What does running payroll in the UK entail?

Running payroll in the UK works through a system called Pay As You Earn (PAYE) and we will explain how this works in the UK and why it is so important to get payroll correct.

In the UK, payroll works through the PAYE system. When you are an employer, it is your job to work out how much tax your employees owe, deduct it from their pay and send it to HMRC.

Running payroll is a legal requirement in the UK and getting payroll right is essential. The payroll usually details a list of your employees and the total amount of money you need to pay them. It will also include a list of salaries, bonuses, allowances and benefits, and tax deductions.

Ways to run payroll for employees

There are four main ways to run payroll in the UK – spreadsheets, outsource to a specialist like Paul Beare Ltd, DIY software, and full-service software.

It is important that any company chooses the right payroll system for them. A good system will help you avoid mistakes that could lead to penalties and outsourcing to a specialist means you can concentrate on other areas of the business.

How to run payroll in the UK

Prepare for payroll – some of our clients set up a payroll bank account to keep business transactions separate from payroll transactions.

Calculate the gross pay for each of your employees – this is the total amount you need to pay an employee for the pay period based on the terms of their contract. You then deduct from this gross pay.

Calculate pre-tax deductions – these deductions are taken from the employees’ pay and include National Insurance contributions, pension, and student loan repayments.

Calculate employee-related taxes – each payday you will need to deduct taxes from your employees’ earnings. These can include income tax and taxes on benefits.

Calculate post-tax deductions – some employees may have extra tax to come out of their salary, for example, child support is an example of this.

Pay your employees – once you have deducted everything from your employees’ gross pay you will then pay them their net pay. This payment will be paid into their bank account and payslips will be issued to the employee as proof of payment.

Pay taxes, deductions, and contributions – once calculated it will then be time to file and pay them to HMRC. You will need to send a full payment submission (FPS) to HMRC each payday. Taxes and deductions are paid monthly.

Hold on to payroll records – you need to keep a record of payroll in case any questions come up. These records should include salary or wages, holiday and leave, taxes and deductions, employer contributions, payment date, and details. These records need to be kept for at least three years.

To learn more about running payroll or to speak to us about registering a UK payroll scheme for an overseas company, then please get in touch.