Employment and PAYE

If people provide their time to a business or organisation in a way that fits with how HMRC define 'employment' then they have to be paid and taxed according to the rules of PAYE.

This means that payments made to them need to be handled differently to payments made to people that are working in a 'freelance' or 'self-employed' capacity.

Some software handles payroll functions within the book-keeping data; other systems import the data from a separate application. For small businesses it's common for the payroll data to simply be entered as a journal.

Payroll transactions can have many components such as Employer's National Insurance, Statutory Sick Pay (SMP), Statutory Maternity Pay (SMP), Pensions, Student Loans and Court Orders which instruct the employer to make additions and deductions.

The book-keeper needs to be able to show that payroll liabilities have been paid (or not) and should create control accounts for PAYE, Net Pay and pensions as required to keep them under review and reconciled.