Paying your HMRC PAYE bill is an essential responsibility for every UK employer. It ensures that Income Tax and National Insurance contributions are submitted to HM Revenue & Customs (HMRC) accurately and on time. Employers must calculate what they owe for each tax year and month, following specific rules about payment deadlines and using the correct payment references. Understanding the full process helps you avoid costly mistakes and penalties. In this post, we will walk you through the steps involved in paying your PAYE bill.

What is HMRC PAYE and how does it work?

HMRC PAYE (Pay As You Earn) is the UK government’s system for collecting Income Tax and National Insurance contributions directly from employees’ wages or salaries. Employers are legally required to operate PAYE as part of their payroll.

Each time an employee is paid, the employer deducts the necessary tax and NI amounts based on current tax codes and submits this to HMRC on their behalf. PAYE ensures that employees pay their taxes gradually throughout the year instead of in one lump sum. This helps prevent surprise tax bills and keeps employee contributions in line with earnings. Employers must also report payroll information to HMRC in real-time (RTI) every time they run payroll. This includes details of employee earnings, deductions, and the amount owed.

HMRC PAYE payment process involves calculating employee tax and National Insurance deductions, reporting them to HMRC in real-time, and paying the total amount due by the specified deadline each month or quarter, using the correct reference to ensure accurate allocation.

What are the Key Steps in the HMRC PAYE Payment Process?

To stay compliant with HMRC requirements, it’s crucial to understand each stage of the PAYE payment process. Below are the key steps every UK employer should follow to ensure accurate and timely submissions:

1. Calculate Your PAYE Liability Accurately

The first step in the PAYE payment process is to calculate how much you owe to HMRC for each tax period. This includes deductions such as Income Tax, Class 1 National Insurance contributions, student loan deductions, and the Apprenticeship Levy (if applicable). You may also need to include Class 1A and 1B National Insurance contributions for certain benefits or termination payments.

Most businesses rely on payroll software to automate these calculations and ensure accuracy, but it’s crucial to double-check figures to avoid errors that could lead to underpayment or HMRC penalties. Take away all PAYE liabilities from the total pay, then also account for things like statutory parental payments to find out the net pay that needs to be given.

2. Understand Your Payment Deadlines

HMRC sets strict deadlines for PAYE payments. Here are some common deadlines based on different parameters:

• If you pay monthly, your payment must reach HMRC by the 22nd of the following month.
• If you pay monthly, your payment must reach HMRC by the 19th if paying by post or cheque.
• If you’re eligible to pay quarterly (typically smaller businesses), your deadlines follow the same structure but are spaced quarterly, such as 22 July for the quarter ending 5 July.
• If you use a cheque, it must get to HMRC by the 19th.
• If you use an electronic option, you can pay up to the 22nd.

You also need to keep an eye on working days and bank holidays when making your payments. Payroll schedules use tax months or even quarters. This helps employers hit all deadlines. Making late payments or paying in the wrong way can mean penalties. Some payers handle payroll every quarter. If you pay less than £1,500 on average, you have three months to pay instead of just one. For example, payments for April to June are due by July.

3. Use the Correct Payment Reference

Every PAYE payment must include your 13-character Accounts Office reference number. This ensures HMRC allocates the funds to the correct employer record. If you’re paying early or late for a specific tax month, you should also append a four-digit suffix indicating the period you’re paying for (e.g., “2407” for July 2024).

Incorrect or missing references can delay processing or lead to misapplied payments, which can cause issues with your PAYE account. Your payroll software or HMRC’s online services can help confirm the correct reference format.

4. Send Your Payment on Time

Once you’ve calculated your liability and confirmed the right reference, the next step is to send the payment. While there are various ways to pay (covered in detail in a separate section), it’s important to choose one that ensures the money reaches HMRC by the due date.

For example, Faster Payments or CHAPS can arrive the same day, whereas BACS takes a few days, and Direct Debit may require advance setup. Whatever method you use, always allow enough time for processing and keep a record of the transaction.

5. Monitor and Confirm Payment Receipt

After making the payment, you should verify that HMRC has received and correctly applied it. You can do this by checking your online PAYE account. This step helps ensure there are no misallocations or outstanding balances that could attract interest or penalties.

If HMRC hasn’t registered your payment or has applied it incorrectly, you’ll need to contact them promptly with payment details and reference numbers. Keeping this oversight as a regular part of your payroll process helps prevent future disputes.

6. Handle Discrepancies and Keep Good Records

If you find that you’ve overpaid or underpaid, address the issue as soon as possible. In cases of underpayment, HMRC may allow you to set up a Time to Pay arrangement, especially for short-term cash flow issues.

Overpayments may either be refunded or credited to your next PAYE bill. Regardless of payment outcomes, you should maintain accurate records of all payroll calculations, payment confirmations, and correspondence with HMRC. These records must be kept for at least three years and can be invaluable during compliance checks or audits.

What are the Different Methods for Paying HMRC PAYE?

Employers have many different payment methods they can use to pay PAYE money to HMRC before the end of the tax month. Here they are:

1. Direct Debit (Single or Recurring)

You can pay PAYE using a Direct Debit from your bank account. HMRC offers two types:

• One-off payment: Set up a single Direct Debit of the full amount each time you pay.
• Recurring payment plan: Authorise HMRC to collect payments automatically each month.

