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  • Writer's pictureIain Ferguson

Payroll Back To Basics

Growing a business is an exciting experience that can be hugely rewarding. However there are many aspects of employing staff that need to be considered and can sometimes be overwhelming. Here we try to demystify the basics.

Income Tax codes

Everyone who works in the United Kingdom should have an Income Tax Code, they are used by employers and pension providers to work out how much Income Tax to take from their employees’ salaries or pensions.

The more common tax codes start with numbers and end with a letter. The standard tax code set out in the 2019/2020 budget was 1250L, this means that an employee has a personal allowance they can earn of £12,500 before paying any income tax. The easy way to remember this is to replace the L with a 0.

If your employee earns over their personal allowance, they will pay tax, the table below is taken from the Inland Revenue’s website as at 11 February 2020 and shows the rates for higher earners.

The Personal Allowance goes down by £1 for every £2 of income above the £100,000 limit. It can go down to zero.

National Insurance

National insurance is a deduction made from employee’s earnings. It applies to an employee or someone self-employed who is over 16 and earning or making a profit of over £6,365 per year. Paying National Insurance enables them to qualify for certain benefits and the State Pension.

Employees will need a National Insurance Number before they can start paying National Insurance Contributions. National Insurance is calculated based on a code that is allocated to each employee, the individual pay period and contribution thresholds.

New employers are often surprised to find that they also have to contribute towards an employees National Insurance pot, employees are equally rarely aware that employers pay additional national insurance on their behalf.

This increases the cost of employing an individual.


Auto Enrolment Pensions came into force on 1 October 2012 for larger employers and have now been rolled out to all employers meaning all employers have to provide a pension scheme for their employees.

In 2019-20, any employee aged from 22 to state pension age, earning over £10,000.00 per year must be auto enrolled into a compliant pension scheme.

An employee contributes a percentage of their earnings into the scheme and the employer contributes an additional percentage.

Again for an employer this increases the cost of employing someone.

Can you do everything?

There may come a time when you realise you can’t do everything and employing someone might not be an option as you need work space or there might not be enough work for them. Outsourcing provides you with the extra skills you need when you need them the most.

If you find yourself with not enough hours in the day whilst still wanting to make your business to grow, maybe outsourcing is your answer. With experts in Bookkeeping, Payroll, Sales and Marketing, Administration we can provide you with the extra skills you can use when you need them the most. It is a cost effective solution.


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