When you start working with a new client carrying out a credit check can save a lot of hassle later.

There are few things worse than being owed money, especially in tough economic times.

We all have bills to pay, wage runs to make and other business expenses. So getting paid on time is crucial for the prosperity of any business… big or small.

But when you’re starting out or a growing firm, getting the cash in is vital not just to thrive but possibly to survive.

And one of the biggest challenges small business owners face is knowing how to trust new clients. Will they pay? Are they going to pay on time? Will chasing money become more hassle than the job itself? Is it possible the new deal ends up in court?

These are all genuine and very real fears that business leaders go through. So what safeguards can be put in place to help? How can we check out future clients before committing to a deal?

Credit check reports

Getting a credit report on a prospective client is a great place to start. You can buy these from the three main credit reporting agencies (Experian, Equifax or TransUnion). It’s so easy to get a credit check and a worthwhile investment.

If the business is owned by a sole trader, it’s likely that their personal credit rating is reflective of their professional credit rating. An acceptable credit rating it usually 75 or higher.

You can also go down the route of hiring a credit checking agency – but these usually come at quite a price. A common tactic is to use this method for larger customers where you stand to lose a decent chunk of money if they fail to pay.

Another option is to ask your new customer for a bank reference. This presents the bank’s opinion of the risks involving any contract or deal being struck.

Of course, this shouldn’t entirely form your decision on whether to proceed, but it could help.

Check Companies House

If you still aren’t satisfied and you want to do some more digging yourself, you could always trawl the customer’s accounts that should be available online. You can get these at Companies House.

By applying some basic accountancy skills, you can see how likely the customer is to pay on time if given credit.

You can ask your accountant to take a glance at the accounts; they will see things in seconds that you might not see at all. Getting a professional opinion would be a good idea if you’re uneasy and feeling worried.

Finally, perhaps you’ve gone down the official routes and are looking at a more relaxed and personal touch.

They say try before you buy, so why not do a small job and test your client’s paying skills that way? If they pay up on time, it’s a good sign going forward. If they don’t, it could be a huge red flag and save you lots of future heartache.

New client top tips

1. Don’t give extend credit automatically to a new client and customer.
2. Take partial payment in advance. It’s OK to ask for a deposit or retainer upfront.
3. Invoice promptly. Sending an invoice promptly sends a clear signal that you’re on top of your finances. It also helps your cash flow as you effectively add extra payment days, which isn’t great for business.
4. State your payment terms visibly and clearly. Say, ‘payable within 30 days’ or ‘due date…’ rather than payment on receipt.
5. Reward customers for prompt payments. It is acceptable to offer small discounts, such as 2%, to clients who pay within 14 days. If you think this will help speed up payment, it’s worth trying.
6. Follow up procedures. Set up a system for flagging late payments if you need to. Start with a quick call as some people genuinely forget or may have not seen the original invoice. If that doesn’t work, then send a letter requesting payment. If you receive no response after two or three attempts, you can either write off the invoice as a bad debt.

Struggling to invoices paid? Try our tips here. Or if you would like to talk to us about your accounts, contact us today.

Limited companies in the UK have to use a registered address by law. Companies House stores this address and it used by HMRC and other government entities for statutory mail and legal documents. You may think this is a simple and unimportant admin task.

But choosing the correct registered address for your limited company is vital to ensure privacy, safety and smooth business operations.

Choosing a registered address

Before choosing your registered address, remember that the details will be public and are available via Companies House. Anyone who wants to search for your details will be able to see it.

Therefore, many businesses decide not to use their residential address for privacy and security reasons. In lots of cases, accountants agree to be the registered address for companies. This means they receive official mail on behalf of their clients and forward it on when necessary.

Using the home address of a director would perhaps make life simpler – but there are many positives when using a non-residential address.

Using a non-residential address

The first positive point of using an address other than your home is that you won’t get unwelcome visitors or mail at your home address.

Secondly, a non-residential address gives a much more professional image to perspective clients.

Thirdly, a non-residential address creates a clear distinction between your personal and work life. It ensures you will not be bombarded with business-related paperwork at home.

