Understanding Payroll: Basics for Small Business Owners

Small business entrepreneurs must successfully navigate payroll management for their enterprises. Payroll processing efficiency, tax law compliance, strategic resource management, and other tasks are all included in this activity, which goes beyond simple payroll processing.

Knowledge of the fundamentals is the cornerstone of efficient payroll administration. In order to comply with HM Revenue and Customs (HMRC) laws, it is necessary to calculate gross and net earnings, comprehend deductions such as PAYE, NI, pension contributions, and statutory payments and deductions. Being proficient in these fundamentals helps one stay out of trouble with the law and save money.

What is Payroll?

Calculating an employee’s pay is referred to as payroll. Payroll comprises all benefits, incentives, and allowances that your employees are qualified for in addition to salaries and wages.
You must also maintain thorough records and reports of your employees’ pay and submit the total amount of tax owed from them to HMRC on a monthly basis.

What is the purpose of payroll?

In addition to paying salaries, the payroll system handles bonuses and statutory sick leave as well as holiday pay management. The National Insurance (NI) and tax of employees must be recorded and reported online using the Real Time Information (RTI) PAYE system each time the payroll is processed by the government.
Your company can be penalized if this isn’t completed on time or if there are errors in the data. Accountants need to adhere to certain standards in order to fulfil their responsibilities under the payroll system and stay out of trouble:

  • Calculating employee’s salary and paying them
  • Paying HMRC and computing deductions for things like income tax and national insurance
  • Keeping proper record and providing HMRC with accurate data.

How to operate payroll?

Payroll systems can be managed in a number of ways, with varying options depending on the size of the business.

Payroll software: Software calculates NI and tax and prints payslips automatically each month, making it a practical and time-saving accounting solution. Additionally, as it automatically transmits the data to HMRC along with all other monthly employee documentation requirements (P45s, P60s), you won’t have to provide the information to them.
Its convenience does have a drawback, as it is the priciest method of processing payroll. Therefore, as a small business owner, you should assess your financial situation before making any decisions.

External outsource: Small businesses can outsourced accounting and payroll through an accountant or payroll service provider. In order for the external provider to generate pay slips, maintain records, and submit all information to HMRC under RTI PAYE, you must supply them with the necessary information using this manner.

In this situation, effective communication is crucial because if you fail to inform the departing employee that they have left the company, they can still receive their salary. Despite this, because external suppliers have specialised knowledge, they are typically more efficient than internal techniques, which simplifies monthly budgeting.

Manual: Payroll data must be documented and sent to HMRC on a monthly basis by your company using this approach, which can be carried either internally or externally. Whether you have the infrastructure, room, and finances to run an internal payroll system may influence your decision between internal and external.
While larger organizations may have assigned certain personnel, teams, or even departments to handle payroll internally, very small businesses may still entrust the task to their directors.

PAYE deadlines: When processing payroll, keep in mind that HMRC has significant deadlines that happen all year long. If tax and national insurance payments are made electronically, HMRC must receive them by the 19th of the month; otherwise, the deadline is extended to the 22nd.
By May 31st of every year, each employee must also obtain a P60 that includes information on their entire pay, tax, and NI deductions.
Employees must obtain a statement of “pay rolled” benefits by July 6th, along with a receipt if they have received any workplace perks. Any taxable benefits and those around them in cash are included in this.

These are the some of the ways through which you can operate payroll.

Types of Payroll Deductions

Following are the list of deductions you need to calculate and pay:


National Insurance

Student loan repayments

Child maintenance payments

Pension contributions

Payroll giving (employees can donate some amount to a charity directly from their pay before deduction)

Remember that after you submit correct data into your payroll software, together with the necessary tax codes and National Insurance category letters for your employees, these deductions are computed automatically.

The deadline for paying HMRC what you owe is the 22nd of every month, or the 19th if you’re paying by post. If you don’t, your company can be penalized with fines and interest on the unpaid balance for each day you’re late.

Despite its complexity, payroll management is essential to a company’s success. For entrepreneurs in the UK, the process of going from knowing the fundamentals to grasping more complex ideas is fulfilling. In today’s UK market, business growth is inextricably related to effective payroll management. Modern payroll systems are scalable, allowing for expansion without sacrificing effectiveness. By reducing human error and related expenses, businesses can reallocate resources to expansion projects.


Payroll outsourcing is an option, and while it will cost you money, it will still be far less than doing payroll internally. The blog’s objective is to provide you with a thorough understanding of payroll outsourcing. We sincerely hope that you will select Corient Business Solutions, the best payroll service provider, after carefully understanding your needs.
Our area of expertise is providing specialised accounting services to accounting firms. Our experts have extensive expertise with a wide range of payroll software, including Earnie, Xero, Moneysoft, Sage, Brightpay, and Star Payroll. With our year-end, VAT, and bookkeeping outsourcing services, your practice gains a competitive edge and you can free up time for other important duties. We can talk in-depth about our services over the phone or during an online meeting whenever it’s convenient for you.

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