To pay yourself a monthly salary, you need to first set-up a payroll scheme with HMRC. This is known as a PAYE scheme. You’ll be happy to know that this registration is included in The 123 Way.
Once we have sent off the registration forms, HMRC will provide you with two reference numbers. You need to send these to us as soon as they arrive.Once your PAYE payroll is set up, as a director you have three main responsibilities:
1. Calculate how much Income Tax and National Insurance is due on each salary payment.
2. Tell HMRC about any benefits and expenses that have been paid to any employees or directors during the year. This is known as the P11D form.
3. Report all payments to HMRC in Real Time - i.e. as they happen.
All of the above are included in The 123 Way.
There are three main types of tax; Income Tax, Employees National Insurance and Employers National Insurance.The tax free allowance is currently £9,440 income up to this point is not liable to Income Tax, if you exceed £100,000 then your tax free allowance decreases.
Above £9,440 the next £32,010 of salary is taxed at 20% known as the “basic rate”. Above this is the “higher rate” taxed at 40% up to £150,000. Above this is the “additional rate” taxed at 45%.
The Employees NIC free allowance is currently £7,748 so NIC is not payable on the first £7,748 of earnings just like the tax free allowance but slightly lower.
Above this threshold salary has Employees NIC deducted at 12%. Until you earn above £41,444 which has Employees NIC deducted at 2%.
Your company also has to pay Employers NIC at the rate of 13.8% of any salary above £7,696.
All sounds a bit complicated - luckily The 123 Way includes full PAYE and NIC service to help run your payroll.