And lastly, a registered address in a prestigious location could increase your business opportunities.

Using a residential address

If you do decide to use a residential property as your registered address, there are a few things you should bear in mind.

Firstly, you must get the property owner’s permission, so if you’re renting a home you should speak to the landlord. If your local council or housing association owns your home, you need written permission from them too.

Secondly, while you are not able to use a PO Box number as your registered office address, you can use a PO Box address if you provide Companies House with the complete, physical postal address.

Your accountant’s address

If you decide to ask your accountant to use their offices for your registered address, you can have the security that all official and important documents will go to them.

Your annual confirmation statement – which tells Companies House about your directors, and what shareholdings in your company they have, etc – are stored and in one place.

For HMRC, references, tax codes and tax bills are sent to the registered address.

These documents usually end up with your accountant, so get them sent straight there and they can be dealt with immediately?

If you would like to speak to us about using our address for your business, contact us today.

Contrary to popular belief being employed and self-employed are not opposites. This means you can freelance!

Having a full-time salaried job while earning extra coin is likely to be welcomed in these tough and unpredictable times!

Perhaps you’re wanting to set up a business as a freelance or are thinking of offering your services elsewhere! But if you don’t quite have enough clients or bookings it may be difficult to make the jump just yet.

In other words, you need a full-time salary to provide your base income. While you put in a few evening and weekend shifts to build your freelance career.

If Covid-19 has rocked your financial world you might be wondering if your regular job is going to last.

With record redundancies in the UK this year and firms laying off tens of thousands of staff, it’s wise to have a back-up plan.

So, why not set up a little business that will help you earn some extra pocket money and prepare a potential plan should your regular job go sour?

Is it legal to be employed and self-employed? Absolutely! But here are a few things to look out for.

Check your contract

Moonlighting sounds fun and has obvious rewards, but you better check your boss is happy first. You don’t necessarily have to inform your employer of your newfound income stream, but you should check your contract to see if there is anything in there against it.

Some contracts prohibit side work even if there is no conflict of interest, whereas others specifically warn against working elsewhere in the same industry.

HMRC never informs your employer if you registered as self-employed. But if you form a limited company your details are publicly available. If you’re unsure or a bit nervous then a friendly chat with your line manager might not be a bad idea.

Taxing question if you freelance

The downside of earning more money is paying more tax. So, you should do your homework to see what the tax implications might be to your new part-time side role.

Whether you work as a sole trader paying income tax and National Insurance or operate as a limited company you will need some advice.

Limited companies pay Corporation Tax, VAT and tax on dividends, and working out how to pay the right tax at the right time can be a minefield. If you want more details about what limited companies need to file, we have recently looked at that subject.

You’ll need to register with HMRC no matter whether you are becoming a sole trader or whether you are setting up a limited company.

As a freelancer and an employee, you get the best of both worlds. You get the security of a base income with holiday and sickness benefits but you also have the flexibility to earn more and on your terms.

Plan well, get advice and see new opportunities open up as you create yourself a ‘new normal’.

If you are exploring the idea of freelancing while being self-employed, you can contact us at Concept Accountancy for help.

Making Tax Digital is nothing new if you are a VAT-registered business with a taxable turnover in excess of £85,000. 

But if you’re not, then a government announcement last month could affect you over the next three years. More will join the MTD programme by 2023, including private landlords and businesses with a turnover of more than £10,000.

Since MTD was introduce in 2019, 1.4 million businesses have joined the programme, submitting more than 6 million returns.

The announcement by the government outlined two important dates to expand MTD. Some of the changes were due to take place this year, but concerns over Brexit and the coronavirus pandemic led to delays. 

This was what was announced: 

• From April 2022, the scheme will be extended to all VAT-registered businesses with turnovers below the current £85,000 thresholds.
• All taxpayers who file self-assessment tax returns for business or property income of more than £10,000 a year will need to join MTD from April 2023.

As part of the announcement, the self-employed may need to file quarterly accounts in the near future rather than annually.

What is Making Tax Digital?

Although it sounds scary, Making Tax Digital is a logical move away from paper accounts to filing all your tax affairs online using accountancy software.

