When you become an employer, you are under no legal obligation to use an accountant or other specialist to set up payroll. If you are confident dealing with computer technology and have strong administration and maths skills, you can take the DIY approach using HMRC-recognised payroll software instead.
How do I set up payroll without an accountant?
When you become an employer, you are under no legal obligation to use an accountant or other specialist to set up payroll. If you are confident dealing with computer technology and have strong administration and maths skills, you can take the DIY approach using HMRC-recognised payroll software instead.
In this post, 1st Formations, the UK’s leading company formation agent, explain how to set up payroll for your small business if you don’t want to use an accountant.
Setting up and running payroll yourself
Before you can set up payroll and pay employees for the first time, you must register as an employer with HMRC and obtain a login for PAYE Online.
You will need to register as an employer even if you only plan to employ yourself (e.g. as the sole director of your own limited company).
When you have successfully completed your registration, you will receive a PAYE Reference and PAYE Accounts Office Reference from HMRC, both of which you will need to set up and run payroll.
Find payroll software
You must use HMRC-recognised payroll software to report PAYE information to HMRC. Some software is free, including HMRC’s Basic PAYE Tools, but these do have limitations and are only available to businesses with fewer than 10 employees.
Whichever one you choose, your payroll software will enable you to complete the following tasks:
- Record your employees’ details (including company directors, if applicable)
- Work out each employee’s pay and any deductions required (e.g. Income Tax, National Insurance contributions, Student Loan repayments)
- Report payroll information to HMRC on or before each payday
- Work out how much you need to pay HMRC
- Calculate statutory pay (e.g. sick pay, maternity pay)
- Claim reductions on what you owe to HMRC (e.g. statutory pay, Employment Allowance, Apprenticeship Levy)
You must choose software that allows you to report PAYE information to HMRC online, unless you are exempt from online payroll reporting and permitted to send payroll submissions on paper instead.
It is also important to consider the payroll features you require to ensure that the chosen software provides all of these. Examples include:
- Recording pension deductions
- Paying different employees over different periods (e.g. weekly, bi-weekly, monthly)
- Producing payslips
- Sending Employer Payment Summary (EPS) reports or Earlier Year Updates (EYU) to HMRC
- Making pension payments
Steps required before running payroll
Before running your first payroll, you must tell HMRC about your new employees. To do so, you should:
- Check whether you need to pay your employees through PAYE
- Get information about each employee to work out their tax code. If you do not have their P45, you should use HMRC’s ‘starter checklist’ (this replaced the P46)
- Find out whether any employees need to make Student Loans repayments
- Enter your employees’ details in the payroll software
- Register each employee with HMRC by including their information in a Full Payment Submission (FPS) the first time that you pay them
You must also follow these steps whenever you hire any new employees in the future.
Running payroll
As an employer, you are legally responsible for completing all PAYE-related tasks, regardless of whether you run payroll yourself or appoint an accountant or other payroll specialist to do it for you.
