Not sure if you want or need to run a PAYE scheme, or, are you getting started with payroll and want some more information about the requirements before starting? Then this is the guide for you.

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A PAYE scheme or payroll is the term used to pay an employee of the business. If you are a sole director and shareholder (or Sole Proprietor), or it is yourself and your partner as joint directors and shareholders (or a Partnership), then there is no requirement to set up a PAYE scheme for your business; but it can be a tax efficient way to withdraw funds from your business.

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However, if you are looking to employ additional staff in the business, you will need to set up a PAYE scheme and run the payroll in order to tell HMRC about the pay, tax and National Insurance of those staff.

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Auto Enrolment Pension

If you are running a PAYE scheme, and an employee earns over £192 per week, or £833 per month, they are required to be enrolled into an Auto Enrolment Pension Scheme (AE pension), however, the employee can choose to opt out of the AE pension if they choose to. Note: If you are a director, AE pensions don’t apply. You can choose to opt into a scheme if you wish, but auto enrolment is not a requirement.

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If you know someone is going to be earning enough to be auto enrolled, you will need to pick a pension provider and get it set up. There are a number of different AE pension providers, and per The Pensions Regulator (TPR), the following have said they are suitable for small employers:

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• Collegia Pension

• Creative Pension Trust

• Cushon Master Trust

• The Lewis Workplace Pension Trust

• National Employment Savings Trust (NEST)

• NOW: Pensions

• Penfold Pension

• The People’s Pension

• Smart Pension Master Trust

• Standard Life Workplace Pension

• True Potential Investments

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Each scheme provider has their own different costs: some have setup costs, and some have running costs. It is up to you as the business owner to decide which scheme is best for your business.

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As well as setting up the scheme and enrolling the relevant staff, you will also need to ensure you complete the Declaration of Compliance with TPR and re-declare every three years. You can find more information on how to complete a Declaration of Compliance, or Re-declaration of Compliance at TPR.

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Employment Allowance

If you are an employer, who has more than just a sole director on the payroll, you will also be eligible for Employment Allowance. Employment allowance is an allowance from HMRC for small businesses, to give relief for Employers National Insurance contributions, up to £5,000 per tax year. If you are eligible, Employment Allowance is automatically applied and does not need a special request.

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PAYE Tax Rates

As is with being Self Employed, the tax brackets for PAYE employment are:

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• For earnings between £0 - £12,570 the tax rate is 0%   (Tax Free Allowance)

• For earnings between £12,571 - £50,270 the tax rate is 20%   (Basic Rate Tax)

• For earnings between £50,271 - £125,140 the tax rate is 40%   (Higher Rate Tax)

• For earnings Over £125,140 the tax rate is 45%   (Additional Rate Tax)

 

If you are a sole director, or joint director with your partner, you can use this information to help you calculate your optimal tax efficient salary, based on your other income.

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If you are unsure what tax efficient looks like for you, then speak to your accountant about your financial position and the best options for you.

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Overpaid PAYE

If you have overpaid any PAYE tax, HMRC send a letter to inform you of this, the amount and how it had been calculated. Previously, HMRC would automatically issue a cheque to your residential address, however they have updated their systems and now if you have received a P800 letter advising you of overpaid tax, you need to request the refund back. This is because they are now looking to issue repayments directly to your bank account, rather than by cheque. If you need to request your refund, you can do so here.

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Benefit in Kind (P11D)

A P11D is a HMRC form for declaring benefit in kind. The form is two-fold, P11D for the individual and P11D(b) for the company. A P11D is required for things such as:

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• Company car/van

• Overdrawn DLA

• Private healthcare paid by the company

• Childcare paid by the company

• Relocation costs

 

A full list of expenses is available at HMRC.