19.1 What Payroll Software Can Do
Payroll software is an integral part of your
payroll duties and, without it, you cannot pay your employees or send
information to HMRC.
Therefore, it is important to ensure
you make the correct choice in terms of which program to use for your
particular needs. If you run payroll yourself, you need your software to be
able to report to HMRC and remain RTI-enabled.
At the most basic level, the payroll
software needs to be able to:
- -Record employee details
-Work out employee pay and deductions accurately
-Report payroll information to HMRC
-Calculate how much the employer owes HMRC
-Calculate any statutory payments
Whether you decide to run payroll
yourself or you choose to outsource your payroll duties, software will play an
integral part in the whole process. Any software you choose has to be RTI (Real
Time Information) and PAYE (Pay As You Earn) compliant, so it is important to
make sure your choice is based on the software packages which appear on the
HMRC website recommended list or you will find it impossible to cover HMRC's
recommendations and requirements. When considering the options, be sure to
check the important features that some software may not have
as standard.
Some applications may not offer
features, such as:
- -Recording pension deductions
- -Making pension payments
- -Producing payslips
- -Paying different wages to different employees for different periods
There are many other features which
you will need to familiarise yourself with in order to get the most out of your
software. For example, reporting capabilities: your software should be able to
produce certain reports such as - an Employer Payment Summary report (EPS) or
an Earlier Year Update (EYU). We will cover some other important requirements
in more detail later in this module.
Making
the correct choice at the start will reduce the difficulty and hard work
in the future.
We mentioned in our last section that
payroll software needs to be RTI and PAYE compliant and any software package
which features on the HMRC recommended list will have these facilities.
There is a free add-on which can be
used in conjunction with other payroll software, called HMRC Basic PAYE Tools,
which we will discuss in a little more detail in our next section. If you
choose a payroll software package that does not allow you to create Employer
Payment Summary reports for example, you can run this free download at the side
of your software, to give you that option. It is worth mentioning however that
this add-on does not give you the facility to produce payslips, so if this is
an important feature for your particular business, you need to look into
buying HMRC-recommended software which
allows you to use this function.
Choosing HMRC-recommended software
means you know that you have the facilities to do the basics, in terms of what
you need to tell HMRC. Software which is not tested and recommended by HMRC may
mean that you are reporting figures in the wrong way, and may lead to mistakes
which can take time and money to rectify. Eliminate this particular worry and
stick to the recommended programs from the very start.
19.3 Software Options for Small
Businesses
If you are a small business, you
don't need a huge, all-singing, all-dancing software package.
You can instead reduce costs and use
the free HMRC Basic PAYE Tools option we mentioned
briefly in our last section. A business with under 10 employees can use this as
their payroll software without the need to purchase a package or download a
different one. This particular software will give you the basic tools you need
for a small business to run its payroll effectively, including working out tax
and National Insurance Contributions (NICs) deductions, and sending the
information to HMRC using PAYE and RTI; as we mentioned before, any software
needs to have these two features attached to it.
To
be able to use this free software, you will need to register with HMRC as a
business and receive a login for PAYE online. Once you have this, you can
download the software and begin setting up your employee records. There is a
guide on the HMRC website to show you how to use the software in a little more
detail, as well as help with downloading, and your computer specification
requirements.
HMRC Basic PAYE Tools can also be
used to run alongside another payroll software package, if the package does not
have the facility to do other payroll tasks, such as checking an employee's
National Insurance number and creating and sending reports, such as the
Employer Payment Summary (EPS) and an Earlier Year Update (EYU). There are a
few restrictions when using this software as a stand-alone package, i.e. you
cannot create payslips from it, but it will update itself when new HMRC rules
come into force or when the new tax year begins, so you can be sure that you
are dealing with up to date software versions.
19.4 Software Options for Larger
Businesses
If you are running a larger business,
i.e. a company with more than 10 employees, you need to put a more
comprehensive system in place.
