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Payroll & Tax in United Kingdom

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United Kingdom payroll & taxation

There are specific rules for payroll and taxation in the UK that must be complied with by all types of companies.  The primary concerns for a foreign company that needs to comply with tax laws in the UK are: individual income tax for employees in the UK, social security costs, payroll tax, VAT, National insurance, Employer’s liability insurance, corporation tax and permanent establishment concerns.

Your Payroll Options in United Kingdom

Remote Payroll

A remote payroll in the UK is where a foreign company, i.e. a non-resident company, payrolls a resident employee in the UK.  One option for a non-resident company to payroll its employees (local and foreign) in the UK is to use a fully outsourced service like a GEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in the UK under one of the forms available, but prefer to have another company administer its payroll.  This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to the UK may wish to run their own local payroll for all employees, foreign and local.  In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff.  There will be a need for in country human resources personnel who have the background needed to manage a UK payroll, and can fulfill all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations.  The company will need a local accounting firm and potentially legal counsel to ensure full compliance with UK employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in the UK to a GEO, like Shield GEO. This is possible for both foreign workers and UK nationals. This is the easiest, fastest and safest way to payroll staff in the UK.

Shield GEO manages all aspects of payroll for workers in the UK including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in United Kingdom

Information Explanation
Currency ? £
Employee Information Required ?

The following are usually what’s to set an employee up on Payroll in the UK:

  • National Insurance number
  • Title; Last name; First of given name(s)
  • Gender
  • Date of Birth
  • Address
  • Present Circumstances i.e. first job in tax year, only job, have another job.
  • Student Loan (if available)
  • Tax Code (if available)
Tax Registration Requirements ?

Employers should register a new employee with HM Revenue & Customs (HMRC) by including their details on a Final Payment Submission (FPS) the first time they are paid.

Social Security Registration ?

Every organisation operating a Pay-As-You-Earn (PAYE) Scheme is allocated an ‘Employer PAYE Reference’ (ERN). This is the reference number for the income tax and National Insurance contributions of their employees.

Documentation Required for New Employees ?

A written statement of the main terms and conditions of employment must be given to new employees not later than two months after the beginning of the employment.
Employee benefit information will be dependent on the terms and conditions of the employment. This also applies to pension information, however new rules came into force from October 2012. See Automatic Enrolment under pensions. Full details of information that must be provided to employees can be found at The Pensions Regulator website.

Corporate Income Tax Rate

20%

Payroll Tax

n/a

Sales Tax

VAT 20%

Withholding Tax

0%

Tax Figures

Information Explanation
Corporate Income Tax ?

20%

Income Tax Rate ?
Grossed income Tax Rate (%)
0 – 10,600 0
10,600 – 42,385 20
42,386 -150,000 40
150, 000+ 45
Payroll Tax ?

n/a

Sales Tax ?

VAT 20%

Withholding Tax ?

0%

Employee Social Security (EE SS)

Employees National Insurance 12%

Employer Social Security (ER SS)

Employers National Insurance 13.8%

Payments

Information Explanation
Payment Mode ?

Most small employers operate using cheques and cash. Some employers only pay salaries via electronic transfer, BACs (Bankers’ Automated Clearing Services) and direct transfer being the main methods used by larger businesses in the UK.

Frequency of Salary Payment ?

Outlined below are the pay frequencies which can be processed in addition to usual monthly payrolls in the UK:

  • Weekly (i.e. 52 pay periods per year)
  • Fortnightly (i.e. 26 pay periods per year)
  • 4 weekly
  • Lunar monthly
  • Bi-monthly (i.e. 24 pay periods per year)
  • Daily
  • Annual
Invoice / Payslips required ?

Payslips or some other record showing their gross earnings, the tax, National Insurance Contributions (NICs) and any student loan repayments you deduct, and their net pay – you can use a form P11 or an equivalent payroll record (such as an employee’s record in a commercial payroll software package).

Minimum Wage ?

Apprenticeships – £3.30

Age: 16 to 17 – £3.87

Age: 18 to 20 year old – £5.30

Age: 21 and older – £ 6.70

 

Employee Entitlements

Information Explanation
Working on Sundays ?

Sunday working – for those working in shops as well as betting workers, protection and option to opt-out of work during Sundays.

Disclosure and Confidentiality of Personal Information ?

Protected disclosures – disclosure of information in relation to legal obligations, health and safety etc. Protection from suffering detriment in employment – An employee has the right not to be subjected to any detriment by any act, or any deliberate failure to act, by his employer on various grounds.

Employee Protection and Anti-discrimination Rights ?

Protection of wages – workers have the right not to suffer unauthorised deductions and the right not to have to make payments to the employer.

Time Off Work ?

Almost all employees have a statutory right (conditions apply) to take paid time off work for the following:

  • To carry out duties as a trade union official
  • To carry out duties as a trade union health and safety representative
  • To look for work if faced with redundancy
  • To receive ante-natal care
  • To have a baby, take paternity leave, take adoption leave, take shared parental leave or to ask for flexible working hours
Medical Leave ?

Sickness – workers who qualify may be able to get Statutory Sick Pay.

Employment Termination

Information Explanation
Severance / Redundancy Pay ?

Suspension from work on medical grounds – Right to remuneration on suspension on medical grounds (if employed for at least a month) and the right to offer of alternative work if suspended on maternity grounds.

Termination of Employment ?

Termination of employment – notice is required to be given by an employer to terminate the contract of employment of a person who has been continuously employed for one month or more (conditions apply dependant on length of service).

United Kingdom

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