tax due to HMRC by 22nd (19th if by post)

*1 Includes wages, salaries, bonuses, commissions and statutory payments such as SMP as well as certain  benefits-in-kind and expense payments.
*2 For example pension contributions under net pay arrangements.
*3 Send an Employment Payment not a Full Payment Submission if no employees payments in month,

Payroll – Annual tasks

Prior to the financial year end (April 5th)

  • Submit your final Full Payment Submission for the year before last payday

Post year end

  • Give everyone who was an employee on the last day of the tax year a P60 by May 31st
  • Submit P11D and P11D(b) employee expense forms to HMRC by July 6th

We hope this guidance helps. If you have any questions relating to payroll for your business then please give our team a call or email us at [email protected], we’d love to help.