The best place to start, as discussed
previously, is the HMRC website to check out the list which is featured there.
Most software companies will allow you to trial the package before you decide,
to get an overview of how the software works and what features it has. General
usability is also an important factor; if you can use the software with ease,
it will make your payroll run more smoothly. Different software packages will
have slightly different features and there are some which you should look out
for as a definite must-have; we will discuss what to look for in a little more
detail in our next section.
We mentioned in our smaller
businesses section that you can use the HMRC Basic PAYE Tools as an add-on to
your software package if it does not give you the facility to check employee
National Insurance numbers, or to run certain reports - these are very useful
when correcting mistakes on your payroll system, so looking into gaps in your
software package capabilities is a definite first place to start in the
process.
19.5 Features to Look For in Payroll
Software
We know that you need to purchase
payroll software or download it free from the Internet, and we know that it has
to be HMRC tested and recommended; to ensure it is RTI and PAYE compliant.
With that in mind, what features
should your software have in order to make it not only easy to use but also to
make your payroll duties as straightforward and flexible as possible?
Here are a few things you should be looking out for
in order to help you make your final decision:
- -RTI integration for payroll; tax and NIC filing capability - these
are essential
- -The ability to retrieve payroll information from the past, e.g. at
a glance, the pay history for the last tax year
- -The capability to customise payment structures (hourly, monthly,
weekly, commissions, contractors)
- -The facility to print payslips and reports, from different time
periods
- -Updated regularly in line with HMRC changes and updates to payroll
and deduction legislation - this is a must!
- -Email/telephone support in case of problems with the software
package. Problems need to be quickly solved.
- -Quick calculations for deductions, such as statutory sick pay
(SSP), maternity pay, paternity pay, childcare vouchers (if applicable),
employer National Insurance Contributions (NICs), etc.
- -The facility to include auto-enrolment pension reports and
deductions; integration into a pension scheme
- -A backup facility for data, to ensure no costly loss of vital
information
- Scalability (is the business set to grow in
the next, say, three to five years?)
One of the most important options
when looking at software is that it needs to be easy to use and easy to correct
any false information; especially after submission to HMRC. We have mentioned
before that not every software package is the same, as whilst many will have
similarities there will be differences between them, and mostly quite subtle.
It
is vitally important to ensure you think about what you need from your payroll
software before you commit to buying or downloading a particular
package - as once you purchase a package you are probably stuck with it, so
make sure you choose wisely!
19.6 Changes to Software and Updates
- What Happens?
Of course, throughout the lifespan of
your business, there will be changes to legislation and, in line with that, you
need to make sure that your software updates itself accordingly.
If you are working with old tools,
then you are potentially going to be sending the incorrect information to HMRC,
making incorrect deductions and possibly paying too little or too much tax. Mistakes
on payroll reporting should be avoided as much as possible, and whilst there
may be instances where the occasional error is made (and we will discuss in our
next module how to sort them out), avoiding them in the first instance is
always the best course of action.
Your
software is your foundation for working with your employees and HMRC. Make sure
it is always up to date.
You might decide to change your
payroll software at some point in your payroll lifespan, and in that case, you
need to think very carefully and look into your options carefully. Some
packages will not allow you to continue using the same payroll IDs for your
employees, so the transition will not be as seamless as you might expect.
If this is the case, you will need to
work around it by entering 'Yes' into the 'Payroll ID Changed Indicator' on
your new payroll software, and you will need to do this for every employee in
your next full payment submission to HMRC. Failure to complete this simple
administrative error could mean that you pay the incorrect amount of tax and
National Insurance Contributions (NICs) to HMRC, because of duplicated payroll
records for each employee.
We have mentioned that software will automatically update itself at the start
of each new tax year, or when legislation with HMRC changes. It is for this
reason that you need to make sure you choose a software package which is on the
HMRC tested and recommended list, to ensure you are working with the most
up-to-date version possible.
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