If you operate a growing business, where you need staff members to work for you in exchange for money and other benefits, you’ll need to set up a PAYE scheme for your company. As a business owner, you can set up the PAYE scheme yourself. 

However, setting up the scheme yourself for your company can be tedious. In this article, I shared with you the information needed, how to set up the PAYE scheme and fines that may be incurred if PAYE deadlines are not adhered to. Let’s get started.

What Is A PAYE Scheme?

PAYE is a system used to withhold income tax and national insurance of your employees and pay it over to HMRC on their behalf. The amount withheld depends on the wages of the employee and the specific benefits or tax relief they are allowed. 

The term PAYE stands for Pay as You Earn and as the name suggests the employees have to pay the income tax and national insurance contribution as they earn. 

As the employer, you are responsible for calculating and reporting the statutory deductions to HMRC via their Full Payment Submission (FPS) system. The FPS is HMRC own payroll filing system.

Setting Up Your Company’s PAYE Scheme

In setting up your company’s PAYE scheme you’ll need to register online with HM Revenue and Customs (HMRC) or get your accountant to do it for you. The process is straightforward but complex, however, if you need any assistance a team member at TaxFreeman Accountants can assist you. 

When you register to operate a payroll system you are responsible for calculating the statutory deductions to be taken from new employees’ wages, the amount that you have to pay on behalf of those employees and the amounts for the employees’ pension scheme. 

In addition, you’ll be responsible for all payroll submissions to HMRC. Needless to say, you have to carry out these functions on a timely basis, or else, you will be fined. 

Information Needed To Set Up The PAYE Scheme?

Before you hire your first staff member and start paying them, the payroll system must be up and running. As a business owner, you can register your business to do payroll yourself or you can use an external payroll bureau to register it on your behalf. TaxFreeman accountants can help you.

The following are the information needed to register for the PAYE scheme:

  1.    Company name
  2.    Company unique taxpayer reference (UTR) number
  3.    Nature of the business
  4.    Business Address
  5.    Company Registration Number (CRN)
  6.    First payday
  7.    Number of Employees 
  8.    Full name and national insurance number of the company director

After registering for the PAYE system online you will normally receive a PAYE reference and an Accounts Office Reference in the post, it normally takes about 5 working days and will be sent to your business’ registered address.

What If I Pay My Staff Before Registering To Operate The Payroll Scheme?

 If you are using payroll software to run payroll yourself, you can still run your payroll and pay your staff before registering to operate the payroll, however, since you do not have the payroll reference numbers do not submit the payroll filing. 

Therefore, you can definitely pay your staff before registering to operate the payroll. However, as soon as you receive the PAYE reference and an Accounts Office Reference report late filing on the FPS.  Not reporting it may lead to fines or penalties. 

PAYE Deductions To Be Expected

As an employer, you are expected to deduct Income Tax, National Insurance, Pension and Student Loan repayment accounts. 

The tax deductions calculated are to be reported and paid over to HMRC and pension to the pension provider. The remainder of the wages is paid over to the employee. Deductions are always taken from gross income.

When and How To Report PAYE Deductions?

When and how much PAYE deductions you pay depend on the frequency with which you run your payroll, whether weekly, biweekly, monthly or annually. Your payroll deductions must be filled via the payroll full payment submission filing system on or before the company’s pay date. 

All allowable employment allowances given by the government should be accounted for and adjusted on the FPS at the same time as you run your payroll and are doing the FPS filing and submitted through payroll Employer Payment Summary (EPS) filing.

Failure to report your payroll FPS may result in HMRC fines or penalties. In order to avoid fines and penalties, you will need to submit a Late FPS Filing as soon as possible. You should always stick to the submission deadlines giving by HMRC, it just makes sense to avoid fines. 

When And How to Pay PAYE deductions?

Now it is time to pay your PAYE bill or HMRC Payments. It is vitally important that you pay both the employer’s and employees’ income tax and national insurance to HMRC. 

If you want to be on the right side of the taxman, you need to pay what you owe to HMRC by the 22nd of the next tax month. Payments can be done electronically or by cheque through the post. Payments of the tax are no longer allowed at the Post Office. 

If you want to ensure that your payment is allocated correctly you should, when making the payments, include the payroll reference. Your payroll reference is made up of your Accounts Office Reference and the tax period number.

The payroll system cost a bit to run but is helps your employee not to worry about paying their taxes at the end of the year because it is already taken care of. 

How Do PAYE Work?

Income tax is deducted from each employee’s gross income. The amount deducted varies depending on the employee’s gross income and tax code. 

The tax code given to each employee by HMRC specifies how much personal allowance is to be assigned to each employee tax calculation. The personal allowance given determines the amount of tax-free income. 

The income covered by the personal allowance is income taxed at zero percent (0%). A higher than 0% tax will be calculated on any amount above that threshold. 

How We Can Help You To Set Up Your PAYE Scheme?

We work with a number of growing businesses across the UK and can do the same for you. 

Give us a quick call and let us know how we may help you. 

Don’t have a phone? Complete the contact form or send us an email. 

We get back in touch with you with 24hours. 

TaxFreeman Accountants:


Email: info@taxfeeman.co.uk

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