Accountants, like us here at Concept Accountancy, can access your information to prepare tax returns. So, don’t worry if you think the introduction of MTD is going to mean you have to do everything yourself!

HMRC believes that using MTD will make it easier for businesses to keep their tax right. It believes that as it is more transparent, there will be fewer inaccuracies and inefficiencies, which can be a problem with paper tax returns.

You must use compatible software to send digital tax returns. HMRC has a huge list of software they accept, although we looked at bookkeeping software last week, and we recommend Xero.

Making Tax Digital for VAT

As we have mentioned, if you are VAT registered with a turnover in excess of £85,000 you already use MTD. You can also voluntarily register for MTD and HMRC says around 30% of small VAT-registered businesses have already done so.

The Financial Secretary of the Treasury mentioned during the announcement that lessons were learned from those who moved to digital accounts last year. Hopefully, this will make the next phase go smoothly!

MTD for income tax

With three years before MTD is introduced for self-employed people, there is plenty of time to prepare for the switch. You will need to move to accounting software if you haven’t already done so.

If your turnover is more than £10,000 you will need to move to MTD from April 2023. This means that many private landlords will be drawn into the scheme. Also, some people with ‘hobby’ businesses might also be drawn in due to this announcement.

MTD for corporation tax

It is four years since the consultation document on MTD for corporation tax and no announcement was made last month. It is considered complex for large partnerships or LLPs that operate like large businesses because each partner pages income tax individually.

A paper about this move is expected this autumn.

If you are concerned about Making Tax Digital or what to know more about planning for it, then contact us today.

Nothing is certain except death and taxes! Apparently there is debate about who said this first, but experts say it’s from the 18th century!

For small business owners today, there are many complicated tax rules that it can be tricky knowing which ones apply to you.

We have looked at becoming more tax-efficient if you are a freelancer or contractor in the past. But what kind of taxes should you be aware of?

Income tax

If you are a sole trader, you pay income tax on the profit your business makes. As long as you don’t have other income, such as a salary from a job, then you will pay income tax on your business’s profit once it exceeds the personal allowance. At the moment, that is £12,500!

You may pay income tax on your salary or dividends if your business is a limited company. Whether you pay it and how much depends on what you take out.

If your salary is more than £75,000 and you’re under 75 with no other income, you will pay income tax. You may pay income tax on your salary sooner if you have different circumstances, such as having another job as well as working for your company.

Your employer (ie your company if you own a limited company) will deduct your income tax from your salary under PAYE. Find out more about PAYE and what it means here.

National insurance

Although not a tax, National Insurance (NI) is one in all but its name. Sole traders often pay two types of NI: Class 2 and Class 4. In each case, you pay your NI annually through self-assessment.

Class 2 NI is a flat weekly rate of £3 that is paid if your business’s profits exceed £6,205 per year. If it falls under this (which is known as the Small Profits Threshold) you can pay Class 2 NI voluntarily to protect your state pension and other benefits.

Class 4 NI is also paid by those whose business records profits between £8,632 and £50,000, which is 9% of profits. You pay an extra 2% on any profits that exceed £50,000.

For those taking a salary from their limited business, then Class 1 employee’s NI is deducted from your wages which is paid to HMRC. This is currently set at 12% for salaries between £8,632 and £50,000 and an extra 2% for wages over £50,000. The company also pays Class 1 employer’s NI to HMRC.

Corporation Tax

As soon as a limited company makes profits it starts paying corporation tax. The company pays tax once it makes a profit.

The main rate of Corporation Tax is currently 19% for all companies. It is payable 9 months and 1 day after the firm’s accounting year-end. So, if a company’s accounting year ends on 31st August it will have to pay its corporation tax by 1st June the following year.

Only companies pay Corporation Tax, it is not a paid by sole traders.

VAT

All businesses – such as sole traders, partnerships, LLPs and limited companies – will need to register for VAT if they make VATable sales of more than £85,000 a year.

VATable sales mean selling your goods or services that would have had VAT charged on them were they registered for VAT. The current standard rate of

VAT is 20%, the reduced rate is 5% and for some exceptional goods, there is a 0% rate.

