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The majority of limited companies will process and pay a salary to its director(s). This makes the director an employee of their limited company for payroll purposes and requires the limited company to navigate all matters related to payroll. Therefore being familiar and understanding all the various payroll forms is key to ensuring you know exactly what to do and when to do it.
A P60 is provided by the employer to all employees once a year. The P60 can be produced after the end of the tax year (5th April) and should be issued and sent to all employees (and directors) by the 31st May. The P60 will detail the employee’s total income received, tax deducted, national insurance breakdown and details of other relevant amounts such as student loan deductions paid or statutory amounts received.
Once received, the P60 should be retained and kept in a safe place as it is an important document that may be required as proof of income in some circumstances, such as when applying for finance or a mortgage. From a tax perspective the P60 figures will be required when preparing your Self Assessment tax return and each P60 you receive will need adding to your tax return with care being taken that each employment is listed correctly and that the pay and tax figures are entered correctly. Any errors can lead to an incorrect submission of your return.
P60’s are issued for each separate employment where that employment was ongoing at the 5th April. So if you have more than one job, you will receive a P60 for each employment. P60’s are also issued by any pension funds from which you receive a regular pension.
If the employment in question had already ended prior to the end of the tax year then a P60 will not be issued and in this circumstance you can refer to your P45 for the required figures.
P45s are issued to employees after the point they leave an employment and will confirm how much pay and income tax has applied to that employment in the tax year.
Once received, a P45 should be passed to your new employer in order to ensure that the correct amount of tax is deducted from your salary. The P45 is designed to prevent you from either underpaying or overpaying tax when you move between employments during the same tax year.
Where a P45 is not available an employee can instead complete a new starter checklist in order to provide the new employer with all the details required to process payroll. The new starter checklist will capture all the required info needed by the new employer to bring you onto their payroll.
When completing a new starter checklist one of the requirements is to complete an Employee Statement, the answer to which will allow the employer to ensure that the correct tax is deducted from the employee’s pay. The options available include letting the new employer know if this is your first job in the tax year; if this is now your only (but not first) job in the tax year or, finally, if you will receive more than one form of payroll income. Selecting the right statement in this section will ensure the correct amount of tax is deducted on an ongoing basis based on your particular circumstances.
The role of the P11d is to show details of any taxable benefits, for example the provision of a company car, that have been provided to you as the director or employee by your limited company or any other employer. Like the P60, this form will be issued after the end of the tax year by each employer. The figures on form P11d must be submitted to HMRC and a copy of the P11d provided to employees, where relevant, by 6th July.
The P11d is another form which must be considered and the figures carried over to your Self Assessment tax return correctly. Any amounts missed or entered incorrectly will impact the accuracy and completeness of your tax return.
Although the Self Assessment tax return is not a payroll form, for directors it is this form that fully considers all the various income they have received in the tax year. It ensures the overall income earned is correct, as well as ensuring the tax amounts paid during the year cover what is actually due. Where the tax paid has been insufficient a balancing payment will be calculated and can be paid. On the other hand if too much tax has been paid, any overpaid amounts can be claimed back from HMRC from within your Self Assessment tax return.
All the forms listed in this article are the key payroll forms that you need to be aware of. Understanding each one and what they do, along with what steps are required will save you time and hassle later down the line. A final important point to remember is payroll forms only cover income received as salary under a PAYE basis and benefits, payroll forms do not cover profits withdrawn as a dividend.
Here at PayStream we advise our limited company clients on the necessary payroll submissions and their due dates. Not only that but we have a team of tax experts on hand ready and waiting to help prepare your Self Assessment tax return.
Starting at just £145 + VAT (£) our team will help ensure your tax return is completed correctly and on time keeping you safe from any HMRC penalties. We'll also chase any refunds that you might be due and warn you of any possible tax liabilities we identify during the process, so you know exactly what lies ahead.
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