Reporting Payroll to HMRC

As a responsible business owner, you are legally required to report your payroll to HM Revenue and Customs (HMRC) within strict deadlines. Failure to report on time results in costly consequences. Follow this guide to avoid the financial and mental stress of missing your HMRC payroll report.

Preparing Your Payroll Report

Before you submit your payroll report to HMRC, you need to make sure everything is in order. This includes what you’ve paid your employees, the deductions, the National Insurance contributions, and their payslips.

Worker’s Wages and More

When recording your employees’ pay on your payroll software, it’s not just their salaries that you enter in the software. You need to also record the following forms of payment:

  • Statutory Sick Pay
  • Statutory pay for parents 
  • Bonuses
  • Commissions
  • Holiday pay (unless it’s paid in advance or through a holiday pay scheme)
  • Travel pay
  • Passenger pay except for the first 5 pence per mile
  • Medical suspension pay
  • Maternity suspension pay
  • Guarantee pay for an employee paid for a day they don’t work that is not holiday pay
  • Honoraria
  • Cheques, Savings Certificates, or Premium Bonds
  • Inducement pay
  • Cash prizes for work competitions
  • Tips paid into your till

Remember that you need to record all your employees’ pay, including those you pay less than £118 a week.

Deductions

The two most important deductions on your employees’ pay are the income tax and National Insurance. Fortunately, your payroll software should be able to calculate how much needs to be deducted from each employee via their tax code and National Insurance category letter. 

Other deductions include:

  • Student loan repayments
  • Pensions
  • Charity
  • Child maintenance

The calculation for student loan repayment deductions depends on the plan.

Pension deductions need to be made before deducting for income tax and after deducting for National Insurance. Do note that the Pensions Act 2008 stipulates that, as an employer, you need to provide a pension scheme for your employees and make regular contributions.

Registering your business with a Payroll Giving agency lets your employees directly donate to charity before their pay gets deducted for tax. 

Payslips

It is mandatory that you give your employees their payslips on or before their payday. A payslip needs to show the following:

  • Gross pay
  • Deductions 
  • Net pay
  • If paid by the hour, the number of hours worked

You may also include your employees’:

  • National Insurance number
  • Tax code
  • Rate of pay
  • Total amount of pay and deductions for the tax year so far

You can give your employees physical or digital copies of their payslips.

Reporting Payroll

With the employee pay, deductions, and payslips in order, you can then move onto reporting payroll to HMRC. 

Full Payment Submission

The report you need to submit is the Full Payment Submission (FPS), which you will complete via your payroll software. 

To start, you need to enter your PAYE reference and Accounts Office reference into your payroll software. Simply follow the instructions on your software to complete the submission. 

The FPS includes the following:

  • Employer information
  • Employee information
  • Pay and deductions
  • National Insurance information

You can also refer to the government’s comprehensive breakdown of each field that your payroll software asks you to fill.

There could also be changes within your company that affect the payroll reporting process, in which case, you need to include the following in your FPS:

  • A newly hired employee
  • An employee leaves the company
  • An employee takes a leave of absence
  • An employee gets promoted to a directorial position
  • An employee changes their address
  • You have just begun paying an employee a workplace pension
  • It’s the last report of the tax year

For order and convenience, you can split your FPS into batches such as by hierarchy.

Remember: You need to submit your FPS on or before your payday. You are required to send this payroll report to HMRC during a tax month, even if you are set up to pay HMRC quarterly instead of monthly. A tax month starts on the 6th of the current month and ends on the 5th of the next month.

You are also required to enter the date you regularly pay your employees, whether you pay them early or late.

If something important happens that is relevant to your payroll after you’ve sent your FPS, you need to send a corrected FPS. An example would be an employee leaving or changing their tax code.

You cannot, however, send an early report for the new tax year before March.

If you do not pay any employees in a tax month, do not submit an FPS. Submit an Employer Payment Summary instead.

Employer Payment Summary

Typically, employers need to submit both an FPS and an Employer Payment Summary (EPS). The EPS is for the following situations:

Your payroll software should provide instructions on how to complete and submit your EPS. If your software can’t submit an EPS, use HMRC’s basic PAYE tools. You can refer to the government’s guide if you need help figuring out what each field on your payroll software means.

Submit your EPS by the 19th of the next tax month, so HMRC can apply the reductions on what you’ll have to pay for your FPS.

If you do not pay any employee in a tax month, submit your EPS by the 19th after the tax month when you didn’t pay employees.

You can also let HMRC know if you won’t be paying any employees for up to a year in advance. Simply enter the dates in the “Period of inactivity” fields in your EPS.

Penalties for Failing to Report Payroll

There are three situations where you can get penalised:

  • Late submission of FPS
  • Not submitting the expected number of FPSs
  • Not submitting an EPS if you didn’t pay employees for a tax month

HMRC will not penalise you if:

  • Your FPS is late, but all reported payments on your FPS are within 3 days of your payday
  • You’re a new employer and you sent your FPS within 30 days of paying an employee
  • It’s your first late FPS submission in the tax year except if you’re registered with HMRC on an annual scheme

Penalty Fees

Your number of employees determines your monthly penalty fee:

  • 1 to 9 employees — £100
  • 10 to 49 — £200
  • 50 to 249 — £300
  • 250 or more — £400

Note that you can be penalised for each PAYE scheme if you run multiple schemes. You can also be charged a specific amount based on your previous PAYE payment and filing history. Take note of the electronic alerts you receive through PAYE Online to avoid penalties.

If you want to make sure that your payroll reporting is on time and compliant, get in touch with one of our accountants and we’ll take this task off your hands.