Knowing how to register PAYE is one of those jobs that can feel more daunting than it needs to be. If you are taking on your first employee, paying yourself as a company director or moving payroll from an informal arrangement into a proper process, getting set up before the first payday protects both you and your team.
PAYE stands for Pay As You Earn. It is HMRC’s system for collecting Income Tax, National Insurance and, where relevant, student loan repayments from employees’ pay. Once registered, you report payroll information to HMRC each time you pay someone and pass on the deductions you have made.
When do you need to register PAYE?
You will usually need to register as an employer if you pay an employee at or above the Lower Earnings Limit, provide expenses or benefits, or operate a pension scheme. This can apply whether you run a limited company, are a sole trader employing staff, or have a growing family business in Worthing or elsewhere in West Sussex.
A common point of confusion is directors’ pay. If you are the director of your own limited company and take a salary, you may need a PAYE scheme even when the salary is modest. The right approach depends on your wider pay arrangement, including dividends, other income and National Insurance position, so it is worth checking before the first payment is made.
You do not normally need to register if none of your employees are paid at or above the relevant threshold and they do not receive expenses, benefits or a workplace pension. Even then, voluntary registration can sometimes make sense. For example, it may help an employee build a National Insurance record. The details matter, which is why guessing can create unnecessary work later.
How to register PAYE with HMRC
Register your PAYE scheme before your first payday. HMRC allows employers to register up to two months before they begin paying staff, so there is no benefit in leaving it until the last minute. Your employer reference may take several working days to arrive, and you need it before you can send payroll reports.
Registration is completed through HMRC’s online employer registration service. You can do this yourself, or appoint a payroll agent to register and run the scheme on your behalf. If you use an agent, you remain responsible for making sure payroll is accurate and payments reach HMRC on time, but you do not have to manage every task personally.
Have the right details ready
The online form is straightforward when you have the information to hand. Before you start, gather:
- your business name, address and contact details
- your business structure, such as sole trader, partnership or limited company
- your Company Registration Number if your business is incorporated
- the date you first expect to pay employees
- your directors’ details, if applicable
- employee names, addresses, dates of birth and National Insurance numbers where available
HMRC will ask questions about the nature of your business and whether you are taking on staff for the first time. Answer these carefully, particularly the first payday date. This helps ensure the scheme starts in the correct tax period.
Once registered, HMRC issues two key references. Your PAYE reference identifies your employer scheme. Your Accounts Office reference is used when paying tax and National Insurance to HMRC. Keep both somewhere secure and easy to find, as you will use them regularly.
Set up payroll before you pay anyone
Registering is only the first part of the job. You also need a way to calculate pay, deductions and employer costs correctly. This means using payroll software that is compatible with HMRC’s Real Time Information, often called RTI, reporting system.
For each employee, payroll should record their gross pay, tax code, National Insurance category, pension deductions, statutory payments and any student loan deductions. You will also need their starter information. A P45 from a previous job is ideal, but if they do not have one, they can complete a starter checklist so you can use the correct tax code as far as possible.
If you are employing someone for the first time, do not forget workplace pensions. Automatic enrolment is a separate responsibility from PAYE. You may need to assess staff for eligibility, choose a pension scheme and make employer contributions. The timing depends on your duties start date and the employees you have, so build this into your planning rather than treating it as an afterthought.
What happens on payday?
Each time you run payroll, you must submit a Full Payment Submission, or FPS, to HMRC. This tells HMRC what each employee has been paid and what deductions have been taken. It must usually be sent on or before payday, not at the end of the month when you have more time.
After processing payroll, give each employee a payslip on or before their payday. A clear payslip should show their gross pay, deductions and net pay, along with the required information about hours where relevant. It is a simple but important record that helps prevent confusion about what has been paid.
Your payroll software will show what you owe HMRC for Income Tax, employee National Insurance and employer National Insurance. Most employers pay electronically by the 22nd of the following tax month. If you pay by post, the deadline is earlier. Missing a filing or payment deadline can lead to penalties and interest, even where the mistake was unintentional.
If you do not pay anyone in a tax month, you may need to send an Employer Payment Summary, known as an EPS, to tell HMRC that no payment is due. This is one of the areas where payroll can catch out a new employer: no payroll run does not always mean no action is needed.
Keep records and plan for employer costs
PAYE affects more than the amount that lands in an employee’s bank account. Your true employment cost can include employer National Insurance, pension contributions, holiday pay, statutory sick pay or maternity pay, software and training. Budgeting for the full cost from the outset gives you a more realistic view of whether a new role is affordable.
You must keep payroll records, including what you paid employees, deductions made, reports sent to HMRC and statutory payment information. These records generally need to be retained for at least three years from the end of the tax year they relate to. Good digital records make this much easier and provide a clear audit trail if a question arises.
At the end of each tax year, you will complete the year-end payroll process, provide P60s to employees who are still working for you and deal with any benefits reporting where needed. When an employee leaves, you issue a P45 and include their leaving date in the payroll submission.
Common PAYE registration mistakes to avoid
The most common problem is registering too late. Waiting until the first employee has already been paid can mean rushed calculations, late RTI submissions and avoidable stress. Register early enough to receive your references and test your payroll process.
Another is treating a casual worker as outside payroll without checking their employment status. Job title does not decide status. Someone described as freelance may still need to be paid through PAYE depending on the reality of the working arrangement. Construction businesses also need to consider the separate CIS rules, which can overlap with payroll responsibilities but are not the same thing.
Finally, do not assume payroll stays correct forever once it has been set up. Tax codes change, employees join and leave, pay varies, and pension duties continue. A reliable monthly routine matters more than a one-off registration task.
Should you run PAYE yourself or outsource it?
For a business with one or two employees and regular monthly pay, running payroll in suitable software can be manageable. You still need to keep up with deadlines, check tax codes and understand what the figures mean. The trade-off is that doing it yourself may save a direct fee, but it takes time and leaves less room for error.
Outsourcing can be particularly helpful where pay changes regularly, you employ several people, deal with CIS, or simply want the reassurance that filings and payslips are handled properly. Angel Bookkeeping & Payroll Services supports small businesses with practical payroll help, explaining what is needed in plain English rather than leaving you to untangle it alone.
Starting PAYE properly gives your business a dependable foundation as it grows. Set the scheme up before payday, keep your records organised and ask for support early if something does not look right. A calm, regular payroll routine is far easier to maintain than trying to correct missed reports later.