To report cash salary payments to an employee to HMRC, you will need to ensure that you are complying with the appropriate payroll and tax obligations. Here are the steps you should take:
Register as an Employer: If you haven’t already, you must register as an employer with HM Revenue and Customs (HMRC). This allows you to operate PAYE (Pay As You Earn), HMRC’s system to collect Income Tax and National Insurance from employment.
Set Up a Payroll System: Establish a proper payroll system to calculate pay and deductions accurately. This can be done using payroll software approved by HMRC. The software will assist in recording payments and producing payslips for employees.
Run Payroll: Each time you pay your employee, whether by cash or otherwise, you need to run payroll. Calculate the employee’s gross pay and determine deductions such as Income Tax and National Insurance Contributions. Ensure these deductions are submitted to HMRC.
Real Time Information (RTI) Submissions: You must submit this data to HMRC each time you pay your employees using the Full Payment Submission (FPS) report. It should include details of employee payments and deductions.
Report Benefits and Expenses: If you provide benefits or cover expenses for your employees, these must also be reported, typically using forms such as P11D.
Keep Records: Maintain accurate records of all payments, including cash payments. This is crucial for compliance and future audits. Records should include the employee’s details, payment dates, amounts, and information about tax and contributions paid.
End of Year Procedures: At the end of the tax year, provide annual summaries to your employees (P60 forms) and report final payroll information to HMRC through the final FPS or an Employer Payment Summary (EPS).
Seek Professional Advice: If you’re uncertain about any part of the process, consider consulting with a payroll professional or accountant who specializes in UK payroll compliance.
Remember, even if you’re paying in cash, all normal tax rules apply, so it’s important to operate PAYE and ensure all appropriate contributions and taxes are collected and submitted. Failing to report or underreporting wages can result in penalties from HMRC.