In this section:
- Paying your employees
- The national minimum wage
- Payroll calculations and records: an introduction
- Using commercial software or HMRC’s P11 Calculator
- Setting up and using the Employer CD-ROM P11 Calculator
- Completing the paper form P11
- Calculating student loan deductions
- Payroll giving: an introduction for employers and pension providers
- PAYE record keeping
- Correcting payroll errors
Using commercial software or HMRC’s P11 Calculator
If you’re doing your payroll in-house, commercial payroll software or the P11 Calculator from HM Revenue & Customs (HMRC) can simplify and speed up the process of maintaining your employees’ payroll records. They complete your payroll calculations automatically for you 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 now required to do.
This guide outlines the benefits of using an electronic payroll system. It highlights the importance of Payroll Standard accreditation if you’re using commercial software. It also summarises the features and limitations of the P11 Calculator and links to a step-by-step guide to installing and using it.
On this page:
- Electronic payroll systems – benefits and options
- Commercial payroll software
- HMRC’s P11 Calculator
- Key features of the P11 Calculator
- P11 Calculator limitations
- Setting up and using the P11 Calculator
- More useful links
Electronic payroll systems – benefits and options
Using an electronic payroll system offers a number of significant advantages over keeping your records on paper versions of form P11. It:
- saves time – you don’t need to use HMRC’s tax/NICs tables
- reduces errors – calculations are completed automatically for you
- prepares you to file online – almost all employers are now required to file their Employer Annual Return (P35 and P14s) online
There are two main electronic payroll options you can choose from – commercial software or the free P11 Calculator on HMRC’s Employer CD-ROM. These are described below.
Commercial payroll software
With commercial 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 software that meets its Payroll Standard. Payroll Standard accreditation means that software meets HMRC’s minimum standards and:
- provides a full range of payroll functions
- can file your Employer Annual Return online
- lets you make electronic payments online to HMRC
- has been officially tested and approved
Software that meets the Payroll Standard will have a Payroll Standard
logo.
For a list of accredited software packages, follow the link below.
See a list of HMRC-accredited payroll software
products and suppliers
HMRC’s P11 Calculator
The P11 Calculator on HMRC’s Employer CD-ROM 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.
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 it has limited online filing capabilities:
- it will file your Employer Annual Return online, but only if you have nine or fewer employees at the end of the tax year
- it won’t file any other PAYE forms, such as forms P45 and P46 for when an employee starts or leaves work with you.
The P11 Calculator’s key features and limitations are listed in the next two sections below.
Key features of the P11 Calculator
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.
Works out PAYE tax and NICs
The P11 calculator works out the tax and National Insurance contributions (NICs) 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 PAYE and NICs calculators with the paper form.
Automatically completes the P11 Deductions Working Sheet
If you use the P11 Calculator to work out an employee's tax and NICs 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.
Checks P45s
When you take on a new employee who gives you a form P45, you can use the automatic P45 checking feature to help you work out whether the total tax figure on their P45 is correct.
Handles mid-year tax code changes
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.
Produces P11 summaries
You can use the P11 Calculator to produce an up-to-date P11 summary at any time during the tax year.
Produces P32 summaries
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.
Allows you to save in-year figures to a spreadsheet
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.
Produces end of year summaries
The P11 Calculator will produce an end of year summary which you can use to complete your end of year returns (P14s and P35s). You can file these online using PAYE Online for employers.
Allows seamless online filing if you have nine or fewer employees
If you have used the P11 Calculator to work out your employees' deductions and you have nine or fewer employees at the end of the tax year (5 April), you can file your Employer Annual Return (P35 and P14s) online direct from the CD-ROM.
This offers a significant advantage over using paper-based records, because almost all employers are now 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.
Deals with leavers
If an employee leaves during the tax year, you can enter their leaving date into the employee part of the employer database. You will then be able to view an in-year leaver summary. This'll give you the information you need to complete their P45.
Transfers employee details to a new year
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 Employer CD-ROM without having to re-enter each employee's details into the database.
Works out student loan deductions
You can use the P11 Calculator to work out student loan deductions for employees who are repaying their student loans.
Accepts updates
Once you've installed the CD-ROM, you can download updates and improvements to certain sections of it from the HMRC website whenever they're released.
P11 Calculator limitations
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 P11 on the CD-ROM doesn't:
- record pension contributions
- record any other deductions unrelated to PAYE
- produce payslips
You may also experience some difficulties using the calculator if:
- certain director's NICs category letters change during the tax year
- an employee dies and you want to work out the final payment
- you enter a leaving date for an employee and subsequently want either to change the leaving date or re-start the employment
- an employee reaches the age of 16 and becomes liable for NICs (in order to be able to switch to category A mid-year you need to have already set them up in the calculator with an 'X' against their NICs category)
- you pay your employees using an interval other than weekly, fortnightly, four-weekly or monthly
- you change an employee’s pay interval during the tax year – for example from weekly to monthly
If any of these scenarios arise during the year and you’re using the 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.
Choose a suitable payroll system for your business
Setting up and using the P11 Calculator
To find out how to obtain and start using the P11 Calculator, follow the link below.
Setting up and using the C D-ROM P11 Calculator
More useful links
The requirement for employers to file online