Business rates

Finally, you may have to pay business rates if you have business property.

At the moment, if your premises has a rateable value of less than £12,001 you qualify for small business rate relief. This means you effectively pay no business rates. There is also some relief for properties with a rateable value of less than £15,000.

If you run your business for home, you don’t normally pay business rates in addition to council tax. But there are exceptions, which are:

• Staff employed and work at your home
• You sell goods or services from your home to visiting customers
• You have adapted your home to work there (such as converting your garage)
• Your home is part business and part domestic, such as a pub.

If you are unsure about any element of the taxes you pay, contact us today for a no-obligation meeting. We are accountants based in Newcastle but deal with businesses across the North East and the UK.

Company year-end can feel like a big chore if you are a director of a limited company. It is a statutory task that directors must ensure takes place.

As a result of the coronavirus pandemic, HMRC announced that from 27 June companies have an extension to their statutory accounts filing deadline. If your deadline to file at Companies House falls between 27 June and 5 April 2020, it has been extended between 9 and 12 months.

Be aware that if your filing deadline falls on 6 April 2021 or later, no extension applies.

It is advisable to file your accounts at Companies House within 9 months of your company’s accounting period end date.

You will still need to pay your Corporation Tax within 9 months and 1 day after your company’s accounts period end date, as this hasn’t been extended.

So, with all this information in mind, you may wonder what company year-end entails, especially if you’re a new director.

Company year-end checklist

What to file with HMRC

• Company tax return: This is called a CT600 and contains details of your business’s income, less any tax allowances and expenses. Your profits are used to calculate how much Corporation Tax your company must pay.
• Annual accounts: These are also known as statutory accounts and need to be submitted to HMRC. They are made up of:
• Income statement — Your profit or loss is shown on this document for the relevant accounting period.
• Statement of financial position — This provides a snapshot of your company’s position financially at year-end. It shows your assets, liabilities, capital and reserves.
• Footnotes — You can include information about the transactions between your company and its directors, such as loans, advances and guarantees.

What to file with Companies House

Businesses that are classed as a ‘micro-entity’, which is explained here on HMRC’s website, need to submit two documents to Companies House: the statement of financial position and the footnotes.
These documents are then published by Companies House on its website and can be viewed by anyone.

What do I need to do for my company year-end?

To get your annual accounts and company tax return in order, you need to take make sure you have the following information:

Expenses

Every expense that is claimed by the company is taken from your profits, which means less Corporation Tax to pay. The expenses must be ‘wholly and exclusively’ for business use, according to HMRC. If you are unsure we can help you with what you can claim.

Overdue invoices

Your company year-end needs to be as accurate as possible, so chase up any unpaid invoices. Once the money is in your bank account make sure you reconcile your accounts to avoid any future issues.

Collect paperwork

You must make sure that you have all your records and receipts when putting your accounts together. If you are claiming expenses for something, HMRC may decide to exclude it if you cannot prove where the money was spent.
Also, you should make sure you have records from suppliers and copies of bank and credit card statements along with other records of any other income you receive. Remember, that you must keep company records for at least six years from the end of the company accounting period they relate to.

Deadlines

Your tax return deadline is 12 months after the end of the accounting period it covers. If you miss this deadline you will be issued with a penalty. Your corporation tax deadline is usually 9 months and 1 day after the end of the accounting period. Companies House needs your annual accounts with 9 months of year-end.

HMRC penalties

If you fail to file in time, HMRC will issue penalties. If your year-end accounts are 1 day late, you will face a penalty of £100. There is another £100 penalty if you miss it by 3 months.

After 6 months HMRC estimates your corporation tax bill and adds a 10% penalty of the unpaid tax. If you fail to file within 12 months, HMRC will enforce another 10% penalty of unpaid taxes. If your tax return is late 3 times in a row, the £100 penalties increase to £500 each.

Companies House

Penalties for late filing at Companies House range from £150 for being a month late to £1,500 for being 6 months late. These penalties double if you file late two years in a row.

