PAYE Annual Scheme

The PAYE Annual Scheme is designed for businesses that pay employees only once a year (e.g., seasonal workers or directors receiving a single annual payment). Here's how it works and whether it suits your situation:

How the PAYE Annual Scheme Works:

1. Eligibility Criteria:

   • You pay employees or directors only once a year.

   • All payments are made in the same tax month (e.g., all salaries paid in March or any other single month).

   • No other payments, deductions, or payroll activity occur throughout the year.

2. Setting Up an Annual Scheme:

   • Contact HMRC Employer Helpline (0300 200 3200) and request to switch your PAYE scheme to an Annual PAYE Scheme.

   • Provide the specific month you will pay your employees (e.g., March). This month will be the only one HMRC expects payroll submissions.

3. Filing Requirements:

   • Submit a Full Payment Submission (FPS) for the single payment made during your specified month.

   • No need to file nil FPS reports for other months unless you accidentally run payroll outside your designated payment month.

4. Avoiding Penalties:

   • HMRC won’t expect monthly payroll submissions or payments as long as you pay employees only during the declared month.

   • If no payments are made even in the specified month, you may need to submit a nil Employer Payment Summary (EPS).

Using PAYE for Annual Payroll:

Yes, you can use your existing PAYE reference to run payroll annually by requesting the Annual Scheme designation from HMRC. Here’s how this fits your situation:

• If you don’t currently pay staff but plan to make annual payments (e.g., for yourself as a director or future employees), the Annual Scheme can simplify reporting.

• When you are ready to pay, run payroll once during the agreed month and file the required FPS.

Key Considerations:

• If you choose the Annual Scheme but later make additional payments in other months, you’ll need to inform HMRC to revert to a standard PAYE scheme.

• Keep your PAYE scheme active, even if you aren’t paying anyone yet, so you can transition to Annual PAYE when needed.