Human resources and payroll (payroll)

Employer Registration

If you want to employ people in the UK or subcontract in the construction sector, you must register as an employer. The purpose of registration is to obtain a unique Employer Reference Number (ERN) for your company. These numbers allow you to send payroll reports to HMRC, which is required if you employ someone under a contract.

Registration by business type:

• Limited companies – registration is required if you employ employees on full-time contracts, sub-contractors in the construction sector or directors (including yourself).

• Self-employed individuals – registration is required if you employ employees on full-time contracts or sub-contractors in the construction sector.

• Private individuals – registration is required if you employ domestic help, such as a nanny.

To register your company as an employer (i.e. for PAYE), you’ll need basic company details such as address and registration number. A UTR number is helpful but not essential. It can speed up the registration process by making it easier to verify the company.

You can register online via the HMRC website or by telephone. If you are a director without a National Insurance Number (NIN) and want to register quickly, you will need to register by telephone.

The waiting time for PAYE numbers is approximately five working days.

Preparing a Payroll (Payslip)

A payslip is a document issued by an employer to an employee. Each payslip contains

• Personal details of the employee
• Gross and net pay, including any deductions (such as National Insurance Contributions and tax)
• The employee’s tax code
• NI letter code, used to calculate National Insurance Contributions
• The date when the salary should be paid into the employee’s account (pay day)

The pay day is set in the system according to when employees are paid. If you pay your employees at the end of the month, this date can be set in PAYE. You can pay employees earlier, but not later. An employee who doesn’t get paid on time (according to the set payday) has the right to take the matter to court.

When choosing a payday, it’s important to remember that PAYE periods run from the 6th to the 5th of the following month. For example, the payroll for April 2020 will run from 06/04/2020 to 05/05/2020.

The standard payroll cycle is monthly, but there are other configurations available. You can issue payslips weekly, fortnightly, every four weeks, quarterly or even once a year, depending on how often you pay your employees.

Payroll Reporting Deadlines

PAYE reporting deadlines vary according to the pay day set in the system, but each month ends on the 5th of the following month.

For example, if your company’s pay day is the 20th of the month, the report must be submitted by that date to avoid penalties. Payrolls and reports can be prepared in advance, just make sure they are submitted on time.

CIS – Construction Industry Scheme

If you run a 'subcontractors’ payroll’ and employ subcontractors in the construction sector, the reporting deadlines are different. The CIS periods are the same as PAYE (running from the 6th to the 5th of the following month), but the deadline for submitting a CIS report is always the 19th of the following month. For example, the CIS report for April 2020, which runs from 06/04/2020 to 05/05/2020, must be submitted by 19/05/2020.

Payments for tax, contributions and CIS must be made by the 22nd of the month following the end of the PAYE/CIS period. For example, for April 2020, which ends on 05/05/2020, payments must be made by 22/05/2020. Failure to pay tax on time may result in interest charges.

Penalties for Late Submission of Reports

If you fail to submit your PAYE report on time (i.e., after the pay day set for your company), you may receive a penalty from HMRC.

The amount of the penalty depends on the number of employees on the payroll and the circumstances leading to the late submission.

Penalties based on the number of employees:

Situations where no penalty is applied:

• If it’s your first PAYE report after registering (within 30 days of making your first payment)
• If it’s your first late submission within the tax year
• If the late report is submitted within three days of the pay day (this does not apply to regular late submissions)

There are also specific charges that can be applied if a PAYE report isn’t submitted on time. HMRC will estimate the amount the company should pay for the missed month based on previous reports. Once the late report is submitted, the fixed charge is usually cancelled and replaced with the actual amount of contributions and tax due.

If your company receives a penalty, you can appeal. For the appeal to be successful, you must have a good reason (reasonable excuse), such as illness or technical issues.

Hidden Costs of Employment

Contributions and tax are deducted from each employee’s salary above a certain threshold. The tax-free allowance for 2020-2021 is £12,500 per year (£1,041 per month). For National Insurance (NI) contributions, the thresholds are more detailed:

There are no contributions for earnings below the lower earnings limit. Contributions are payable above the primary and secondary thresholds. The NI contributions deducted from an employee’s gross salary are shown on the employee’s payslip. While these amounts are deducted, it is the employer’s responsibility to pay them to HMRC. The biggest hidden cost to the employer is the employer’s contributions, which are not shown on the payslip. These are calculated on the basis of the secondary threshold and amount to 13.8%.

Auto enrolment

The UK Pensions Act requires every employer to determine whether its employees are eligible to participate in a workplace pension scheme.

This requirement is called Auto Enrolment.

When you need to check your employees’ eligibility and set up a pension fund depends on when you registered as an employer. HMRC will notify you of this obligation in writing, but not receiving a letter doesn’t exempt you from the auto-enrolment requirement.

Usually, the start date for auto enrolment (known as the staging date) is the date you hire your first employee.

Eligibility criteria for employees to be added to the pension scheme:

• Employees not already part of a UK workplace pension scheme
• Aged 22 or over
• Not yet reached the retirement age of 74
• Earning more than £10,000 per year
• Working in the UK

If you employ at least one worker who meets these criteria, you are legally obliged to set up a workplace pension scheme and enroll the eligible employees. Failing to do so can result in a penalty ranging from £400 to £50,000 or a daily fine between £50 and £10,000.