Being an employer comes with a lot of responsibilities and obligations, both to your staff and the tax office. Depending on your industry – and the size of your business, there may be more than simply paying the correct tax on time involved, and it’s important to know what is required of you.
In this article, we’re looking at Pay as You Earn (PAYE), National Insurance Contributions (NICs), and Construction Industry Scheme (CIS) payments – what they are, when they’re due, how and when you should report or pay them, and what happens if you don’t.
If you’re directly employing people into your business, you will normally have to operate PAYE as a part of your payroll in order to collect income tax and NICs from your employees. Payments to employees include such things as wages, tips, bonuses, statutory sick pay (SSP) or maternity pay. The deductions you make will include tax, NICs, and may also include student loan repayments or pension contributions.
If your business is operating in the Construction Industry or doesn’t do construction work – but has spent more than £3 million on construction in the 12 months since you made your first payment, you will need to register as a Contractor with the CIS – this applies to sole traders, partnerships, and Limited Companies. HMRC require companies to check if they should be employing a person instead of subcontracting the work, and checking that subcontractors are also registered with CIS. The deductions made under CIS count as advanced payments towards the subcontractor’s tax and NI bill.
As a business with employees, you’re also required to pay National Insurance, which is based on the amount you pay your employees, and although NICs are also paid by employees and self-employed individuals, you are required to pay a certain amount as a business on behalf of your employees. The amount you pay will depend on which category your employees fall under.
Keeping track of due dates for payment, as well as the various cut-off times for different payment methods is extremely important to keep your accounts up to date, and to prevent your business from incurring penalties or fees.
PAYE payments can be made using a variety of different methods, however it’s important to note the amount of time required for the payment to clear across to HMRC on time before using it. PAYE bills must be paid to HMRC by the 22nd of the next tax month (if you pay monthly), or the 22nd after the end of the quarter (if you pay quarterly). If a Bank Holiday falls on the deadline, you’re expected to ensure your payment reaches HMRC by the last working day before it (unless using Faster Payments).
CIS payments must be paid to HMRC every month by the 22nd, or by the 19th if you’re paying by post.
For NICs, the payment dates will depend on the amount that is payable. If it is £1500 or more per month, then it will be due by the 22nd of that month (electronically) or the 19th (by post). If the amount is less than £1500, then it may be possible to pay quarterly – in which case, it will be due by the 22nd of the end of the quarter (or the 19th if sent by post).
There are various different types of software available to help you manage your accounts, as well as expert advice and assistance from your accountants.
When recording your CIS, NICs and PAYE payments, you need to keep clear, accurate, and consistent records, which the tax office have the right to request from you should they have any queries or investigations that require the data.
For PAYE, you need to be keeping a record of your employees pay (including wages, salary and any other pay), deductions from their pay (such as tax, NICs, pension payments, etc), their calculated National Insurance contributions, and other pertinent information which you would use to fill in a Full Payment Submission (FPS). You are required to include everyone you pay, even if they get less than £120 per week, when you fill in a FPS. This form needs to be sent on or before your employees payday – even if you pay HMRC quarterly instead of monthly.
CIS records need to cover the gross amount of each payment invoiced by the subcontractor (excluding VAT), and any deductions you’ve made from that subcontractor’s payments. If you’ve made deductions, you are also required to keep records of the costs of the materials that the subcontractor invoiced you for (excluding VAT). These details have to be kept for a minimum of 3 years after the tax year they relate to.
As with many aspects of business, late payments or failure to pay can have serious repercussions, which can include penalties and fees (which increase in cost for both the number of times you’ve been late / missed a payment, as well as the duration in which it took you to pay), as well as closure of your PAYE scheme – late reporting can also have serious consequences for employees, as it can affect their income-related benefits (such as Universal Credit).
Handling your payroll and making sure your obligations to HMRC are covered correctly, and on time, is a very serious matter. Our experts have years of experience in determining the correct structure, forms, and filing dates for our clients. Get in touch today for a consultation and discover how we can help you streamline your processes, and ensure your business is covering its financial and legal obligations.
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