PAYE

PAYE (Pay As You Earn) is the system HMRC uses to collect income tax and National Insurance from employees' earnings. Understanding how PAYE works is essential for any UK employer to ensure compliance and avoid penalties.

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How PAYE Works for Employers

As an employer, you must operate PAYE to deduct tax and National Insurance from your employees' pay. Each pay period, you calculate the deductions based on their tax code and earnings, then pay HMRC on time.

You also need to report employee details and payments through RTI (Real Time Information) submissions. This ensures HMRC has up-to-date records and can correct tax codes if needed.

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Key PAYE Responsibilities and Requirements

Operating PAYE involves several ongoing duties. Here are the main things you need to handle:

Register with HMRC as an employer before your first payday to avoid penalties.
Obtain and use correct tax codes for each employee from HMRC to ensure accurate deductions.
Calculate income tax based on earnings and tax code each pay period using HMRC guidelines.
Deduct National Insurance contributions for employees earning above the weekly or monthly thresholds.
Submit Real Time Information (RTI) reports to HMRC every time you pay employees, including changes in circumstances.
Pay the deducted tax and NI to HMRC by the 22nd of each month (or 19th if paying by cheque) to stay compliant.
Provide employees with payslips showing gross pay, deductions, and net pay for transparency.
Complete and submit the annual Full Payment Submission (FPS) after the tax year ends in April.
Issue P60 forms to employees by 31 May each year, summarising their annual earnings and deductions.
Keep detailed payroll records for at least three years after the tax year they relate to for HMRC inspections.

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Common PAYE Mistakes and How to Avoid Them

Mistakes in PAYE can lead to penalties from HMRC. Common errors include late submissions, incorrect tax codes, or failing to register on time. These can result in fines and interest charges.

If you're new to employing staff or find PAYE overwhelming, getting professional help ensures compliance and saves you time. Many businesses in Torquay and across the UK use accountants to handle payroll smoothly.

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You can reach us by phone, email, or using the contact form below. We'll get back to you quickly to discuss how we can help with compliance, tax planning, or business growth.

Initial chats are always free and without obligation. We'll listen to your goals, explain our fixed monthly packages, and show you how we can save you tax and improve cash flow. It's all about making your financial life easier.

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DG Accountancy Ltd provides fixed monthly accountancy services for small businesses and contractors in Torquay and across the UK. Contact us for reliable support to help your business thrive.