You also face having your company struck off from Companies House register if you don’t send your accounts and/or confirmation statement when it is due.

There are other tasks to consider when filing year-end accounts, including financial planning and reviewing suppliers. If you have any questions or want to know more about your company year-end obligations, contact us today for help.

Contractors and freelancers will join pay-as-you-earn (PAYE) schemes from April 2021 after the government agreed to IR35 changes.

The controversial change puts the onus on employers to decide whether freelance contractors should pay National Insurance from next April.

Many self-employed freelancers argue the decision is unfair. They say while they are taxed like employees they don’t receive paid holidays or sickness pay.

How will IR35 changes affect me?

If you are currently a self-employed contractor or freelancer you assess your tax status. This will change from 6th April 2021 as the responsibility for deciding your tax status will shift to the company hiring you.

Contractors currently pay 20% tax, which is lower than PAYE rates and lower National Insurance Contributions (NICs).

Meanwhile, the business using their services does not have to pay National Insurance Contributions (NICs) for freelancers. The government argues that this is ‘disguised unemployment’.

HMRC claims that IR35 reforms will help bring in an extra £3 billion over the next four years.

The changes mean companies – apart from those with fewer than 50 employees or less than £10.2 million in annual turnover – will need to assess whether those they employ who work through a limited company.

That means most small and medium-sized businesses who use freelancers or contractors will not need to make any changes.

But if you are a contractor and work for a larger business, be aware that your taxes may change.

What do I need to do?

If you are a contractor or employ contractors and are beneath the thresholds mentioned above, nothing will change for you.

But if you are a contractor that is employed by a large company with more than 50 employees it is best to alert them soon. You may think avoiding the discussion is best, but it will be better if you know where you stand.

Large companies must now decide who is in our outside the rule and speak to contractors and freelancers. You may find that contractors increase their daily rates as they will effectively need to take a pay cut if they join your payroll.

If any contractors need to join your payroll, you will need to set up your HR and payroll system to add them. It will simplify the process and helps with your data analytics.

If you are unsure about IR35 and how it affects you or your business, contact us today for advice.

We have looked previously at cash flow and how important it is that your clients pay an invoice on time. If they delay payments regularly it can be impossible to run your business profitably.

There are ways to improve how you deal with invoices and your customers. It’s true that customers are important but your bank balance is just as crucial to your success. How you handle clients when it comes to payments can make or break a business.

Invoice details

Accounting software has helped make invoicing a lot simpler. But even if you use the likes of Xero, you still can’t be slapdash when it comes to information on your invoice.

Having the right details on an invoice makes it easier for you and your client to track and avoids confusion. If some of the details are wrong, some accounts departments of larger companies won’t process the invoice for payment. As a result, you may not know about the problem until you contact them about it.

They may ask you to resubmit your invoice, which adds to the delay in getting paid. Make sure your invoice includes the following information:

• Name and address of your client/customer
• Tax ID of the company (if applicable)
• Name and address of the recipient
• Invoice number
• Invoice date
• Date of service or delivery of product
• Details about the service/product delivered
• Net price, VAT (if you are registered for it) and gross price

Contact details

Although it sounds obvious, make sure you clearly include your contact details on invoices. The easier it is for them to contact you, the better.

All businesses face a problem from time to time, so being able to ask a question or highlight a problem helps clear any confusion. It can also avoid issues later.

Don’t delay

Online accountancy software has made the delivery of invoices simpler and easy to track. Even if you don’t use such software yet, you can still email your invoices.

Either way, do so as soon as you have delivered your product or service. Some businesses can request payment in advance; if you can do so then that is the best option.

Remember, if you delay your invoice by 2 or 3 weeks, then you’ll wait longer for payment no matter what your terms. Also, make sure your terms are clear. It’s better to have a 14-day payment term than 30 days if you can.

It means you can chase unpaid invoices sooner. Your clients will also get used to shorter terms over time.

Payment options

Many businesses send an invoice and then wait the required and agreed number of days before chasing payments. Hopefully, your clients pay you quickly when they receive their invoice. But some people are forgetful or receive so many emails they miss your invoice.

