The employment allowance means that many employers don’t need to pay the first £5,000 (2023/24) of employers National Insurance Contributions (NIC) due. Note that employees NIC is still fully payable to HMRC. You claim the employment allowance by submitting an EPS payroll report to HMRC which indicates that you are claiming the allowance. You can see how much you have already claimed this tax year by viewing the payroll report that shows how much is payable to HMRC every month. This report is called a P32 or EPR and the allowance or employment allowance column shows how much has been claimed.
If the only employee that is paid more than the secondary NIC threshold (£9,100pa) is a sole director, it can’t be claimed. If the employer (or group of connected employers) pays more than £100,000 of employers NIC in a tax year, it can’t be claimed. Only one employer in a connected groups of employers can claim the employment allowance. Some businesses may not be able to claim it if they have received other grants from the UK/EU. See here for more details.
HMRC is sending letters to most employers about Employment Allowance. Receiving a letter does not indicate whether you can or can’t claim it. For our payroll clients, we have already claimed Employment Allowance for you if you are eligible.
Change in Pay
PAYE and NIC deductions are based on a percentage of pay, so if your pay changes, these deductions are likely to change in the same direction. A change in pay might also put you into a different tax band so the rate of PAYE/NIC may have changed.
Change in PAYE Tax Code
The PAYE deductions are based on your PAYE Tax Code. The standard tax code is 1257L which gives you an annual tax-free allowance of £12,570. In other words PAYE is not deducted from the first £1,047.50 of pay per month. Generally, if your PAYE code increases, you get more of a tax-free allowance so the PAYE deductions decrease, and vice versa. The PAYE tax code is determined from the employee’s joining details, such as the starter checklist and P45, then can only be changed by HMRC.
Directors usually pay NIC on an annual basis. So they pay no NIC while their year to date pay is below the NIC thresholds. When their year to date pay goes over the thresholds they pay the full rate of NIC on the excess. So directors on a small salary, typically around £10k per annum, will notice that they pay no NIC in April to December, then start paying NIC in January to March. There are two starting thresholds for NIC – £9,100 for Employers NIC and £12,570 for Employees NIC (2023/24).
When we do your payroll here is what happens:
- Update your payroll account for any changes such as new starters and changes in pay.
- Calculate the deductions required, such as PAYE, NIC, and student loans. Also, pension if we do that for you.
- Process any leavers and prepare a P45.
- Submit the necessary reports (pay run details, P45s) to HMRC every time, and every year.
- Email payslips to employees (if we use our own software this only happens if it has been set up on request).
- Upload to Iris Openspace the payslips, P45s, pay summary and the employer payment report. Also a pension summary if we do that for you.
- At the end of the tax year, we provide the annual summary for you to check and approve, and P60 forms for you to provide to employees.
- If necessary we also provide P11d forms when you provide the details soon after the tax year.
We will upload all of the payroll reports to Iris Openspace or we’ll let you know when they are available on your accounting software.
If we use our own payroll software and we have set up employee email addresses on it, payslips will be emailed to employees. If so, the employees will have access to their own payslips and other forms e.g. P60. Otherwise, you will need to distribute payslips etc to your employees.
If we use other software, such as Xero Payroll, the payslips will be emailed to employees. You will need to distribute any other forms.FAQs
We need to do your payroll as and when you pay your employees. Most of our clients pay their employees monthly towards the end of the month. We do monthly payrolls on or around the 23rd of every month. The December payroll will always be done before Christmas Eve.
We can do weekly payroll Tuesdays, Wednesdays, or Thursdays.
Please bear in mind, that we sometimes need 10 days notice to make changes to the payroll. So if you pay weekly, or you pay monthly and don’t let us know between the 20th and 23rd of the month, you may need to wait 10 days for that change.FAQs
Every time your payroll is due to be done soon, we will email you a reminder of what we might need.
You will need to let us know straight away if changes are required (compared to the previous payroll). This will avoid us going ahead and processing incorrect pay details. Then, once you know the details of those changes, let us know what those changes are. This could include changes to pay, people starting, and people leaving.
For any leavers, let us know the last day of employment and the final amount to pay (e.g. holiday pay).
For any starters, please provide all of the following: HMRC starter checklist (latest version); P45 (if applicable); start date; pay details; usual weekly hours; email address.FAQs
To start doing your payroll, we will need the following information:
- Employer PAYE reference
- Employer Accounts Office reference
- Employee payment report (P11) for the tax year so far
- Employer payment report (P32) for the tax year so far
- Details of each employee
- full name
- date of birth
- NI number
- PAYE tax code
- email address
- usual pay amount
- usual weekly hours worked
- type of student loans owed
- starter checklist (if new)
- P45 (if from the same tax year)