How to handle PAYE as a small business owner

Small Business PAYE

How to handle PAYE as a small business owner

For any small business owner, continuous growth and an increased customer base is part of the long-term plan.

However, this will also eventually mean you need to hire staff to cope with this extra demand. If you have not done this before then it can seem a complex area with lots of red tape. One area in particular that you may feel unsure about is PAYE.

This stands for Pay As You Earn and is the system by which HMRC directly collects National Insurance along with tax contributions from your employees. When you run your payroll each month, these contributions are calculated and then directly taken from employees’ pay.

When should you be using PAYE?

In simple terms, you must use the PAYE system when an employee earns above the National Insurance Lower Earnings Limit. The threshold for this can change each tax year, so it is wise to look on the HMRC website for full details. Employers use their staff’s NI category letter and tax code to calculate how much they should contribute each month, which is then deducted from their pay. Some businesses will also have to pay Employer Class 1 NICs when their employees earn above a set amount. Usually, you will have until the 22nd of the following month when making online payments to send the amounts owed to HMRC.

What payments do I have to apply PAYE too?

All payments that staff receive as a result of working for you must be subject to PAYE. This includes everything from basic salary to overtime payments, bonuses for shift work or sick pay. Just be careful when dealing with expenses or benefits. These are dealt with under different rules in terms of tax and NI. For common examples of this, such as company cars, you would be wise to seek out advice from HMRC themselves. In most cases, you would have to report them to HMRC at the end of the tax year before making a one-time Class 1A National Insurance Contribution on some of them.

Let the experts make PAYE easy

As you can see, dealing with PAYE can be a challenging and time-consuming process. This is especially true for small businesses without large numbers of staff to do everything. If you need help with your PAYE and payroll, give us a call today for more details.

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