Consider offering payment options as that reduces confusion and issues. If you can offer direct debits or online payments, encourage regular clients to use the alternatives. Even small businesses can set up direct debits these days cost-effectively.

Consider using Go Cardless or other systems that take a very small percentage for direct debits. You have peace of mind knowing customers are paying regularly, which is better than chasing payments. Remember, cash flowing in is vital so even if it’s 95% of what is owed on an invoice it’s better than 0%!

Balanced approach

If a payment is late and has exceeded your due period, be serious and lenient, where necessary. You can charge ‘statutory interest’ if another business is late paying for goods or services. The government’s website always carries the latest legal charges.

You must be approachable when it comes to late payments. Don’t just charge interest if it’s a regular customer who usually pays on time.

Your client should be happy to contact you and explain their issue. Explain how their lateness affects your business and offer a very small discount in future if they agree to pay future invoices early.

This may seem counterproductive, but remember you need cash flowing in so it can flow out!

Personal touch

You don’t have to be best buddies with your clients and customers, but you can be personal. Relationships are important in business, so listen and offer the personal touch when dealing with late payments.

If a customer or client sees the person behind the invoice, it makes them more emotionally invested and they will want to ensure you are paid.

Be persistent

Some people who buy your goods or services will drag their feet from time to time, unfortunately. Being stroppy may have the opposite effect to what you are hoping to achieve, so continue to be polite. It is frustrating, but getting an invoice paid is important.

If you still haven’t been paid after exhausting all options, you can consider legal proceedings. These are costly, of course, and you may end up paying out more than the invoice is worth.

Invoice factoring

You can consider invoice factoring if you desperately need cash flowing in and can’t afford legal action. An outside company will give you a percentage of the invoice, as you effectively sell the invoice to them.

Using this process frees up your time because the factoring company chases the payment. Some companies appear to make contact on your behalf, but most will explain they are an outside debt company and are now owed the money.

If you have a good relationship with your client, this move could sour relationships. However, if the client regularly fails to pay on time, you may decide it’s a relationship you cannot afford to keep!

If you need help in getting invoices paid more quickly or have other tips, why not speak to us today?

Accounting software is a huge help to small business owners. Anyone who has had to grapple with spreadsheets, reams of paper and receipts will tell you keeping track of your accounts can be difficult.

But accounting software has taken away a lot of the pain when it comes to keeping your books and records.

As a result, it makes running your business easy, and because it is accessed by your accountant, it reduces the time they need to spend on your accounts. Also, the ability to scan your receipts from your phone means much of the software also takes away a lot of hassle.

There are many types of accounting software available and they can all help improve your efficiency, some more than others! So why should you choose to switch to accounting software?

Accounting software improves efficiency

To operate your business efficiently, you will have already introduced technology to your office. If you owned a typewriter, it is now consigned to history! So, why are you still using spreadsheets for your accounts?

Accounting software allows you to complete bookkeeping tasks so much more easily. It also computes totals and automatically adds VAT or discounts, if programmed, reducing your workload.

It also keeps all your information in one place so that you won’t need to plough through paperwork or sort out spreadsheets!

Automates accounting

Depending on the accounting software you choose, the programme can add totals, compile statements (such as management accounts) and generate invoices.

As a result, you reduce the amount of time as there’s no need to duplicate information. There is also less chance of error, which means you have a clearer understanding of your business.

Accounting software simplifies tax

Losing receipts from the disorganised collection in your shopping bag is one of the easiest things to do. But it can make life very difficult for you if you cannot trace payments that have been made.

As a result, you may end up with miscalculated tax payments because you are disorganised. Misrepresented information on your tax return can land you with a penalty, which no-one wants to happen.

As well as paying too little, not keeping a track of your records could end up with you paying more. Accountants will diligently check your books but if there are gaps they may have to er on the side of caution, which means you pay more tax.

Accounting software – with its smartphone apps – helps you keep your business transactions organised. Your accountant will then be able to access your books more easily and will spend less time on sorting out your returns.

A running history of your business

It’s surprising how many business owners have no real idea of their numbers. If you’ve seen Dragon’s Den, it’s often the area that those pitching ideas fall down on.

