Key facts
- Employers must register with HMRC before the first payday.
- Income Tax and NI must be calculated and deducted every pay period.
- A Full Payment Submission (FPS) must be sent to HMRC on or before each payday.
- PAYE payments are due to HMRC by the 22nd of the following month (electronic).
- Employers must keep payroll records for at least 3 years after the end of the tax year.
The Employer’s PAYE Responsibilities
If you employ anyone in the UK — even yourself as a company director — you are responsible for operating PAYE. This means calculating the right deductions, reporting them to HMRC in real time, and paying the money across each month.[1]
The PAYE system is not optional. Every employer must comply, regardless of size. A sole-director company has the same fundamental obligations as a multinational employer.
Step-by-Step: Running PAYE
1. Register as an employer
You must register with HMRC as an employer before your first payday. Registration can be done online and takes up to 5 working days. HMRC will issue you an Employer PAYE Reference and an Accounts Office Reference.[1]
2. Set up payroll software
You need payroll software that can calculate deductions and submit RTI returns to HMRC. Options include:
- HMRC Basic PAYE Tools — free, suitable for up to 10 employees
- Commercial payroll software — Sage, Xero, QuickBooks, BrightPay, and others
- Payroll bureau — outsource to an accountant or specialist provider
3. Collect employee information
For each new employee you need:
- Full name, address, and date of birth
- National Insurance number
- P45 from their previous employer, or a completed starter checklist
- Student loan plan type (if applicable)
4. Calculate deductions each pay period
On each payday, your software calculates:[2]
| Deduction | How Calculated |
|---|---|
| Income Tax | Based on the employee’s tax code and cumulative earnings in the tax year |
| Employee NI | 8% on earnings between PT (£242/week) and UEL (£967/week); 2% above UEL |
| Employer NI | 15% on earnings above the Secondary Threshold (£96/week) |
| Student loan | 9% on earnings above the plan threshold (Plan 1: £26,900/year, Plan 2: £29,385/year) |
| Pension | Employee share of auto-enrolment contributions (typically 5% of qualifying earnings) |
5. Issue payslips
Every employee must receive an itemised payslip on or before payday showing gross pay, all deductions, and net pay. Since April 2019, this includes the number of hours worked (for hourly-paid workers).
6. Report to HMRC via RTI
You must submit a Full Payment Submission (FPS) to HMRC on or before each payday. The FPS contains details of every employee’s pay, tax, and NI for that period. If you need to report adjustments (Employment Allowance claims, statutory payment recoveries, or nil-payment months), you also submit an Employer Payment Summary (EPS).[3]
7. Pay HMRC
The total amount of Income Tax, employee NI, and employer NI you have deducted and calculated must be paid to HMRC by the 22nd of the following month (if paying electronically) or the 19th (if paying by cheque).[4]
Your PAYE payment = Income Tax deducted + Employee NI deducted + Employer NI − Employment Allowance − Statutory payment recoveries − CIS deductions suffered
Record-Keeping Requirements
Employers must keep payroll records for at least 3 years after the end of the tax year they relate to. Records should include:[2]
- Gross pay, deductions, and net pay for each employee
- Tax codes used and NI category letters
- Copies of P45s, P60s, and starter checklists
- Statutory payment calculations (SSP, SMP, etc.)
- RTI submission acknowledgements
Common Employer Mistakes
- Not registering before the first payday — this can trigger penalties and complicate RTI reporting
- Using the wrong tax code — always use the code HMRC provides, not last year’s code
- Late FPS submissions — the FPS must go in on or before payday, not after
- Forgetting employer NI — this is an extra cost on top of gross pay, not taken from the employee
- Not sending an EPS for nil-payment months — HMRC assumes you owe tax and may charge a penalty
Tip: Set up a direct debit with HMRC for your monthly PAYE payments. This ensures you never miss a deadline and avoids late-payment interest.
Frequently Asked Questions
What happens if I do not register for PAYE?
If you employ anyone (including yourself as a company director taking a salary) and fail to register for PAYE, you are breaking the law. HMRC can charge penalties, apply estimated tax charges, and pursue the unpaid tax and NI. You should register as soon as you know you will be employing someone, and ideally before the first payday.
Can I run PAYE myself or do I need an accountant?
You can run PAYE yourself using HMRC’s free Basic PAYE Tools software or commercial payroll software. Many small employers manage their own payroll successfully. However, if you have complex situations (multiple employees, statutory payments, benefits in kind), using an accountant or payroll bureau can save time and reduce errors.
What is the penalty for late RTI submissions?
HMRC charges monthly penalties for late FPS submissions: £100 for 1–9 employees, £200 for 10–49, £300 for 50–249, and £400 for 250 or more. The first late FPS in a tax year does not attract a penalty, but subsequent late submissions do. Late payment of PAYE incurs interest and potential penalties of 1%–4%.
Do I need to run PAYE if I only pay myself as a director?
Yes. If you take any salary from your company, you must register for PAYE and run payroll. This applies even if your salary is below the Personal Allowance or the NI Primary Threshold. The only exception is if you pay yourself solely through dividends and take no salary at all.
Further Reading
- Registering as an Employer — step-by-step registration guide
- Full Payment Submission (FPS) — what to include and when to submit
- Employer Payment Summary (EPS) — claiming allowances and reporting adjustments
- PAYE Reference Numbers — understanding your employer and accounts office references
- Payroll Year-End Checklist — everything to do at the end of the tax year
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Sources
- PAYE and payroll for employers — GOV.UK
- Running payroll — GOV.UK
- What payroll information to report to HMRC — GOV.UK
- Paying HMRC: PAYE — GOV.UK