Does my limited company need a payroll?

You’ve just set up a limited company and everyone is offering advice on the best set up or tips and tricks on how to run it. This includes advice on running a payroll. Here we’ve tried to explain some of the benefits and things to consider before deciding on the best course of actions for you and your company.

There are three main categories your company may fall into when it comes to payroll, employer with staff, director only and or CIS.

Employer with staff

If you are employing staff, it is mandatory to have a PAYE scheme registered with HMRC. You will need to use a payroll software which allows you to report employees’ details, pay, deduction, tax and national insurance contributions to HMRC and produce payslips for your employees.

You can either run a payroll in-house or if you do not have the software or expertise you may wish to outsource this to a payroll bureau or accountancy company.

Director only

Like other employees, a company director can be paid through the company payroll. As with all wages this is an allowable company expense, which is paid before the company can make a profit.

This is one of the reasons why if you are both the director and shareholder of a limited company, it may be beneficial to run a payroll and be paid through a mixture of PAYE and dividends.

Depending on your age and tax code your PAYE earnings can also be targeted so you maintain your national insurance contributions at a lower cost than toping up before retirement.

Have CIS suffered on your invoices or use subcontractors in the construction industry scheme

If you are working in the construction industry and use subcontractors, you are required by HMRC to stop tax on their income. This must be reported to HMRC through your payroll and paid over every month through your P30 (employer’s bill).

To help with cashflow, if you work for other construction companies you may be stopped tax on your income, but this can be offset through the payroll.

Due to the importance of reporting correct figures for your CIS it is worth investing in payroll or accountancy services and they will ensure that any overpaid tax is not lost.

Hopefully this has helped highlight some of the main reasons your company may need a payroll. If you would like to discuss your company’s individual needs, our sister company Walton Accountancy are always happy to advise. They can be contacted on 02392 593917.