What is the UK payroll process?

The United Kingdom is global hub for financial and professional services businesses. The workforce in the UK is diverse with people from Asia, Europe and Africa. United Kingdom, the crowded business hub, is one of the countries with the highest employment rates in the world. Over 35 million people in the UK are employed, which makes the payroll process crucial and intricate as well.  Most of the businesses seek payroll services in the UK from various accounting firms as in-house payroll management may be hectic.

This blog will focus on the procedure of payroll process in the UK.

Payroll

Payroll management is more than just a compliance requirement, it is an investment in your business’s financial health as well as critical for employee satisfaction. It includes calculation of salaries, deduction of taxes and timely payment to employees. Payroll management is not just restricted to the payment of wages to the employees but there is more to it. It involves the maintenance of financial records of gross earnings, payroll deductions and net payments, compliance with local laws and regulations, management of bonuses, employee working hours tracking and most importantly controlling payroll fraud. Payroll management is key to employee engagement, financial integrity and trust but payroll errors may cause employee dissatisfaction and may lead to financial anomalies, fines or legal consequences.

The important aspects of payroll management in the UK involve calculating employee earnings, deducting taxes and National Insurance Contributions (NIC), reporting pay details to HMRC and most importantly, ensuring timely and accurate payments to employees.

Payroll Management

In the UK, payroll management involves 3 stages namely pre-payroll, payroll calculation, and post-payroll. Let’s have a look at how payroll works in the UK.

Payroll tax in the UK is collected via the PAYE system i.e. Pay as You Earn. PAYE is HMRC’s method of collecting income tax and National Insurance contributions from employees from the date of employment. In the UK, it is the responsibility of the employer to calculate and collect taxes from employees and pay them to His Majesty’s Revenue and Customs (HMRC).

Every time any payment is made to the employees which is considered to be taxable, the latter procedure is repeated, for both salaried and hourly staff.

As an employer, it’s essential to keep your accounts updated. You must submit your latest pay deductions to HMRC by the 19th of each month if you pay by post, or by the 22nd if you pay online.

At times, calculation of each employee’s deduction becomes hectic and challenging. Final report for the year must be submitted to HMRC along with the provision of Form 60 (a form that summarizes employee’s annual pay and deductions before the end of the payroll tax year). HMRC must also be notified in case of any expense or benefits for employer year-end filing. The United Kingdom’s Real Time Information (RTI) system is utilized for reporting payroll data. Employers are required to submit their payroll information to HMRC online through the RTI system. Under the RTI system, payroll data must be submitted before or during salary payments. Once the data has been submitted, it cannot be altered or overwritten. Employers are required to notify HMRC in case of new hiring or changes in employee’s position.

Setting-Up Payroll Process

Payroll Management has to carry out the following procedure to set up the payroll process in the UK.

• In the beginning while setting up business in the UK, registration as an employer in HMRC portal must be completed. In response, Log-in details for PAYE online are given to the employer. Receipt of employer’s PAYE reference number may take up to 5 working days.
• Subsequently, employers must choose preferred payroll software for the calculation of employee’s pay deductions and related details.
• Employers are required to report the details to HMRC before the first payday and subsequently pay the tax and National Insurance to the HMRC.

Payroll Procedures

Processing payroll involves a series of steps to make sure that employees receive their remuneration timely and precisely. Following procedures are involved:

• The first step involves documenting employees’ salaries, statutory sick pay, and holiday pay. Keeping accurate records of compensation and benefits is crucial for effective payroll calculation.
• Next step involved the calculation of deductions. This process is automated via Payroll software as it ensures precise deductions.
• Production of pay slips comes next, which is a crucial part of payroll processing in the UK. Payroll software efficiently generates pay slips without the risk of errors or omissions.
• As said above, to comply with legal requirements, employers must report to HMRC regarding employees’ pay and deductions.

Types of Payroll Procedures

Manual Payroll

Manual payroll is the least expensive but a time-consuming and hectic process. Manual payroll management involves the calculation and deduction of taxes and other payroll tasks. HMRC tax tables and calculators are used for reference and double check for PAYE tax and NIC. Manual payroll process requires extra attention to detail to ensure compliance.

Payroll Software

The rise of technology has intervened in the world of finance. With the introduction of payroll software, payroll management in the UK has become extremely simple and handy.

Payroll software automates calculations for wages and taxes, eliminating the need to reference tax withholding tables. The use of payroll software eradicates the risks of errors and omissions.

Accounting firms and Payroll Management

The intricate regulations regarding payroll compliance in the UK are hectic. Businesses in the UK seek payroll services from the accounting firms to ensure compliance. This not only saves them valuable time but increases employees’ trust and satisfaction, which is extremely important for a business’s success and growth.

In a nutshell, payroll is a crucial process for businesses in the UK, involving various elements such as payroll taxes, processing, and management. Whether handled manually, through a service provider, or via payroll software, meticulous attention to detail is essential. As an employer, it’s important to accurately calculate and deduct taxes and National Insurance to ensure compliance with HMRC regulations.

About US

At SS&Co. UK, the expert accounting professionals help your business navigate through the challenges of payroll processing and management.