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A payroll system is used to control the issuing of salaries to employees, make correct deductions, and pay the right amount of income tax and national insurance to HMRC.

All payments that are made to employees of a company must be provided through a payroll system. Employees expect their wages to be accurate and HMRC expects an employer to make the correct deductions and pay the tax owed in a timely manner. A payroll system has to be in place as soon as you have an employee to pay, even if that employee is you.

Payments and deductions

There are many types of payments and deductions that have to be processed through the payroll. These may include salary, bonuses, overtime, statutory payments like Statutory Maternity Pay or Statutory Sick Pay, or holiday pay. Deductions will usually be income tax and national insurance, but could also include repayments for a student loan.

Responsibilities as an employer

You can choose to operate your payroll in-house or outsource to a professional. There are responsibilities as an employer that must be fulfilled, Payroll systemseven if you outsource payrolling duties. Employers must ensure that all information included in the payroll is reported to HMRC before or on every payday. The information has to be submitted electronically, under the Real Time Information system. You must report the employee details, payments made and the deductions, along with information about new starters and leavers.

Operating in-house payroll

There are two options available for those who decide to take the process in-house; Basic PAYE Tools from HMRC or commercial software. As Real Time Information requires you to report electronically, you can’t use a manual system for dealing with payroll. If you have fewer than 10 employees, the Basic PAYE Tools from HMRC will be suitable but for more employees, commercial software will be necessary.

Reasons to outsource

Although outsourcing to a professional payroll provider will require an investment, you will cut down on resources and costs of administrating a payroll in-house, especially the paperwork which is required. You won’t have to purchase suitable software and the updates it will require. To run a payroll system in-house, you will need IT equipment and an internet connection, which won’t be necessary if you outsource. If you outsource to a payroll provider, you can be assured that everything is correct, which leaves you free to deal with other aspects of the business.


About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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