HMRC Basic PAYE Tools – Not for a growing business!

HMRC Basic PAYE Tools – Not for a growing business!

Dec 10, 2012 | Payroll


HMRC Basic PAYE Tools is free and easy to use.  But does it provide a long term solution for your business?



For many small organisations, the option to use the HMRC Basic PAYE Tools to process their payroll is like the holy grail of the back office – online and easily accessible.  Infact,  we often hear the statement: “we already have our in-house payroll function sorted and we use the HMRC free service.”

We can’t argue with this – the HMRC Employer Database is free, downloadable and regularly updated.  It is indeed a useful tool for organisations with nine or less employees and will calculate all tax and NI payments due, export to a spreadsheet and produce a PAYE remittance for you – all good stuff.

But did you know there are limitations to its use?  The following is cited from the HMRC  website:

“Limitations of the Employer Database

Before choosing to use the Employer Database you should be aware of its limitations. The Employer Database isn’t a complete payroll package so it won’t:

  • record any other deductions unrelated to PAYE
  • produce payslips
  • produce a P45 (2012-13 RTI Basic PAYE Tools only)
  • have any auto enrolment pension functionality

It also may not handle certain scenarios:

  • certain changes in director’s NICs category letters during the tax year
  • you enter a leaving date for an employee and subsequently want either to change the leaving date or re-start the employment
  • an employee reaches the age of 16 and becomes liable for NICs – but you can switch to category A mid-year if you have already set them up in the Employer Database with an ‘X’ against their NICs category
  • you change an employee’s pay interval during the tax year – for example from weekly to monthly
  • an employee receives more than one payment in the same tax period
  • you operate net pay arrangements

If any of these scenarios arise during the year and you’re using HMRC’s Basic PAYE Tools, you’ll need to start using a commercial payroll software package and transfer all your employer and employees details to it – or change to using a payroll provider.”

So before you rush down the free-online route – it may be best to think about your organisation’s long term plans… as an employer what employee scenarios are likely to take place? What is your growth plan?  It may be best to invest in a scalable payroll solution from the outset.

For those of you that require auto enrolment calculations you should read this article by The Pension Regulator to help make up your mind.

Helping users of HMRC’s Basic PAYE Tools undertake automatic enrolment calculations

For further payroll advice regarding auto enrolment, contacting HMRC or how payroll outsourcing may help your organisation contact us

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