Chapter 20 – Payroll

Publisher Summary This chapter focuses on issues related to payroll management. A business that employs staff has onerous responsibilities in respect of “Pay As You Earn” (PAYE) and National Insurance. A small company with few employees may find it more cost-effective to outsource the payroll function, although responsibility for compliance with the various regulations will always remain with the employer. Payroll records must be retained for at least three years from the end of the tax year to which they relate and controls need to be established to ensure the accuracy and completeness of payroll processing. The PAYE system requires each employer to calculate the income tax due on the remuneration paid to each employee and to account for this to HM Revenue and Customs. A new employer should provide appropriate details to HM Revenue and Customs to enable a PAYE scheme to be registered for the business and PAYE deducted from payments to employees must generally be paid to HM Revenue and Customs by the 19th of the following month, although smaller businesses may be permitted to account quarterly. The HM Revenue and Customs carries out regular PAYE audits to confirm that employers are complying with the relevant regulations and regular PAYE health checks can be used to identify potential problems at an early stage. There are various classes of National Insurance Contributions covering employers, employees, self-employed individuals and those who wish to make voluntary contributions. The employer and employee contributions must be calculated weekly or monthly, depending on how the employee is paid and the total of employer and employee contributions must be paid over to HM Revenue and Customs by the employer with the PAYE payment for the relevant month.