Manage Tax, Pensions, Pay and NI

It’s that dreaded time of the year when you start seeing adverts on the TV telling you to fill in your tax forms!

Although we all hate it, its no good burying your head in the sand, and hoping it will all go away, because it won’t. And if you are an employer, I’m afraid you will have extra responsibilities to consider – so best to be brave and start preparing yourself …

End of Year PAYE

It is the employer’s responsibility to calculate the PAYE tax and National Insurance Contributions (NICs) for their employees and deduct it from their wages each time they are paid.

It can be quite complicated working out whether and how much your staff need to pay in tax, but the HM Revenue & Customs (HMRC) are there to help you and will provide a lot of support.

There is a wide choice of software you can invest in which will save you time and a lot of mental stress by doing many of the calculations for you - and if you put aside the time to get to grips with it, you will be far more able to manage your own finances and so keep control of your business affairs.

NICs and PAYE Thresholds

If in any doubt, seek professional advice but as a rough guideline, the NI Lower Earnings Limit is £90 per week for NI contributions, and earnings above the PAYE threshold (the level above which earnings become taxable) are subject to tax.

The threshold currently stands at £105 per week or £453 per month so if your staff are earning more than this, you know you will be need to calculate their tax. Even if you are not paying your staff as much as the threshold, they may be earning from another source. If they are, it will be your job to check and if they are not, you will nevertheless have to record and submit the figures so that HMRC can verify your calculations.

P11 Deductions Working Sheet and Employer Annual Return

Throughout the year, you will have kept a P11 Deductions Working Sheet for each member of staff you employ (The P11 is the sheet you use, provided by Revenue & Customs by which you calculate your staff expenditure) and have kept a record of these figures via your Payroll system.

Then, at the end of each tax year (5th April) you will need to complete and submit to the HMRC your Employer Annual Return which shows the government your entire employee outgoings, payments, benefits, and deductions for the preceding year.

This can be completed manually or online but if this is the first time you are tackling end of year accounts, it is much better to do them directly online as there are added financial incentives for doing so. For instance, some of the money you have paid during the year can be refunded to you – tax free - if you employ less than 50 workers.

Pension Schemes

If you employ more than 5 people in your company, you are required, by law to offer your staff a way of saving for their retirement by offering a Stakeholder Pension Scheme.

This requires tax approval from HMRC and has to be registered with the Pensions Regulator. If this is appropriate in your company, then you will need to make deductions for the scheme if an employee wants you to and then make adjustments to your payroll dependent on whether they wish to pay their contributions as a gross or net amount.

The subject of pensions needs to be looked at carefully and if you think you may fall into this category and need further advice, then you can find it by visiting the government’s Pension Service website at https://www.gov.uk/contact-pension-service.

Next Financial Year

Before the end of each financial year, you will need to set up new P11 forms for the following tax year (starting April 6th each year). These are downloadable via the HMRC website or your can be sent paper versions if you prefer. (You can’t copy the previous years’ forms because the tax and National Insurance tables will have invariably changed).

If any additional changes are made by the government post Budget, they will send you up-dates to tell you, but you may still need to apply for the new update forms to make sure that your figures are correct when you eventually submit them, so it’s good to be aware of this.

Finally - remember those telly ads? They were right. Stick to the deadlines you are given because otherwise you will be paying a penalty fee!