Payroll for UK charities – guide to services, software & compliance

Last checked and updated on 24 May 2022

There are a number of different payroll solutions for UK charities to choose from, and it can be difficult to decide which is the best option. In this guide, we will compare charity payroll services and software and help you decide which solution is right for your organisation.

When it comes to processing payroll for a UK charity, there are a few key things you need to take into account.

The basics of UK payroll law for charities

All employers in the UK must comply with the PAYE (Pay As You Earn) system. This system is in place to ensure that employees are taxed correctly, and it also allows the government to collect national insurance contributions from employees.

There are a number of key points you need to be aware of when running payroll for a charity in the UK:

  • You must deduct income tax and national insurance from your employees’ pay
  • You must pay employer’s national insurance contributions
  • You must submit a payroll return to HMRC (Her Majesty’s Revenue & Customs) every month
  • You must give your employees a payslip each payday

How to calculate charity employee pay

When calculating employee pay, you need to take into account a number of factors, including:

  • The employee’s salary or hourly rate
  • Any allowances or deductions that need to be taken into account
  • The amount of tax and national insurance that needs to be deducted

You can use HMRC’s free payroll calculator to help you work out how much to pay your employees. (To work out your employee’s take-home pay after deductions, use our own take-home pay calculator.)

How to handle deductions from charity employee pay

There are a number of deductions you may need to make from an employee’s pay, including:

  • Income tax
  • National insurance contributions
  • Pension contributions
  • Student loan repayments

You must deduct income tax and national insurance from your employees’ pay before calculating any other deductions. You can find more information on how to calculate employee deductions in HMRC’s guide to payroll.

What records you need to keep

You must keep a number of payroll records when running payroll for a charity, including:

  • A list of all employees and their contact details
  • The amount of pay each employee received during the month
  • Details of any deductions made from employee pay
  • The amount of tax and national insurance paid to HMRC each month

When you need to file your payroll return

You must submit a monthly payroll return to HMRC. This must be done by the 19th of the month following the end of the tax month. For example, if you are running payroll for the month of January, you must submit your return by 19th February.

You can find more information on how to complete a payroll return in HMRC’s guide to PAYE.

Managing payroll obligations as your charity grows

As your charity grows, the administrative tasks associated with running it will likely become more complex. This can include things like processing payroll.

It’s important to make sure that you have the right systems and processes in place to ensure that this task is as easy and efficient as possible. This includes choosing the right software, outsourcing to a specialist payroll provider, or hiring an in-house payroll manager who is specifically responsible for this area.

It’s also important to keep on top of any changes in legislation that could impact the way you process payroll. For example, the introduction of auto-enrolment will mean that you need to start making pensions contributions for your employees.

Failure to properly manage your payroll obligations can lead to costly mistakes and compliance issues. So it’s important to make sure that you get expert help and guidance in this area.

Best payroll solutions for UK charities

There are a number of different payroll solutions available for UK charities. Some of the most popular options include:

PAYE software is a popular option for small charities as it’s relatively affordable and easy to use. Payroll outsourcing is a good option for organisations that have a large number of employees, as it can be more cost effective than doing it in-house. Contractor management software is ideal for organisations that work with a lot of contractors, as it can help to streamline the payroll process.

No matter which payroll solution you choose, it’s important to make sure that you get expert advice and guidance so that you can be confident that you’re complying with all of the relevant laws and regulations.

Top 5 payroll software for UK charities

There are a number of different payroll software solutions available for UK charities.

Each of these solutions has its own advantages and disadvantages, so it’s important to choose the one that’s best suited to your organisation’s needs.

Some of the most popular options include:

1. Sage Payroll

2. Xero Payroll

3. BrightPay

4. QuickBooks Payroll

5. KashFlow Payroll

How to manage contractors at a UK charity

If your charity works with a lot of contractors, it’s important to make sure that you have a process in place for managing their payroll.

This includes making sure that you have the correct contracts in place and that you are correctly deducting tax and National Insurance from their pay.

It’s also important to make sure that you keep thorough records of all deductions and payments.

If you have any questions or concerns, you should speak to an accountant or tax advisor who will be able to give you the payroll advice and guidance you need.

What charities need to know about IR35

If your charity works with contractors, it’s important to be aware of IR35.

IR35 is a piece of legislation that determines whether a contractor should be treated as an employee for tax purposes.

If your charity is found to be non-compliant with IR35, you could face significant penalties from HMRC.

To avoid this, it’s important to make sure that you have a process in place for assessing whether a contractor should be treated as an employee.

You should also speak to an accountant or tax advisor who will be able to give you the advice and guidance you need.

What are the hidden costs of processing charity payroll?

Payroll processing can be expensive, and there are a number of hidden costs that you need to be aware of.

Some of the most common hidden costs include:

  1. The cost of software
  2. The cost of training employees
  3. The cost of compliance with HMRC regulations
  4. The cost of lost productivity
  5. The cost of outsourcing

It’s important to budget for all of these costs when processing charity payroll.

While payroll processing for charities come with challenges and hidden costs, there are many solutions and software programs to make the process easier. The best way to make sure that everything is running smoothly and legally is to consult an accountant or tax advisor who can guide your charity through these waters.

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Important – The information provided in our articles is intended to be for general purpose use only, and not advice for you or your business. We strive to publish accurate information, but encourage you to fact-check and seek expert guidance. We recommend that you always speak to a qualified professional to get advice about how to operate your business under your specific requirements and circumstances.