At Hanley & Co. Accountants, this month’s blog looks at PAYE and how it works. For more information, call us near Kendal on 01539 821869.

How Does PAYE Work?

Simply put, the PAYE system sees employers as a tax collector on behalf of HMRC. It deducts the tax an employee will owe on their wages, and send it to HMRC along with a report which explains the amount paid and deducted.

Employers operate PAYE as part of payroll, deducting tax and National Insurance before paying employees their wages. Other deductions that can be processed through payroll include pension contributions and student loan repayments.

Registering as an Employer

Before paying anyone, you must register as an employer with HMRC. This should be done before the first payday as it can take up to 15 working days. You will then be issued your employee reference number.

Additionally, some contractors also need to register for PAYE so they can become CIS registered.

What are my Reporting Responsibilities as an Employer?

As an employer, it is your responsibility to inform HMRC about the people you employ and how much you pay them. You will need to use special payroll software to submit this information. You will also need to inform HMRC if you no longer employ anyone and de-register from PAYE.

Under Real Time Information (RTI), employers must submit payroll information to HRMC on or before each payday.

Why PAYE Compliance Matters for Employers

PAYE compliance is more than a technical requirement. It also directly affects your business’s reputation and financial stability. Correct PAYE operation:

• Reduces the risk of HMRC penalties & audits
• Builds trust with employees
• Ensures accurate pension and benefit entitlements
• Demonstrates professionalism and good governance

From an employer’s perspective, PAYE is a continuous responsibility.

Contact Hanley & Co. Accountants

If you require accounting advice, contact Hanley & Co. Accountants near Kendal. Serving across Cumbria, call us on 01539 821869. Alternatively, send us a message via our contact form and we will be in touch.

The post Understanding How PAYE Works appeared first on Hanley Accountants.

At Hanley & Co. Accountants, this month’s blog looks at what records a sole trader should keep for HMRC. For more information, call us near Kendal on 01539 821869.

Why Record Keeping Matters to HMRC

HMRC relies on your records to ensure you are reporting the correct amount of income, and only claiming legitimate business expenses. If you ever face an audit, you will be expected to provide evidence.

Beyond compliance, having good records benefits you directly as it:

• Helps you understand your profits
• Makes tax returns less stressful
• Ensures you never miss allowable expenses
• Protects you if something goes wrong

HMRC requires records to be complete and accurate. Here is what you should be tracking:

Records of all Business Outcome

Any money your business earns needs to be properly recorded. This includes:

• Invoices issued to customers
• Sales receipts
• Bank statements
• Online sales reports
• Cash income records

Income records help HMRC verify your turnover and ensure your tax calculations are correct. Missing records can lead to HMRC estimating your income.

Records of Business Expenses

Your expenses reduce your taxable profit, so it makes sense to claim everything you’re entitled to. These expenses lower your taxable profit and your tax bill. However, you need proof. Keep records of:

• Supplier invoices (e.g. stock, materials, tools)
• Receipts for every day business purchases
• Travel & mileage logs
• Rent for office space of business premises
• Software subscription invoices

HMRC does accept digital copies, just make sure they are legible.

Records of Income

You must also keep records of all money that comes into your business, so each sale and payment is recorded and your income tax liability and National Insurance calculations can be accurately calculated with the supporting documents. Keep records of:

• Sales invoices
• Receipts
• Bank statements
• Payment confirmations
• Other income

Switching to Making Tax Digital

Making Tax Digital is the Government’s ongoing programme to digitise and modernise the UK tax system. Coming into effect from April 2026, Making Tax Digital will be mandatory for sole traders with an annual income over £50,000. By April 2028, it will be £20,000.

This means that paper record keeping and tax filing can no longer be used, and accounting software must be. To ensure you are compliant, sole traders must use HMRC-approved software to maintain digital records and electronically file statements and tax updates.

Please Note: As a sole trader, you must keep copies of your records for a minimum of 5 years after January 31^st after the relevant tax year end.

Contact Hanley & Co. Accountants

For advice, contact Hanley & Co. Accountants, near Kendal. Serving across Cumbria, call us on 01539 821869. Alternatively, send us a message via our contact form and we will be in touch.

The post What Records Should a Sole Trader Keep for HMRC? appeared first on Hanley Accountants.