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Payroll – what you need to know

So you need to run a payroll?

When you decide it’s time to pay yourself through a payroll, if you’re already on Xero, you’ll need to get the Xero Payroll Add-On at £5 for 5 staff plus VAT – and away you go!

As with all things in life there are a few payroll basics you need to know, and do, first. Here’s some of them;

  1. Have a directors/owners pay strategy: this means making sure you pay yourself in the most tax efficient way, and from April 2016 you know the expected impact of the Governments tax changes planned for dividends.

2.  Register your business with HMRC for PAYE Tax. They’ll give you a PAYE reference which you need to run a payroll in the UK. You will also get a PAYE On-line login.

3.  Understand the Auto Enrolment Pension rules. Every employer will have duties under AE, even if it’s to assess only yourself and let the Pensions Regulator know you’ve done so. Follow the link below to the employer’s duties checker.

  1. Xero are introducing the AE functionality needed for assessment of workers soon too. If your business is Staging in 2016 this may well cause you some anxiety and extra work – but we are told to expect the catch up functionality by 2016 – Yay!
  1. Once you get your PAYE reference number, check up on your company’s staging date for Auto Enrolment. At the moment this can’t be helpfully stored on Xero Payroll – but that functionality is coming very soon.
  1. Know all you need to know about how to report to HMRC, how to actually pay any Tax and NI due, and how to send a Real Time Information return on time to HMRC. All modern payroll software will deal with this for you – but you remain responsible for ensuring it’s done at the correct time.

Check out the HMRC guideline here.

7.  You will usually pay HMRC every month – but if you expect to pay less than £1,500 a month, you can arrange to pay quarterly if you wish. Contact HMRC on the above link for this.

8.  Decide who is going to run your payroll. You can do it yourself or pay a payroll provider like a bureau or an accountant to run your payroll for you. Remember, you remain responsible for keeping employee records, and you must give them a payslip. Xero Payroll software deals with all of this and payslips are e-mailed to the staff.

9.  From April 2016, the government is allowing employers to payroll certain employee benefits in kind. Payrolling is where the employer includes a value for benefits in kind as taxable pay so the income tax is collected in real time. You may need to give this some consideration.

Here’s a summary for Setting up Payroll

If you decide to run payroll yourself, you need to complete certain tasks to pay your employees for the first time. You can choose when and how often to pay your employees.

  • Register as an employer with HMRC and get a login for PAYE Online.
  • Choose payroll software to record employee’s details, calculate pay and deductions, and report to HMRC. Xero Payroll does this, so do all cloud payroll solutions.
  • Collect and keep records.
  • Tell HMRC about your employees.
  • Record pay, make deductions and report to HMRC on or before the first payday.
  • Pay HMRC the tax and National Insurance you owe.
  • You’ll also need to complete certain annual reports and tasks


You can check out how-to videos for Xero Payroll here.

To talk payroll and Automatic Enrolment duties get in touch at or contact us here.