Payroll Guide

Which amount do we pay our team members?

You should only pay your team their ‘take-home pay’. All other contributions, such as income tax, NICs, and pension contributions, are paid either to HMRC or your pension provider. 

Who makes the payments to HMRC? 

As the employer, you are responsible for paying all income tax, NIC and student loan payments to HMRC. This can be done through the Government Gateway and is due by the 22nd of the month following the pay month. This can be done in 2 ways:

1. If you log in, you can create a Direct Debit (which we recommend) so that these payments happen automatically each month. 
2. If required, you can also make direct bank transfers using these details, although a Direct Debit is the recommended approach.

How are tax codes calculated?

Your tax code is calculated by HMRC & payroll software using a combination of your P45, last year’s earnings and any updates that HMRC sends out.

What does a tax code mean? 

Your tax code essentially determines the method by which your tax is calculated. For example, with a 1257L code, the 1257 represents the tax-free personal allowance of £12,570, and the ‘L’ represents eligibility for standard personal allowance

If your tax code has ‘Week 1/Month 1’, it means your tax is being calculated on a non-cumulative basis, so only the current pay period is accounted for in the calculation.

Throughout the tax year, HMRC may also issue coding notices which could change your tax code for a variety of reasons, e.g. Owing tax from a previous year. 

Here is also some more information from HMRC about what your specific tax code means.

Why am I not paying taxes even though my salary is above the personal allowance?

If you are on a cumulative tax code (if it doesn’t say Week 1/Month 1), that means your total taxable income so far this tax year is taken into account in your tax calculation. If you start getting paid in the middle of the tax year with no previous earnings, you’ll likely pay less tax (or none) in the first couple of months before this becomes consistent. 

Why am I not paying NICs? 

If you’re a Director, your NICs can be calculated using two different methods, known as the Standard and Alternative methods. 

Standard Method - No NIC deductions are made until your year-to-date earnings cross the personal allowance threshold (£12,570) 

Alternative Method - NIC contributions are made on a consistent basis, the same as any other employee

Here is some more information from HMRC if you’re interested. 

Do we need to have a pension scheme?

Employees (excluding directors) earning over £10,000 per year are required to be auto-enrolled into a pension scheme.
This enrollment can be postponed for up to three months from the employee’s start date.
Employees have the option to opt-out if they’d prefer, but they need to be given the opportunity to make that decision.
Here is some more information from HMRC regarding workplace pension schemes.