A Webinar From HMRC - And No, It Wasn't Boring At All!
by Jo Shaer, on October 2, 2014
I watched a brilliant webinar this morning courtesy of HMRC on getting started as an employer.
I can see you shifting in your seat uncomfortably! No, it really wasn't boring. I came away feeling as if I had a much better idea of what is required of me as an employer as far as HMRC is concerned.
The main takeaway was that I had to ensure I had three pieces of information from any employee.
Their Date Of Birth and
Their National Insurance Number
Here's a great video on why these three pieces of information are crucial if you don't want to spend a lot of time answering queries from your employees and HMRC.
A part of the webinar that was also interesting was that they asked the participants to vote on which social media platform they would like to use to communicate with HMRC - who already have a Twitter and YouTube account.
If HMRC have realised that social media is the best way to reach people, why isn't your business using it?
When do you become an employer?
Becoming an employer means that you have responsibilities to both staff and HMRC. And that applies whether you have full-time or part-time staff or have just registered a limited company.
So, if like us, you are taking on an apprentice or if you are employing a graduate as an intern for a short period, you are an employer.
As soon as you set up your limited company, you are effectively becoming an employer - your own employer if you are the director of that company. So you need to register for PAYE.
Registering for PAYE
You should register when you are paying at or above the PAYE tax threshold of £192 per week or the National Insurance contributions threshold of £111 per week or if your employee has another job or occupational pension or you are providing them with other expenses or benefits.
You can register up to 4 weeks before your employee starts and it's a good idea to do that or you can end up without all the necessary paperwork when the employee's first pay day arrives - like we did, which is a pain.
It's simple to register as an employer online, although I got my accountant to do it for me because they are also handling everything to do with Payroll. There are a series of simple Basic PAYE tools online but they don't produce actual payslips. Whilst you can handle all this yourself and get the stationery required to hand out payslips, I decided that I have enough on my plate with handling the day to day running of my business and the HR side of things without having to deal with paying people as well.
Activating your account
After you register you will receive a letter by post containing your employer PAYE ref no and accounts Office ref. Keep this safe because you can use this number to get your staging date to find out when you will be liable for real time reporting and pensions. This letter will also contain an activation code PIN number and there is a deadline for the amount of time this code remains active - although you can request a new one if you miss it.
If the contract lasts for at least a month, you have to have a contract of service stating employment particulars like what hours are being worked, whether they are full or part time, permanent or casual.
Your new employee may present you with a P45 from their previous job or the Job Centre if they were previously claiming benefits.
This is great because it should give you all the information you need.
However, it is very important that you check all the details are correct and that a mistake has not been made previously.
If it is a current P45 relating to the current tax year, it should show:
any tax deducted
However, as mentioned previously, if your new employee does not have a P45, then you need to make sure that you get the following five pieces of information from them.
Accurate employee info
You need to tell HMRC every time an employee starts or leaves - this keeps yours and their information up to date. The main information they require is:
Date of birth
National Insurance Number
Address inc post code
If you can get this information correct from the start, it will save you an awful lot of time and money. If HMRC cannot match the information to the right record, your employee could be paying the wrong amount of tax and National Insurance contributions which, in turn, affects their entitlement to state benefits and ultimately their state pension.
80% of problems come from the wrong name, date of birth and NI Number being recorded.
There is a great pdf checklist that you and your employee can complete online - never guess this vital information as it can lead to employees called A N Other or aged 103!
The checklist also reminds you to ask two other vital questions
What is your employment situation - have they had a job? Have they received a pension?
Do you have a Student Loan? Does this need to be paid off - a change to their tax code will be necessary
Payroll - You, the Employer are responsible!
For employees of limited companies and student loan deduction, it is a legal requirement to set up a payroll record of each employee. You can choose to do this yourself using the Basic PAYE Tools on the HMRC website or commercial payroll software or you can use an agent, like a book keeper, accountant or payroll bureau. However, you as the employer are still responsible for the payroll even if you dont prepare the records yourself!
Each time you pay wages/salaries you must work out and deduct any cash, any employee's share of NI contributions and other deductions due. The figure that is left will be the employee's net pay or take home pay.
Legally you have to provide payslips showing payment and deductions.
There is also an employers' share of national insurance contributions to think about too, so you need to budget for it. Apparently there is an allowance of £2k that can be claimed for this. Find out more here
PAYE in real time
Almost all employers now operate this and employers or payroll agent have to send details electronically to HMRC as part of routine payroll processes every time you make a payment of salary to an employee.
You make a full payroll submission (or FPS) every payday which includes all payments made, tax and NI - all contributions and deductions for all employees, no matter how much you pay, including those earning below the NI contributions lower earnings limit of £111/week and also those that you pay once a year as well.
This must also include recoveries for statutory payments and expenses paid to employees.
You then have to pay the full amount due, based on FPS each month - unless your payment is less than £1500 per month when you can make quarterly payments. Electronic payment is recommended as this is safe and secure and avoids any postal costs or delays.
Interest and Penalties and How to Avoid Them!
If you don't send accurate reports and pay the correct amount on time, you may be liable to interest and penalties. Pay on time and the right amount and take reasonable care and you should be ok. It's all about rooting out those who don't take reasonable care and who want to gain an advantage.
When someone leaves, you need to let HMRC know electronically via the FPS. It will ask you for the leaving date of the employee.
You need to provide extra payroll info at the end of the year in the final FPS for the tax year.
You need to use that information to produce a Form P60 for any employees that are still employed on 5th April each year. This P60 must be given in paper form or electronically to the employee by 31st May of the next tax year and is a summary of pay, gross tax and deductions for that employee.
Statutory Sick Pay - I don't know much about this and am waiting for the HMRC webinar on this subject to find out more.
Statutory payments for maternity, adoption, paternity - again I am waiting for more information on this.
Expenses and Benefits
An expense is a payment to an employee to cover business costs that they have met or will meet - like using their vehicle and being given a mileage rate or using public transport - and you are reimbursing the business costs
A benefit is something that is not pay or expenses, like private health insurance or company cars
You can reduce your reporting requirement by getting a dispensation for any routine expenses and benefits like business travel - again I am waiting for the webinar to find out more about this.
So, there you have it. That's what I learned today about the requirements for being an employer.
Sign up to get notified about future HMRC webinars on all things business here
Caveat - obviously I am not an expert so you need to take independent advice from someone who is! I use my lovely accountant for all things Payroll.