PAYE (Pay As You Earn) – guide for limited companies

Is your business a Limited Company that employs staff? If so, you’ll have likely already come across Pay As You Earn (PAYE for short) – or at least you certainly should have done!

As an employer, you’re required to pay your staff’s wages, and deduct any income tax, National Insurance, or other deductions (like pension contributions or student loan repayments) from their pay.

The PAYE process means that as long as an employee is earning more than £183 per week, you should submit a Real Time Information (RTI) report to confirm the details of their pay to HMRC, as well as paying the deductions for them.

How to process your payroll

Payroll can be more complicated than employers think, especially when variations such as sick pay or annual leave crop up. In general, the process consists of:

  1. Calculate the correct amount of pay for your employees, and work out the deductions that will need to be taken from your employees’ pay, including Income Tax and National Insurance contributions. Once you’ve done this, you’ll know how much you need to pay your staff, and how much you need to pay to HMRC for your employee’s contributions, and your own contributions as an employer.
  2. Issue payslips to all of your employees, even if they’re not receiving any pay this month.
  3. Complete and submit a Real Time Information (RTI) return to HMRC to update your employees’ and business tax records.
  4. Pay what you owe to HMRC.

How to pay PAYE deductions to HMRC

You’ll need to report and pay deductions and contributions to HMRC every time you pay your staff (even if the only person getting paid is you as the director of the company). Failure to do so can result in financial penalties, so it’s crucial not to miss this monthly deadline.

There are three main methods of payment that most Limited Companies rely on:

BACS – Transfer what you owe to HMRC by using the following bank details:

Sort code: 08-32-10

Account number: 12001039

You’ll also need to include your 13-digit Accounts Office Reference number as reference for your payment transfer.

Online payment – Pay via the HMRC website here. Again, you’ll need your Accounts Office Reference number to hand.

Direct debit – Set up a direct debit via your HMRC account. This will show on your bank statement as ‘HMRC NDDS’.

Other payment methods include (but aren’t exclusive to):

  • Telephone transfer
  • Through your bank or building society
  • By cheque through the post

How an accountant can help make PAYE simple

If you have the luxury of an in-house payroll team, hiring an accountant may not be something you’ve considered. However, even in this case, adding the skills of a qualified expert to your toolkit can be invaluable.

For a business with no dedicated payroll team, hiring an accountant to support with PAYE and payroll is a no-brainer.

The benefits of enlisting an accountant include:

  • Reminders of important deadlines.
  • Carrying out all of the necessary calculations.
  • Help calculating holiday entitlement.
  • Creating your RTI return for you and submitting HMRC on your behalf.
  • Producing easy-to-digest reports that simply break down things like your total net outlay, total deductions and total payments due.
  • And, of course, saving you valuable time and energy!

This guide was provided by The Accountancy Partnership – Providing online accountancy services nationwide for a low, fixed monthly fee