But that’s not all.

It’s also your responsibility to report payroll information to HMRC accurately and on time, with mistakes or missed deadlines potentially leading to financial penalties.

Before you panic, we’ll take you through the payroll information you, as an employer, need to submit – as well as how to make sure you avoid PAYE penalties.

What is PAYE?

As a quick refresher, you’ll normally need to register as an employer for the Pay As You Earn (PAYE) scheme before an employee’s first payday if they earn £129 or more per week (£6,708 per year), have another job or a pension, or receive expenses or benefits. It’s also worth noting that once you pay someone more than £96 a week, you’ll start paying employer National Insurance.

Once registered, you’ll need to deduct the tax and National Insurance your employees owe on their wages each time you run payroll, and then send these amounts to HMRC.

In a sense, it sees employers act as tax collectors on HMRC’s behalf.

Note that you must pay your PAYE bill by the 22nd of the following month (or the 19th if you’re paying by post).

What PAYE information do employers need to report?

In addition to any deductions from your employees’ wages, you’ll need to send HMRC a Full Payment Submission (FPS) explaining what amounts were paid and deducted – and why.

It’s your responsibility to tell HMRC about the people you employ and how much you pay them, as well as the details of any statutory payments (e.g. sick pay).

This includes employees who earn below the Lower Earnings Limit (£129 per week), and those you only pay once a year.

You should also inform them if you no longer employ anyone and need to deregister from PAYE entirely.

This information is reported using Real Time Information (RTI) submissions, which are sent in real time, as they happen, rather than waiting until the end of the year to report everything.

RTI submissions must be sent using recognised payroll software.

When do employers need to submit PAYE records?

An FPS is normally sent on or before the employee’s payday.

You’ll send these updates each tax month, which runs from the 6th of the month to the 5th of the next month.

For example, tax month one is the 6th April to the 5th May, tax month two is the 6th May to the 5th of June, etc.

If you don’t pay any employee during a particular tax month, you generally do not send an FPS for that month.

Instead, you send an Employer Payment Summary (EPS) to tell HMRC that nobody was paid.

What happens if PAYE reports are submitted late?

If PAYE reports are submitted late, HMRC may issue a late filing penalty.

This can apply if an employer submits an FPS late, fails to send the expected number of FPS reports, or does not send an Employer Payment Summary (EPS) when no employees were paid in a tax month.

Employers who submit PAYE reports late may face monthly penalties ranging from £100 to £400, depending on the size of their workforce.

HMRC will normally not charge a penalty for the first late filing in a tax year (except for employers registered as annual schemes), and there is also generally no penalty where an FPS is late but all payments reported on it have been submitted within three days of the employee’s payday.

If an employer fails to submit the required FPS or EPS, then HMRC can also create a specified charge estimating how much PAYE it believes is due, based on the employer’s previous filing and payment history.

In order to replace that estimate with the correct amount, the missing report must still be submitted.

What happens if you make a mistake on a PAYE submission?

Making a mistake on a PAYE submission does not automatically result in a penalty, although employers should try to correct errors as soon as possible.

This is because incorrect information can affect both employee records and the amount of PAYE that HMRC believes is due.

If the error results in an underpayment, HMRC may add the amount to your next PAYE bill.

Alternatively, if it results in an overpayment, the amount can typically be offset against a future bill (or potentially refunded).

Penalties apply where it is judged that reasonable care was not taken, or incorrect information was submitted deliberately.

How employers can avoid PAYE penalties

In a general sense, you should focus on running payroll consistently and maintaining accurate payroll records.

It’s also good practice to submit PAYE reports ahead of deadlines to be on the safe side, as things will inevitably go wrong, so you want to leave yourself some wiggle room.

If you do find that you’ve made a mistake on a PAYE submission, the important thing is to correct it as soon as possible.

For an error in an FPS (e.g. incorrect pay or deductions), employers will usually just correct the year-to-date figures in their next regular FPS.

If it was an error in an EPS, employers should submit another EPS containing the correct year-to-date figures.

Lastly, consider using good payroll software to streamline the whole process and minimise errors that could lead to penalties.

You could also hire an accountant or bookkeeper to help manage your payroll, and this would allow you to get back to focusing on growing your business.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post What Employers Need to Know About PAYE Reporting and Penalties appeared first on The Cheap Accountants.

In this article we’ll go over what an employer’s payroll responsibilities are, and some of the most common pitfalls to watch out for.

What is payroll?

In the simplest terms, your payroll is a record of all the people in your business and how they’re compensated for their work. The process of “running” payroll refers to the method by which pay is worked out, documented, and reported.

What are some common mistakes employers might make with payroll?

While running payroll may seem simple enough, it’s easy to get things wrong. There are so many things to keep track of, and you might not even be aware of everything you need to do!

Common issues can include not claiming the Employment Allowance, overlooking non-cash benefits which should be taxed (known as benefits in kind), and pension schemes. We’ll go into more detail below.

Not claiming your Employment Allowance

This is a big one. The Employment Allowance is a type of relief available to some employers which helps reduce the cost of their National Insurance contributions by up to £10,500 each year.

