How to manage payroll taxes?

Handling payroll tax calculations is complex thanks to changing HMRC guidelines and economic constraints that add pressure on employers.

New laws relating to maternity and paternity leave, sick pay, the EU Working Time Directive, holiday entitlements for contract workers and wages for interns have made dealing with payroll liabilities something of a minefield.

For companies with numerous employees on different work contracts, managing the process requires a fast and efficient system. Small business, sole traders and start-ups can be especially stretched if they are not accustomed to it. Failure to file correctly can lead to prosecution; for employers there are several alternatives to hiring expensive, in-house accounts staff.

Payroll tax falls under two categories:

PAYE (pay as you earn) which an employer is legally obliged to deduct from an employee’s wages (also called Withholding Tax); and PAYG (pay as you go), which covers social security contributions such as National Insurance (NI) for an employee.