Pay As You Earn is the system employers use to deduct Income Tax and National Insurance from pay and account for those amounts to HMRC. Employers may also owe their own National Insurance contributions.
Using payroll software or appointing someone to run payroll helps with the work, but the employer remains responsible for accurate information.
Identify the payments
Salary, overtime, bonuses and commission need to be included correctly. Statutory payments, expenses, benefits and termination payments may have different treatment.
Do not assume that paying something separately from salary makes it tax-free. Review the type of payment and any exemption before processing it.
Get starter information right
Collect the employee’s details and previous-employment information. A P45 or HMRC starter checklist helps establish the appropriate starting tax treatment.
Use HMRC coding notices and keep payroll records up to date when circumstances change. Provide payslips and the relevant leaving and year-end documents.
Report and pay
Real Time Information reports normally accompany each payday. Benefits may require additional reporting, depending on how they are dealt with.
Keep the reporting timetable separate from the dates on which HMRC must receive payment. Check the PAYE employer guide for current requirements and our National Insurance reference for headline figures.
Agree who supplies pay changes, who approves the payroll and who submits reports and payments. Clear responsibilities help prevent missed information becoming a payroll error.