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If you're dealing with your payroll in-house, commercial payroll software or the downloadable P11 Calculator contained within HM Revenue & Customs' (HMRC's) Basic PAYE tools package can simplify and speed up the process of maintaining your employees' payroll records. These products complete your payroll calculations automatically and update your records accordingly.
Keeping your payroll records using one of these electronic methods also means that you'll be well prepared for filing your Employer Annual Return (P35 and P14s) online at the end of the tax year, which almost all employers are required to do.
This guide outlines the benefits of using an electronic payroll system. It highlights the importance of selecting software from HMRC's accreditation or recognition schemes if you're using commercial payroll software. It also summarises the features and limitations of HMRC's downloadable P11 Calculator and links to a step-by-step guide to setting up and using it.
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Using an electronic payroll system offers a number of significant advantages over keeping your records on paper versions of form P11. It:
There are two main electronic payroll options you can choose from - commercial payroll software (some of which is free) or HMRC's free downloadable P11 Calculator contained within the Basic PAYE Tools package. These are described below.
With commercial payroll software, you can choose from a wide range of packages. Features may differ from package to package, so it's important to make sure you choose one with the functionality you require.
HMRC strongly recommends choosing commercial payroll software that meets the criteria it has set for the Payroll Standard accreditation scheme or the PAYE Recognition Scheme.
List of payroll software within the HMRC PAYE Recognition Scheme
List of HMRC-accredited payroll software products and suppliers
HMRC's downloadable P11 Calculator provides a free and convenient way for smaller employers to maintain their payroll records in an electronic format. It also makes it easy for many smaller employers to meet the requirement to file their Employer Annual Return online. You can also use it to file your in-year forms (P45s and P46s) online.
The P11 calculator is part of the Basic PAYE Tools package which you can download from the HMRC website.
However, it's important to note that the P11 Calculator isn't a full payroll software system and won't always offer the same flexibility as commercial software packages. For example, it won't produce your employee payslips for you and although it can file your Employer Annual Return online, it can only do that if you have up to and including nine employees at the end of the tax year.
The P11 Calculator's key features and limitations are listed in the next two sections below.
The P11 Calculator will save you time and reduce the likelihood of error when operating PAYE (Pay As You Earn). Its key features are outlined below.
The P11 calculator works out the tax, National Insurance contributions (NICs) and student loan deductions for each employee every pay period. This means you don't need to refer to tax and NICs tables. It's also easier than using the separate internet PAYE and NICs calculators with the paper form.
If you use the P11 Calculator to work out an employee's tax, NICs and student loan deductions, it'll complete all the relevant columns of an electronic version of the P11 Deductions Working Sheet for you. You won't need to complete the paper version of the P11.
When you take on a new employee who gives you a form P45, there is a built-in P45 checking feature to help you work out whether the total tax figure on their P45 is correct.
The calculator can deal with tax code changes during the tax year. If you receive form P6 giving you a new tax code for one of your employees, all you'll need to do is enter it and the calculator will do the rest.
You can use the P11 Calculator to produce an up-to-date P11 summary at any time during the tax year.
You can use the P11 Calculator to produce a form P32 deductions summary each pay period. This shows you each month what you need to pay HMRC to cover tax, NICs and student loan deductions for all the employees entered in the calculator's database.
The P11 Calculator allows you to save P11, P14 and P32 information to a folder of your choice in a spreadsheet application. These figures form part of the PAYE records you must keep for at least three tax years after the current tax year. You can also use them to complete your online or paper returns.
The P11 Calculator will produce an end of year summary which you can use to complete your end of year returns (P35 and P14s). You can file these online using PAYE Online for employers or direct from the P11 Calculator within the Basic PAYE Tools package if you have up to and including 9 employees at 5 April.
If you have used the P11 Calculator to work out your employees' deductions and you have up to and including nine employees at the end of the tax year (5 April), you can file your Employer Annual Return (P35 and P14s) online direct from the Basic PAYE Tools package.
This offers a significant advantage over using paper-based records, because almost all employers are required to file their Employer Annual Return online.
If you have more than nine employees you can still use the figures from your P11 Calculator records to complete your online return separately.
If an employee leaves during the tax year, you can enter their leaving date into the employee part of the employer database and then use it to file their P45 Part 1 online from the tools.
If you use the P11 Calculator for consecutive years, you can transfer employee details in the database from one year to the next. This means you can use the new version of the calculator from the latest Basic PAYE Tools without having to re-enter each employee's details into the database.
You can use the P11 Calculator to work out student loan deductions for employees who are repaying their student loans.
Once you've downloaded Basic PAYE Tools, you can download updates and improvements from the HMRC website whenever they're released.
Bear in mind that the P11 Calculator isn't a fully integrated payroll software product.
For example, although you can use it with HMRC's separate net pay estimator, the downloadable P11 Calculator doesn't:
You may also experience some difficulties using the calculator if:
If any of these scenarios arise during the year and you're using HMRC's downloadable P11 Calculator you'll need to transfer the details of the employee(s) affected to a commercial payroll software package or to a paper form P11.
So if you think these limitations could affect your business, you should consider upgrading to a commercial payroll software package.
To find out how to download and start using the P11 Calculator, follow the link below.
Setting up and using the Basic PAYE Tools P11 Calculator
Employer deadlines for filing PAYE online
