A Beginner's Guide to PAYE for Chip Shop Staff: Tax Codes, Pensions and Payslips

Your first hire is a milestone. It's also the moment you inherit a payroll. In a chip shop that means PAYE: the system that takes income tax and National Insurance out of wages and passes the money to HMRC on your staff's behalf.

It sounds heavier than it is. Collect the right details from each person, keep your records straight, and let payroll software do the arithmetic. PAYE then becomes a twenty-minute job on a Monday morning. Here's what actually matters when you're paying fryers, counter staff and a manager.

Register as an employer before the first payday

Register with HMRC as soon as you know you're hiring, not the week wages are due. You'll be given an employer PAYE reference for your payslips and reports. You'll also get an accounts office reference for paying HMRC. Registration can take a few days, especially if you're also registering as a limited company or setting up as a sole trader, so start early.

You'll need to choose payroll software that is RTI-compatible. RTI stands for Real Time Information, and it means you send HMRC a report every time you pay staff. Basic software is fine for a small chip shop. It handles tax codes, National Insurance, pension deductions and payslips. It also tells you what to pay HMRC and when.

Example: you hire a part-time fryer to start on Friday. You agree £12 an hour for three evenings a week. Before that Friday, register as an employer, set up the software, and add the new starter. If you wait until after payday, you'll be filing late and may owe a penalty.

Rule of thumb: the first payday is not the deadline to start thinking about PAYE. It is the deadline to have it working.

Collect the right starter information

Every new staff member needs to be set up correctly before their first pay. Ask for:

• Their full name, date of birth and address.
• Their National Insurance number, if they have one.
• A P45 from their previous job, if they have one.
• A completed Starter Checklist if they don't have a P45.
• Bank details for paying wages.
• Details of any student loan plan, if they have one.

The Starter Checklist is HMRC's form for new employees who don't have a P45. It asks whether this is their first job, whether they have another job, and whether they're repaying a student loan. The answers decide the tax code you use until HMRC sends a proper one.

Keep these records safe. You need them to run payroll, and HMRC can ask to see them. If a member of staff leaves, give them a P45 when they go. If they lose it, you can print a copy from your payroll software.

Tax codes: what they mean in a chip shop

A tax code tells your payroll software how much tax-free pay someone gets. The most common code is 1257L. That means the person can earn £12,570 a year before income tax starts, spread across the year. If they earn £250 a week, the software uses their code to work out the tax.

Different codes appear for different reasons:

• 1257L — standard personal allowance, one job.
• BR — all pay taxed at basic rate. Often used for a second job.
• D0 — all pay taxed at higher rate.
• 0T — no personal allowance, often used when HMRC has no details.
• W1/M1 — week 1 or month 1, meaning tax is calculated on that period only.

Example: a counter assistant works weekends at your chip shop and also has a full-time job in a call centre. HMRC may put her second job on BR. She still pays tax, but she doesn't get a second personal allowance. If her main job ends, she should tell HMRC so her code can change.

If a new starter has no P45 and no Starter Checklist, you may have to use an emergency code. That can mean they pay too much tax at first. It usually corrects itself once HMRC sends the right code, but tell your staff to check their payslips and speak to HMRC if something looks wrong.

National Insurance and minimum wage basics

PAYE covers income tax, but National Insurance is also deducted. Most employees pay National Insurance once their earnings go above a weekly or monthly threshold. You, as the employer, also pay employer National Insurance on top of their wages. That is a real cost, so include it in your budget before you agree a pay rate.

Rates and thresholds change. Your payroll software will use the current ones. The key point is simple: if you pay someone £500 in a week, the true cost to you is more than £500. Employer National Insurance, pension contributions and possible apprenticeship levy all sit on top.

You must also pay at least the National Minimum Wage or National Living Wage for the person's age. It applies to part-time and casual staff too. Tips do not usually count towards minimum wage, so don't use the tip jar to top up a low hourly rate. Check the current rates each April, because they normally change.

Pensions: automatic enrolment for chip shop teams

Automatic enrolment is the pension duty that surprises many small employers. If you employ at least one person, you likely have duties. You must assess your staff each pay period and put eligible jobholders into a pension scheme.

An eligible jobholder is usually someone aged between 22 and State Pension age who earns more than £10,000 a year. For them, you must deduct pension contributions from their pay, add your own contribution, and send the money to the pension provider. The minimum total contribution is 8% of qualifying earnings, with at least 3% from you as the employer.

Example: your manager earns £28,000 a year and is 35. She is an eligible jobholder. You must enrol her, deduct her contribution from wages, add your 3%, and pay the pension provider by the 22nd of the following month. A 17-year-old weekend counter assistant earning £6,000 a year is not an eligible jobholder in the same way, but she may still have the right to join the scheme and receive employer contributions if she asks.

You can postpone enrolment for up to three months for new staff, but you must write to them and assess them again afterwards. You also need to complete a declaration of compliance with The Pensions Regulator. Diarise it. Missing pension duties can lead to fines, even for a small chip shop.

Payslips: what must be on them

Every employee must get a payslip on or before payday. It can be paper or digital, but it must be clear. By law, a payslip must show:

• Gross pay before deductions.
• Deductions such as income tax, National Insurance and pension.
• Net pay after deductions.
• The amount and method for any fixed deduction.
• Your employer name.
• The employee's name and payroll number, if you use one.
• The pay period and payment date.
• The tax code used.
• National Insurance number.

Good payslips also show hours worked, rate of pay, holiday pay, sick pay, tips and any other payments. That extra detail prevents arguments. If a fryer works 22 hours one week and 31 the next, they should be able to see how the total was built.

Running payroll each pay period

Payroll for a chip shop is usually weekly or monthly. Whatever you choose, keep it regular. On payday, or before, send an RTI Full Payment Submission (FPS) to HMRC. The FPS reports the pay, tax, National Insurance and pension deductions for each employee.

If you have no employees to pay in a period, you may still need to send an Employer Payment Summary (EPS). This tells HMRC you haven't paid anyone, or that you're claiming statutory payments or employment allowance. Your software will usually prompt you.

Pay HMRC by the 22nd of the following month if you pay monthly. If you pay weekly, you can usually pay quarterly if your average monthly liability is below £1,500. Check the current rules or ask your accountant. Late payments can lead to interest and penalties.

Common chip shop payroll headaches

Small hospitality businesses hit the same problems again and again. Here are the big ones:

• Staff with two jobs. Their tax code may be split. Don't guess; use the code HMRC sends.
• Students and under-18s. They still need a payroll record, even if they earn below the tax threshold. National Insurance and minimum wage rules still apply.
• Cash wages. Paying cash is fine, but it must go through payroll. Never pay cash in hand and leave it off the records.
• Tips and troncs. Tips can be tricky. If you distribute them through payroll, tax and National Insurance may apply. If staff run their own tronc, different rules can apply. Keep a clear written policy.
• High turnover. Weekend staff come and go. Use the starter and leaver processes every time, even for a two-week job.
• Holiday pay. Part-time and casual workers build up holiday pay. Show it on payslips or keep a separate record.
• Family members. Spouses and children on the payroll still need proper PAYE treatment. Don't assume they're exempt.

A simple monthly routine

If you keep to a routine, PAYE stops being scary. Try this:

1. Collect timesheets or till reports for the pay period.
2. Check hours, rates, holiday and sick pay.
3. Enter the figures into payroll software.
4. Check the tax codes and pension deductions it uses.
5. Approve the payroll and issue payslips.
6. Send the FPS to HMRC on or before

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