Becoming an employer

As your business expands you will inevitably need to hire staff to help you manage the increasing workload. Becoming an employer requires compliance with various legal obligations, such as running a payroll, providing a workplace pension, and complying with other employment legislation. Here are some key points that you need to action once you recruit staff and become an employer:

• Register as an employer with HMRC to get a PAYE reference number
• Deduct PAYE and national insurance from employee salary payments
• Register with the Pensions Regulator for automatic enrolment
• Set up a workplace pension scheme, such as NEST
• Choose payroll software that is RTI (real-time information) compliant
• Provide employees with detail of terms of employment
• Make sure you have appropriate insurance i.e., employer’s liability insurance

Register with HMRC

Becoming an employer for the first may require you to register with HMRC as an employer who will then provide you with a PAYE reference number. To check whether you need to register use this link on HMRC’s website: Register as an employer – GOV.UK (www.gov.uk). You do need to register with HMRC as an employer before the first payday. HMRC may take 5 to 10 days to issue the PAYE reference, and you can only register as an employer up to 2 months before the first pay date. HMRC will also provide an accounts office reference number, which is used for PAYE and National Insurance contribution payments.

Payroll deductions

As an employer, you are legally required to make payroll deductions from your employee’s pay, the main deductions being income tax (PAYE) and employee national insurance contributions. Employers also pay employer national insurance contributions to HMRC. All the deductions must be paid to HMRC by the 22nd of the following month or by the 19th if paying by cheque. You will need to quote the accounts office reference number when making payments of PAYE and NI to HMRC.

Payroll software

Unless you outsource your payroll to a payroll bureau, you will need to use payroll software. All payroll returns must be submitted to HMRC electronically under RTI (real time information). HMRC has payroll software for fewer than 10 employees called Basic PAYE Tools, which can be downloaded using the following link: Download HMRC’s Basic PAYE Tools – GOV.UK (www.gov.uk)

Pension

Employers have a legal duty to enrol all eligible employees into a workplace pension, also known as auto enrolment. Once you have registered as an employer, the Pensions Regulator will contact you with details of auto enrolment. Eligible employees are staff who are 22 years and above earning £10,000. Employers must contribute a minimum of 3% of staff members’ eligible earnings to a workplace pension and employees must contribute 5%. Non eligible staff members can request to join the pension scheme, but the business does not have to contribute to their pension.

New employers | The Pensions Regulator

Payroll forms – The P forms

P60 – This is the form that you must provide to your employees at the end of the tax year. This form details the amount of PAYE and national insurance they have paid. It also has details of their tax code. The tax year runs from the 6th of April to the 5th of April of the following year.

P45 – When a staff member leaves your employment, you must provide them with a P45. New staff members should provide you with a copy of their P45, which details their tax code and tax paid for the year to date. If they don’t have a P45 then they will need to complete a new starter form.

P11D – Some employers offer additional benefits to employees, such as gym membership, company cars, etc. Some benefits are tax free, and others are subject to PAYE for employees. Employers incur Class 1A national insurance contributions on certain benefits. Any taxable benefits must be reported on a P11D form and both HMRC and the employee must receive a copy. Benefits can, however, be taxed through the payroll, known as payrolling benefits, then there is no requirement to complete P11D forms. P11D forms must be submitted to HMRC electronically.

P11D(b) – This is the form used by employers to declare national insurance contributions owing on staff benefits. Both P11D and P11D(b) forms must be submitted by 6th of July following the end of the tax year in April.

P46 – When an employee is provided with a company car, HMRC needs to be advised by submitting a P46 form.