It is possible to not need a payroll, but this is quite a rare situation if you run a business and other people work for you.

All the following conditions must be met for all your staff for your business to not have to set up a payroll.

• No one is paid over the “lower earnings limit”. This is a national insurance limit and can change each tax year, for 2022/23 it is £123 per week.
• No one receives expenses or benefits.
• No one gets a pension.
• No one has another job.

Most of the time one of these conditions will be broken and if you run your business through a company you will probably have been advised to take a salary of more than this yourself in order to get the profits out in the most tax efficient means, whilst building up credits for a state pension.

If you are a sole trader and it is just you then you will not need a payroll, you can take the profits out of your business as and when you want but, remember to save for your tax bill!

The same is true for partners in a partnership.

Beware claiming that your “staff” are self-employed.

As far as HMRC are concerned this statement is a contradiction in terms.

Whether someone is employed by a business or not is all to do with the relationship between the business and the “employee” it depends on what really happens.  It is not what you decide it is and it is not necessarily what a contract between you might say.

It is always a good idea to seek professional advice on this matter, particularly if someone does work for you regularly and especially if that means they don’t have other “clients” or if your business acts like an employer.  HMRC do provide an employment status checker but it can be difficult to use and many accountants have asked HMRC to modify it.

Getting and running a payroll

In order to set up a payroll you need to apply for a payroll reference from HMRC.  The payroll will then need to be run using software and monthly reports need to be transmitted to HMRC and the tax paid by various deadlines.

Other things to consider

Once you have a payroll you need to comply with a lot legislation this includes:

• National minimum wage
• Auto enrolment pensions
• Statutory payments such as maternity, paternity and sick pay.
• Employment law
• Insurance requirements

It is also wise to issue contracts of employment as these will clarify any agreement with your staff and help avoid you creating what is termed an “implied contract” which may not be one you intend to create.

How I can help

Payroll can be a very complicated area.  I can help with deciding if you do employ staff, with setting up and running a payroll, including reviews to ensure the national minimum wage is being paid and auto-enrolment deductions are being correctly calculated.  

I can also help setting salary levels and benefits packages and with filing all the necessary regular returns and annual returns with HMRC, including those for benefits in kind.

I can also put you in contact with people who can help you draw up employment contracts and help you choose a pension provider.

Find out about your pension obligations here: https://www.thepensionsregulator.gov.uk/en/employers   and minimum wage here: https://www.gov.uk/national-minimum-wage-rates .