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.Here's our most recent article on running payroll and taxes in the UK.
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.
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.
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.
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.
|Employee Information Required ?||
The following information relating to the employee is required for setting up their payroll:
|Tax Registration Requirements ?||
The employer must inform HM Revenue and Customs (HMRC) when they take on a new employee. To register an employee with HMRC, the employer include their details on a Full Payment Submission (FPS) the first time they are paid.
The FPS includes:
|Social Security Registration ?||
Every employer 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 ?||
The following documents are required for new employees:
*The written statement is provided within 2 months of the start of employment and includes the main conditions of employment. A comprehensive list of what this statement must include can be found here.
**Under the Pensions Act 2008, employers must put employees into a workplace pension scheme and make contributions. This is called ‘automatic enrolment’.
|Corporate Income Tax Rate||
The corporate income tax rate is 19%. Where the taxable profits can be attributed to patents, a tax rate of 10% applies.
There are no payroll taxes in the UK.
A standard VAT rate of 20% applies to most goods and services, apart from domestic fuel and power which are subject to a VAT rate of 5%. Most exports are exempt from VAT.
Dividends – None
Interest – 20%*
Royalties – 20%*
*Payments made to a resident company is free from withholding tax if the recipient is taxed on the interest or royalty.
Local taxes are levied on business property, based on a deemed annual rental (‘rateable’) value for the property concerned. These taxes are levied by local government authorities, and are deductible for corporate tax purposes.
|Corporate Income Tax ?||
|Income Tax Rate ?||
|Payroll Tax ?||
|Sales Tax ?||
|Withholding Tax ?||
|Income Tax (Personal Allowance) ?||
The first GBP5,000 of an individual’s income is not taxed.
|Employee Social Security (EE SS)||
Employees are required to contribute 12% of their salary above GBP680 per month and below GBP3,750 per month to Employee’s National Insurance. A 2% contribution is required for income above GBP3,750 per month.
|Employer Social Security (ER SS)||
Employers are required to contribute 13.8% of the employee’s salary above GBP702 per month to Employer’s National Insurance.
|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:
|Invoice / Payslips required ?||
Payslips must show gross wages, tax and National Insurance deductions and the employee’s earnings after deductions.
Payslips may also contain the employee’s National Insurance number and Tax Code, their pay rate and the total amount of earnings and deductions so far in the tax year.
|Minimum Wage ?||
The minimum hourly wages for different age groups are as follows. The rates in brackets will be applied from April 2019.
Apprentice: £3.70 (£3.90)
Under 18: £4.20 (£4.35)
18 to 20: £5.90 (£6.15)
21 to 24: £7.38 (£7.70)
25 and over: £8.21 (£8.21)
|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:
|Medical Leave ?||
Sickness – workers who qualify may be able to get Statutory Sick Pay.
|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).
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