Payroll….

A question I often get asked by newly self employed people is whether they need to operate a payroll scheme and the national minimum wage.

The second one first - minimum wage does not apply to sole traders. Simple!

The first one - if it is just you in the business and you have no employees then a payroll scheme is not needed as you will pay the appropriate tax and NI when you file your tax return. Sole traders do not draw a salary, they pax tax on their profits. You do not need to register as an employer.

If you are a sole trader but you actually have employees - then yes you need to set up a payroll scheme and register as an employer with HMRC. Those employees would then be entitled to the national minimum wage, but you wouldn’t be. You also need to put a pension scheme in place - even if the employees decide to opt out of it. 

If you are a sole trader with no employees but you use sub contractors registered under the CIS scheme (construction) then you need to register.

For those people operating through a Ltd Company then the advice is slightly different.

Processing payroll can be relatively simple - HMRC even give you free software to help you do it (only works if you have fewer than 10 employees mind you!)

Who said HMRC are tight?