The collection of national insurance and income tax from employment is made through the PAYE system introduced by HM revenue and customs (HMRC) in the United Kingdom. You deduct the PAYE amount from your employee’s payroll according to the PAYE information provided to you by the HMRC. An account of earning and tax deduction in the tax year is made on a cumulative basis through the operation of PAYE. An employee tax code provided by the HMRC determines the amount of tax and deduction that is to be made by you from the pay of your employee.
How to report PAYE information to HMRC?
It is essential to understand that reporting and paying your employee deductions to HMRC is a crucial task that needs to be done in the correct possible way. As an employer, you will have to report the deductions and payments of your employees to the HMRC on each payday or before that. It is required if the payroll is run by you.
Real-Time Information (RTI)
You are required to submit an electronic report of all the details of the reduction and payments of your employees to the HMRC. This electronic submission of the report shall be done through a full payment submission (FBS) which is to be made before or at the time of payment.
Use a payroll software
You can calculate and work out your income tax and national insurance amount by using your payroll software. You can also use the payroll software to work out your Employer’s National Insurance contribution to the earnings of each employee. These employee earnings must be above £169 per week. The payroll is also beneficial in providing up to date information to the HMRC. It also ensures that your employees get the right amount if they claim any universal credit.
In case of another kind of pay, for example, statutory pay, another record is required to claim any reduction from HMRC. You need to send a statement and pay the HMRC every month on or before the payday.
Use of tax code for deductions
You can deduct the insurance and tax money from the pension or the wages of your employees by using the tax codes that are issued by the HMRC. The tax code is generated by the HMRC using the full payment submission report and information provided by you. The tax code will help you to know the exact tax and NIC amount that you need to deduct from the pay or pension of your employee. The tax codes comprise of letters that are followed by numbers. The letter shows the type of allowance that your employee is getting. The number exhibits the employee’s income amount. An emergency tax code is used by HMRC if it lacks complete employee information.
If you are a small employer
If you are an employer who needs to pay less than £1,500 every month, you can contact HMRC to arrange a quarterly payment method for your convenience.
What else does HMRC need to know?
You shall inform any circumstantial change in the employee’s job nature, for example reach the state pension age. The HMRC should be informed if any new employees join and you shall submit such reports along with the regular reports. You also need to inform the HMRC about the benefits and the expenses at the end of the tax year in the form of an annual report.
