Payroll Guide

Terminology and Acronyms

Here at Payroll Solutions (Yorkshire) we understand that processing payroll can be time consuming and often complex for small businesses. We provide a range of services to clients both locally in Yorkshire and further afield.

As payroll professionals, we know that business owners don't always understand the terminology and acronyms that we payroll providers use, so we've created this simple guide to identify the more common terms

Standard Terms

PAYE (Pay As You Earn)

PAYE is a method of paying income tax and national insurance contributions on wages. Employers deduct employee tax and national insurance contributions when they calculate payroll,.  They then forward this money to HMRC

NI (National Insurance)

Employees pay NI contributions to build up entitlement to certain state benefits, such as Statutory Sick Pay or State Pension. Employers also pay an amount of NI contributions, on the wages of its employees. The contributions you paid depend on how much is earned and whether you’re employed or self-employed

HMRC (Her Majesty’s Revenue and Customs)

HMRC is responsible for the collection of taxes, the payment of some forms of state support, and the administration of other regulatory regimes including the national minimum wage

RTI (Real Time Information)

Since April 2013, HMRC collect PAYE information as it happens in real time instead of at the end of the tax year. We submit RTI through our payroll software on your behalf

Auto Enrolment

Auto Enrolment is the term used to describe the setting up of pensions that the government are bringing in to help people contribute to their pensions earlier in life. The scheme was started to get people saving for retirement earlier. The main concept of auto enrolment is that when the employee pays into the pension fund the employer pays as well 

Other types of payroll deductions include attachment of earnings order and student loans 

Statutory Pay

SSP (Statutory Sick Pay)

SSP is what can be claimed (if entitled to claim) by an employee when off sick from work

SMP (Statutory Maternity Pay)

SMP is where a mother can take time of work to look after her baby. Those people that qualify can currently have up to 39 weeks of SMP

OSPP (Ordinary Statutory Paternity Pay)

A father can take time off work to help look after a baby. They can currently have up to 2 weeks of paid leave if they qualify for OSPP. The term OSPP replaces the old SPP (Statutory Paternity Pay)

ASPP (Additional Statutory Paternity Pay)

Is where a father can take some of the mother’s maternity leave (even when they work in another company)

SAP (Statutory Adoption Pay)

If an employee is adopting a child with a partner, one of them may be entitled to SAP and the other may be entitled to Ordinary Statutory Paternity Pay (OSPP)

Forms

P45

The P45 form is given to employees when they leave an employment. It is entitled ‘Details of employee leaving work’. A P45 shows how much tax the employee has paid on their salary so far in the tax year

P46/Starter Checklist

Under RTI, the P46 is replaced with the Starter Checklist, which is like the P46. But now, under RTI, even when an employee provides a P45, a starter declaration must be filled out as well

P60

A P60 is an End of Year Certificate, it’s a statement issued to taxpayers at the end of a tax year. Employees should keep and not destroy the P60 forms, as they form a vital part/proof that tax has been paid by them. P60’s are not given to employees who left during the tax year but only to employees who are still actively employed at the end of the tax year  

Other Terms

CIS (Construction Industry Scheme)

Under the Construction Industry Scheme, contractors deduct money from a subcontractor’s payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s tax and National Insurance. Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered

Year to Date

A Year to Date figure is the total figure up to that point of the tax year

Personal Tax Year

In the UK the personal tax year starts on the 6th April and ends on the 5th April the following year

Accounting period

The accounting period for Corporation Tax is the time covered by your Company Tax Return. It can’t be longer than 12 months and is normally the same as the financial year covered by your company. Your accounting period affects your deadlines for paying Corporation Tax and sending (‘filing’) a Company Tax Return

Financial Year

Companies are required to prepare financial reports on an annual basis, but do not require that the reporting period be calendar year, 1 January to 31 December, thus the financial year is a 365 day period set by the business usually from the day of the inception of the business and annually on that date thereafter