In the UK, it is your responsibility as an employer to calculate and deduct employee tax and National Insurance contributions (NICs) from gross salaries. You must also pay employer contributions on top. This can seem like a daunting task, but with the right guidance it can be easy to do! (Find our tax and national insurance calculator below.)
In this guide, we will walk you through how to calculate employee tax and NICs, and how to declare them to HMRC.
We’ll also cover some of the compliance issues you need to be aware of.
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7 August 2023 update: we updated our calculator to reflect current tax threshold brackets for UK employers.
How to calculate employee tax and National Insurance liabilities
The first thing you need to do is calculate your employee’s tax liability. This can be done using a simple tax calculator, which you can find online. Once you have the tax liability amount, you need to deduct it from the employee’s gross salary.
Next, you need to calculate the employee’s National Insurance contribution. This is a little more complicated, as there are different rates for different earners. However, you can use the government’s National Insurance calculator to work out the amount that needs to be deducted.
Once you have calculated the tax and NICs, you need to deduct them from the employee’s salary. You then need to declare the deductions to HMRC. This can be done online, or through your payroll software.
You also need to calculate Secondary Class 1 NICs, which is the separate contribution paid by the employer, and declare and pay this too.
What are the deadlines for submitting this information to HMRC?
The deadline for submitting employee tax and NICs to HMRC is the 19th of each month. This means that you need to have calculated, deducted, and declared the amounts by this date.
If you are using payroll software, the deadlines will be automatically generated for you. However, if you are doing everything manually, it is important to make sure that you meet the deadlines.
How to submit this information to HMRC
As we mentioned above, you can submit the information to HMRC online, or through your payroll software. If you are using payroll software, the process will be automatic. However, if you are doing everything manually, you will need to log in to HMRC‘s website and submit the information yourself.
When submitting the information manually, you will need to provide the following information:
- Your employee’s name, address, and National Insurance number
- The amount of tax and NICs you have deducted from their salary
- The date of the deductions
Once you have submitted the information, HMRC will send you a confirmation email. You will then need to keep this email safe, as you will need it if you are ever audited.
What are the compliance issues you need to be aware of?
As an employer, you have a responsibility to ensure that you are complying with all of the relevant tax and NICs regulations – payroll compliance is essential. This means that you need to keep up to date with any changes in the law, and make sure that you are following the correct procedures, including keeping accurate payroll records.
If you are found to be non-compliant, you could face penalties from HMRC. These can range from a small fine to a prison sentence, depending on the severity of the offence.
To avoid any problems, make sure that you keep up to date with the latest tax and NICs regulations. You can do this by subscribing to HMRC’s email updates, or by checking their website regularly.
What are the consequences of not submitting employee tax and NICs to HMRC on time?
If you do not submit employee tax and NICs to HMRC on time, you may be subject to a fine. The amount of the fine will depend on how late the submission is. In some cases, you may also be required to pay interest on the unpaid amount.
As you can see, it is important to make sure that you submit employee tax and NICs to HMRC on time.
How to display tax and NIC deductions on a payslip
Once you have calculated the tax and NIC deductions, you need to display them on the employee’s payslip. This is a legal requirement in the UK.
The easiest way to do this is to use payroll software. Most payroll software will have a built-in feature for displaying tax and NIC deductions on payslips. However, if you are doing everything manually, you can simply add the deductions to the payslip yourself.
Just remember to include the employee’s tax code on the payslip. This will ensure that HMRC can process the deductions correctly.
Calculating employee tax and NICs can seem like a daunting task, but with the right guidance it is easy to do. In this guide, we have walked you through how to calculate the tax and NICs, how to declare them to HMRC, and some of the compliance issues you need to be aware of.
If you follow the steps outlined in this guide, you will be sure to stay compliant with all of the relevant regulations. And if you ever have any questions, HMRC’s website is a great resource for finding answers. Thanks for reading!