Once you use up the allowance, you’ll start making contributions as an employer again. You don’t even need to be paying more than £10,500 to qualify, either; you can still benefit if your bill for employer’s NI is less than this.

It’s important to note that this only applies to your contributions, not your employees’.

Not paying tax on a benefit in kind

Some employers will provide non-cash perks as part of the ‘package’ they give to employees. Company cars are the most common example of this.

The employee or director who receives the benefit will often need to pay income tax on it, just like they would if they received the equivalent value in the form of a salary instead. They might also need to pay NI on the benefit if it’s cash, or if it’s something they can sell or turn into cash, rather than keep.

Employers are also required to make Employer’s National Insurance Contributions on the value of any benefits in kind they provide.

All this means the benefit must be reported by the employer to HMRC so that it can be included in the calculations for tax and NI. Make sure you report them through payroll, and on time to avoid penalties!

No workplace pension scheme

Another responsibility you have as an employer is to set up a workplace pension scheme for your staff, automatically enrolling anyone who’s eligible. Now this isn’t optional, it’s a legal requirement if:

• You have employees aged between 22 and State Pension age
• They earn more than £10,000 per year
• Your business is in the UK, and your employees each have a contract of employment
• Your employees’ day-to-day duties are in the UK

The way it works is you as the employer deduct a pension contribution from an employee’s wages and then pay the amount into the scheme on their behalf, along with your own contribution. The minimum contribution is 8% of the employee’s pensionable earnings (and at least 3% must be from you as the employer).

Note: these contributions are in addition to National Insurance contributions, rather than instead of.

It’s also part of your obligations as an employer that you give your employees the option to opt out of the workplace pension scheme if they want to, so don’t overlook this!

You’ll need to make sure you have good systems in place to check who should be auto-enrolled, removing anyone who opts out, and setting reminders to repeat the process using the mandatory timeframes. The Pensions Regulator has a checklist of everything you need to do and when.

Hiring someone as a freelancer vs. as an employee

If you’re a business owner and haven’t come across IR35 before, it’s time to get clued up.

IR35 was introduced to minimise the risk of tax avoidance caused by someone working through their own limited company, when they would otherwise be considered employed based on the type or amount of work they’re doing.

In other words, they would simply work for their client as a regular employee if the intermediary didn’t exist.

Failing to comply with the rules can result in financial penalties, so our guide goes into more detail about who is responsible for checking IR35 status, and what to do if you employ someone inside the IR35 rules.

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Common Payroll Mistakes and How to Avoid Them appeared first on The Cheap Accountants.

What is PAYE?

PAYE stands for Pay as you Earn, and is the system used by employers to deduct income tax and National Insurance (NI) directly from employees’ and directors’ wages before paying it on to HMRC.

Some people will refer to PAYE taxes, but it’s actually the mechanism for colelcting tax, rather than a tax in its own right to HMRC. The deductions made through PAYE can include things like income tax, National Insurance (NI), Student Loans repayments, and pension contributions.

Do I need to register for PAYE?

Employers should register for PAYE if any of the following apply:

• An employee earns the Secondary Threshold for National Insurance or more. The current threshold for the 2026/27 tax year is £5,000 per year (or £96 per week).
• You provide employees with benefits or taxable expenses (known as benefits in kind)
• An employee has another job or receives a pension
• You need to pay NI

The same rules will apply to absolutely any employer, even if you’re a sole trader with staff or a larger company.

The difference between payroll and PAYE

Payroll is the process of paying employees and workers for the work they have done. It involves recording data about employees so you can calculate their pay correctly, as well as working out what needs to be paid to HMRC and other bodies for things like income tax, NI contributions, and pensions. We go over some common payroll mistakes to avoid in a separate article.

PAYE is the mechanism an employer uses to report this information to HMRC, and to pass on any deductions.

Registering as an employer for PAYE

If you’re getting ready to take on your first employee, you’ll need to register as an employer before before your first payday.

You can register for PAYE online, and can either do it yourself or ask an accountant to manage PAYE registration for you. You’ll need to confirm the number of employees (including yourself), the frequency of PAYE payments to be made, and the date of the first PAYE payment.

Set up payroll

A payroll system uses the employee’s details to calculate how much PAYE will be deducted from their payslip each month. This is where hiring an accountant comes in useful. Payroll calculations can be time consuming, and confusing!

Payslips

You’ll need to provide every employee with a payslip each time you pay them, confirming what their wages are, and how much you’ve deducted.

Pay PAYE

After you have paid employees it will be necessary to pay PAYE to HMRC. This is the amount you deduct from your employees’ wages. Failure to do so will incur hefty fines from HMRC, and all sorts of uncomfortable chats with angry employees. This is an easy transaction that can be completed online.

Make sure you report everything to HMRC on or before each payday, and send any payments to them by the 22nd of the following tax month in which they happened (a tax month is 6th to the 5th each month).

 
Check out our accounting support hub for more help and resources, or to ask a tax question.

The post A PAYE Guide for Small Businesses appeared first on The Cheap Accountants.