Direct Debit payments must be set up at least four working days in advance for the first time and three working days in advance for subsequent payments on the HMRC website. If set up correctly, even if HMRC collects the money after the electronic payment deadline, they won’t usually charge interest.

2. Online or Telephone Banking (Faster Payments)

You can use your bank’s online or mobile banking to pay HMRC via Faster Payments. This method is usually quick and of the easiest ways to make payments. Also, payments often arrive on the same or the next working day. You’ll need HMRC’s bank details:

• Sort code: 08-32-10
• Account number: 12001039 (HMRC Cumbernauld) or 12001020 (HMRC Shipley, depending on instructions)

Make sure to include your 13-character Accounts Office reference number with no spaces.

3. BACS Payment

Businesses can also use BACS (Bankers’ Automated Clearing System) payment, which typically takes three working days. This method is suitable for companies processing multiple payments in a single batch. As with Faster Payments, include the correct reference.

4. CHAPS Payment

CHAPS (Clearing House Automated Payment System) is a same-day payment method for high-value transactions. It’s ideal when you need to ensure your PAYE bill reaches HMRC before the deadline, especially close to the 22nd of the month. CHAPS usually carries a bank fee.

5. Debit or Corporate Credit Card (Online Only)

You can pay your PAYE using a debit or corporate credit card through the GOV.UK website. While debit card payments are free, corporate credit cards incur a fee when you enter the credit card details. Personal credit cards are not accepted. The date you make the payment is considered the payment date.

6. By Cheque Through the Post

Employers can send a cheque made payable to “HM Revenue and Customs only” along with a payslip. Write your Accounts Office reference on the back of the cheque. Post the cheque in good time. HMRC must receive it by the 19th of the month to count as on time. This is the slowest payment method and not recommended if close to the deadline.

7. Through Payroll Software

Many payroll software solutions (like HMRC-recognised systems) include the option to make PAYE payments directly. These tools typically integrate with your bank and ensure the correct reference numbers and timing, helping you avoid penalties or errors.

How to Deal with Negative Balances?

When operating PAYE, you might occasionally see a negative balance in your HMRC payroll records. Here’s how to manage it:

1. Understand Why a Negative Balance Appears: A negative balance can result from circumstances like statutory parental pay reimbursements or employee in-year tax refunds, essentially, HMRC owing you money for that pay period
2. Adjust Your Next PAYE Payment: Rather than sending a separate refund request, simply deduct the negative amount from your next PAYE payment. For example, if the next month’s bill is £100 and you have a –£20 balance, you would pay £80. If the next payment isn’t enough, the remainder will carry forward to future months.
3. No Need to Notify HMRC: You don’t need to inform HMRC that you’ve applied this adjustment, they can reconcile the balance automatically based on your submissions.

How Direct Payroll Services Can Help Streamline Paying HMRC PAYE?

At Direct Payroll Services, we take the hassle out of managing your HMRC PAYE payments. We handle everything from calculating your liabilities to submitting RTI to HMRC on your behalf. We make sure you know exactly how much you owe and when it’s due, and we guide you through the payment process to ensure your submissions are accurate and on time.

With us managing your payroll, you can rest assured that your PAYE responsibilities are taken care of. This is done professionally, efficiently, and in full compliance with HMRC requirements. Contact us for an instant quote.

Pay HMRC PAYE on Time, Avoid Penalties

It is important to understand how the HMRC PAYE payment process works. This makes sure you follow the rules and do not face any penalties. Knowing the best ways to pay helps you stay organised and not fall behind. When you do these things, you meet your duties as an employer and help your business run well. If you want help that fits your needs, you can always ask for a consultation with us to make sure your PAYE, debit, and payroll processes with HMRC are all set up the right way.

Frequently Asked Questions

What happens if I miss a PAYE payment deadline?

If you miss a due date for paying PAYE to HMRC, HMRC will add late payment penalties and interest charges. To avoid this, make sure all payments reach them before the last day. If you have cash flow problems and cannot pay PAYE on time, contact HMRC at once. They might help you find a way to deal with your overdue payments.

Can I pay PAYE quarterly instead of monthly?

Employers who have average monthly PAYE payments of less than £1,500 can choose to pay every three months. For the July quarter, you need to pay your PAYE by the 19th or 22nd of October. The exact date depends on how you make the payment. You should talk to HMRC if you want to set up quarterly PAYE payments for your business.

How do I correct an overpayment or underpayment to HMRC?

If there are errors, you can fix your balance by changing your future PAYE payments. If you have paid too much, you can pay less when your next bill comes. If you have paid too little, you should pay the rest right away. Let HMRC know about any changes, like through forms such as EPS or NIC adjustments, when you need to fix something in your payroll.

What should I do if I receive a late payment penalty from HMRC?

If you get a penalty from HMRC for paying PAYE late, you should look over your PAYE payments and reach out to HMRC on their website if you need help. Make sure to fix any payment problems quickly or set up a payment plan for any amounts you still owe. If you have more queries about PAYE payments or penalties, you can also contact HMRC’s Extra Support Team.

Are there any special rules for small employers paying PAYE?

Small employers who pay PAYE every three months need to use the right payment references. Make sure to say the tax year, the quarter, and how much is owed. You have to pay by the deadline for the 3rd tax month of the quarter. It is good to use direct debit or send in a correct cheque. This way, you can keep up with the rules and not have any trouble.