Starting a limited company can be confusing at the best of times, especially with the added frustration of understanding and successfully paying PAYE.
First things first; understanding PAYE. PAYE (pay as you earn) is a method of paying income tax and national insurance (NI) to HMRC. Every employee in the UK pays tax and the amount is dependent on how much that person earns.
So, if you own a limited company, you are also an employee and therefore also need to pay PAYE from your wages in addition to any extra employees in your company.
Still confused? Here’s a step-by-step guide to walk you through the process.
If you’re just setting up a limited company, you’ll need to register with HMRC. The process only takes a few minutes. All you will need is the amount 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 best, as this can be time consuming and is best left to the professionals.
To work out how much money must be deducted, you will need to obtain a P45 from each of your employees. When this is entered into the payroll, deductions will be made from employee’s payslips.
Once you have got the right amount of tax on each payslip these can then be given to employees, who are then free to spend as they please (yippee!).
After you have paid employees it will be necessary to pay PAYE to HMRC. The amount you have deducted from your employee’s payslips is not taken by HMRC; you must declare it yourself. Failure to do so will incur hefty fines from HMRC. This is an easy transaction that can be completed online.
Still unsure about paying PAYE? Speak to one of our accountants today to see how they can help! Or, leave a comment below!