Having a clear view of the current situation within your business helps you plan more easily.

We have helped many clients across Newcastle and the North East plan better because it’s easy to get an overview of their company. An accountant or business coach will struggle to help you reach your goals if you have no firm foundation to build upon.

Accounting software will clearly demonstrate how your business has performed in the past and whether the goals you set are achievable.

As a result, you can use projections to create a business budget and make better business and buying decisions.

Why you should use Xero

We know that there are a host of accounting software packages available. Some free versions are fine for new businesses that have few records. But once you start to build your business, those versions often don’t have the benefits of paid-for versions.

Be aware that some of the programmes offer far more than is necessary for small businesses. Many suit large limited or PLC companies better and have prices to match!

At Concept Accountancy, we have started to recommend Xero. Among the benefits it offers are:

• Live view of your bank balance including cash in and out and most recent transactions.
• It processes invoices electronically by emailing them straight to your customers.
• Receipts can be scanned with a smartphone or tablet. The app has an additional cost but is worth paying.
• Produces real-time reports. You can generate cash flow statements, profit and loss accounts or file VAT returns.
• Unlimited users can work on the account, which helps financial directors and accounts teams.
• It connects to PayPal, GoCardless and Stripe to receive payments electronically.

If you are in business and still using old methods for your accounts and want an honest review of our thoughts on Xero, contact us today.

If you are a Concept Accountancy client and have yet to move over to Xero, why not contact us too.

Payroll is a legal requirement for all businesses that have employees. It can seem daunting but it is a simple process as long as you follow the guidelines.

There are several tools and a myriad of software available to help manage payroll, or Pay As You Earn (PAYE) as it is known. Some small businesses ask their accountants to carry out the job.

Payroll facts

You should start as you mean to go on and get it right first time. As well as making sure you are paying employees the correct amount, you need to make the right statutory deductions from their wages.

The deductions are paid directly to the government and it is a legal requirement to do so. We explain more about the requirements of limited companies on an earlier blog.

What is PAYE?

This is the system that HRMC uses to collect Income Tax and National Insurance Contributions (NICs) from employees’ salaries.

How does it affect employers?

The government makes employers responsible for deducting tax and NICs from the salaries of employees. Employers must do this for each pay period, which is usually monthly, and pay the appropriate amount to HMRC. If employees’ earnings are above a certain threshold, you also must pay Employer’s Class 1 NICs. You then need to supply each employee with a payslip. The slip outlines what PAYE deductions have been made.

How much tax and NICs is deducted?

When you employ someone, you should request both their tax code and National Insurance number. With this information and earnings to date, you calculate how much tax and NI that needs deducting.

Making payroll calculations

You can manually calculate what needs to be paid using details from HMRC. But it can be complicated to work out. If you use book-keeping software, such as Xero or QuickBooks, then this reduces the burden as it calculates deductions and generates payslips automatically. 

How to pay tax and NIC deductions

You normally have to register as an employer with HMRC before making PAYE payments. Check HMRC’s website to see if you need to register. Payments can be made electronically, including direct debits or BACS transfer. There is also the opportunity to pay by cheque, if necessary.

How often to I need to run payroll?

You need to send the most recent pay deductions to HMRC by

• 22nd of each month if you pay electronically 
• 19th of each month if you’re paying by cheque in the post

You may also be able to pay quarterly or annually, but check this carefully.

PAYE forms

You need a number of payroll forms. As well as factsheets that tell you how to operate PAYE correctly and for telling HMRC about your employee and pay details, you require four specific forms. These are:

• Employee forms
• Start of the tax year
• Payroll administration
• Expenses and benefits

You need to submit these forms to HMRC at various points throughout the business year. You can find out more here and can download them from HMRC’s website. 

What should I do next?

As we’ve already mentioned, there is plenty of choice of book-keeping software. These help you take the stress out of dealing with payroll forms and online returns with HMRC. If you have a smaller business and prefer to outsource, you can always ask an accountant. 

Contact us today if you would like more information about how we can help you with payroll.