If you’ve recently expanded into the UK and are looking to hire your first British employee, there are several important tax considerations to be aware of once you have registered as an employer with HMRC.
The tax landscape in the UK is always changing. Therefore, it is important to stay up to date on the current rates of tax that concern employees.
Understanding Income Tax
Income Tax (IT) is the most common tax that affects employees, which bosses must manage to avoid trouble with HMRC.
An employee’s Income Tax is deducted directly from their salary as it is paid to them each month.
Once an employer has registered with HMRC, they will receive a PAYE reference number and an accounts office reference number.
These references are required when submitting payroll information, identifying your PAYE scheme and making PAYE payments to HMRC.
Employers must submit payroll information to HMRC on or before each payday through the Real Time Information (RTI) system, usually by sending a Full Payment Submission (FPS).
This ensures employees’ tax and National Insurance records remain accurate throughout the tax year and helps businesses comply with UK tax reporting requirements.
National Insurance: what is it?
There are two types of National Insurance contributions that will affect businesses employing staff in the UK: employee National Insurance contributions (primary Class 1) and employer National Insurance contributions (secondary Class 1).
For employees, National Insurance contributions are deducted directly from their gross pay through the PAYE system.
The amount an employee pays depends on their earnings and other factors, such as their National Insurance category.
Employers are responsible for paying secondary Class 1 National Insurance contributions on their employees’ earnings.
Unlike employee contributions, these are an additional cost to the business and are not deducted from the employee’s salary.
Employers must calculate and report these contributions to HMRC through their payroll, with payments generally due alongside PAYE tax and other National Insurance liabilities.
Pension considerations
In the UK, employers must automatically enrol employees above the age of 22 who earn over £10,000 a year into a workplace pension scheme.
The minimum contribution is 8 per cent, with a minimum of a three per cent contribution by employers and five per cent by employees.
It is important to remember that employer contributions are a fully deductible business expense under Corporation Tax and employer National Insurance.
Employers must retain contribution records for six years and staff must be assessed for their workplace pension as soon as they are hired.
Employees can choose to opt out of a pension if they wish, but they must be fully informed of their decision.
Setting up a pension scheme is a key consideration when hiring an employee in the UK, therefore, it is something that must be considered well in advance of recruitment.
How can Reanda support you?
Understanding employers’ obligations to UK-based employees can be like a minefield to understand. Thankfully, we are here to support you.
Our payroll team can assist you with a variety of employment issues to ensure that you and your employees are paying the right amount of tax and National Insurance contributions.
For support with understanding UK employment costs, get in touch with our team!