Bringing Payroll In-House

January 05, 2024

Setting up a payroll is an incredibly important task for businesses to get right. If this isn’t done correctly from the offset, both employees and suppliers may not get paid on time. Which in turn will have a negative impact on morale.

An efficient payroll system needs to be set up (either by your accountant), or in-house, using a HMRC-recognised cloud payroll software like Sage. Before we dive into how to bring payroll in-house, let’s have a look at a few benefits of doing this:

  1. You will have more control over your finances.
  2. You can catch any payroll errors quickly.
  3. By integrating payroll with your other internal systems, you will have a higher level of data protection.

With an in-house payroll team, the running of your payroll won’t actually take much time, it is the preparation that adds up – calculating hours, absences and bonuses for all staff. Sage payroll allows you to make last-minute adjustments, which would be incredibly hard to carry out if your payroll was outsourced.

Setting up Payroll For Your Business

If you decide to take your payroll in-house, you will need to invest in payroll software so you can report to HMRC. This will help you to: record employees’ details, work out pay and deductions, report payroll information to HMRC, work out how much you will need to pay HMRC, and also calculate sick/maternity pay. 

Some of the key things you will need to do in order to set up payroll in-house are:

  1. Register with HMRC as an employer 

Whether you use sub-contractors or have a team of employees, you will need to register with HMRC. Technically if you are the only director of a limited company, you count as an employee too. It can take up to 5 days before you receive your PAYE reference number, so make sure this is actioned in advance of payday. 

  1. Get a login for PAYE online

When registering as an employer online, you should receive login details too. This will allow you to access your payroll online, and submit files easily to HMRC. If you haven’t received login details, you will need to enrol for PAYE online separately.

  1. Tell HMRC about your employees

Whenever you take on a new employee, you have to tell HMRC. A few other things you will need to do are:

  • Check whether your new employee needs to be paid through PAYE
  • Get the employee’s information so you can work out their tax code (you should be able to find this on their P45)
  • Find out if they have an outstanding student loan to make contributions to

Once you have all of this information, you should easily be able to set up your new employee in your payroll software.

  1. Collect & keep records

When keeping records of what you pay your employees and the deductions you make, a few other things you need to record are: employee leave & sickness absences, tax code notices, and taxable expenses / benefits. 

It is important you keep these records for 3 years from the end of the tax year they relate to, as HMRC may need to check your records for accuracy if you are audited.

  1. Record pay, make deductions and report to HMRC

As part of your payroll process, there are a number of tasks you will need to complete each month, within your payroll software:

  • Record employees’ pay
  • Calculate deductions from their pay (tax and NI)
  • Calculate the NI contribution you have to pay on their earnings 
  • Produce payslips for each employee
  • Report their pay and deductions to HMRC
  1. Pay HMRC and tax/NI you owe

Once you have calculated the tax and NI contribution you have to pay as an employer on top of your employees’ contributions, you will need to pay this to HMRC. Don’t worry though, your payroll software will work out how much you owe, including an employer’s NI contribution on each employee’s earnings.

  1. Complete annual reports

As part of your year end accounts, you will need to report to HMRC on the previous tax year (which always ends on the 5th April), give your employees a P60, and prepare for the new tax year. With Sage payroll software, this process becomes a lot easier and faster, with less room for error too.

Conclusion

Setting up payroll in-house can seem like a daunting task, but as long as you go through the process methodically you will be fine. Choosing the right payroll software for your business will help make your life a lot easier too, and remember to choose one that meets HMRC’s requirements.

If you would like to know more about the payroll software Sage offers, get in touch with the experts at Reality Solutions today.

*This article contains general information in order to assist all of our customers and is meant for guidance only – there are no guarantees that the information we provide will be suitable for your particular needs. If you require specific assistance, we recommend that you seek professional guidance on your individual circumstances. Reality Solutions are in no way responsible for any loss or damage arising from any information contained within our articles.

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