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How To Start A New Payroll

A step by step guide ...


Posted by Alison Mead on 08/01/2024 @ 8:00AM

If you are a business owner who is starting a new payroll for your business, or a bookkeeper helping a client start their first payroll then you will need to get certain information in order to get everything sorted and registered with HMRC ...

To get started on the actual payroll you will need to set up the software and enter the new employees!

To get started on the actual payroll you will need to set up the software and enter the new employees!

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What do you need to be able to process a new payroll? Well, firstly, the company needs to be registered with HMRC in order to make the submissions every month to declare what they have paid.

It can take up to 15 working days to get your employer PAYE reference and you can't register more than 2 months before you need to start paying your staff, so you have a small window of opportunity to register.

You will also get a PAYE online login which you will need to enter into the software so the software to make the submissions for you. This cannot be done without using some kind of payroll software.

"Next, you will need to choose a package in which to process your payroll!"

If the payroll is very simple, like a single director earning the same money every month, then you can get away with using the free HMRC Basic Payroll Tools facility. This will enable you to produce payslips, do your HMRC submissions and create a P60 annually, but it is very clunky to use for larger payrolls.

If you use Xero Accounts then you could add Xero payroll to your subscription quite cheaply, but I don't recommend this for payrolls where the rates of pay vary monthly or you have more than 10 employees although again it works well for simple payrolls, If you have a lot of starters and leavers and changes every week or month then it gets quite complicated.

Other more expensive payroll packages are worth the money due to the levels of support and automation you can get with processing larger payrolls, I am and will always be a Sage 50 advocate, but I know others use BrightPay and Moneysoft successfully, but I am not familiar with those packages!

You are obliged to keep certain records connected with paying payroll and to keep those records for three years after the end of the tax year to which they refer. To see the full details of what you need then take a look at this page on the HMRC website.

"To get started on the actual payroll you will need to set up the software and enter the new employees!"

There is a new starter form (formerly called a P46) on the HMRC website you can download here which you need to get all employees to fill out. It will give you their full name and address, their gender, their national insurance number, if they are repaying student loans and also their employment status so you know what settings to use for PAYE tax on the software.

Also, if the new staff member has a P45 which is dated within the current tax year (so dated between the date you employed them and the previous 6th of April) then you can use this - I always prefer to get a new starter form filled out in addition just to keep in my records.

It is also useful to get a personal email address for staff as many payroll packages have a facility where you can send your payslips electronically to their email - and it would have to not be a work email to prevent the risk of staff seeing what others are paid.

"This is now when you can process their first pay!"

Whether it is monthly, weekly, 2 weekly or 4 weekly, I won't go into how you process pay here as that's a whole other topic, but you need to process the payroll before you pay them and send a Full Payment Submission (FPS) before every payment and this is how you will tell HMRC who your employees are and what they are paid.

If the tax code you have used is wrong or you don't know about any previous pay they have had in the year then HMRC will then send you a notification of a tax code change or updated year-to-date information which you can add to your payroll. If these changes are made before the 5th of April in any payroll year any tax under or overpaid will be fixed in the next pay run for your staff.

"And finally, you will need to pay HMRC!"

This includes any tax, national insurance or student loan payments, which for small payrolls can be done quarterly rather than monthly. Your software will have a report, usually called a P32, which you can print out which shows you what you owe.

You should also look up and see if the employer is eligible to claim employment allowance. Single directors cannot claim this discount on your employer's national insurance if they are the only ones on the payroll, but as soon as you have multiple staff you will be able to claim this discount. The software should have a facility for you to tell HMRC that you are eligible for it. You will be given a PAYE payment reference when you register which you can use on your payments so HMRC knows which payroll to allocate your payments to.

You do need to check if you have obligations regarding Auto Enrolment pensions which you must to adhere to. Once you have your payroll ID from HMRC you should start the process of seeing if you should register with the pensions regulator. Again there is too much to go into here, but it is worth checking out the pension regulator website to brush up on your obligations there too.

"Confused about payroll for your business?""

If you are confused or need hand-holding with any part of this process, or you need help with operating Sage 50, Sage Business Cloud or Xero payroll software then we can arrange a hand-holding session so I can assist with setting up the software and processing your first pay.

Until next time ...

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Would you like to know more?

If anything I've written in this blog post resonates with you and you'd like to discover more about starting a new payroll, it may be a great idea to give me a call on 01604 217365 and let's see how I can help you.

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#Payroll #SmallBusiness #HMRC #Sage #Xero #Bookkeeping

About Alison Mead ...


Alison loves bookkeeping and supporting bookkeepers. She has been helping clients to be better bookkeepers in Sage 50 for over 24 years and has been Xero Accredited in accounts and payroll for a number of years too.

She specialises in a very unique hand-holding method of training, helping bookkeepers and business owners to use their accounts software as and when they need support in setting up and producing their invoices, reports and financial information.

Alison combines her role at Silicon Bullet with her Forever Living network marketing businesses and is often to be seen at business networking meetings as she likes to keep busy.

You know what they say: if you want something done well ask a busy person!


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