Every UK employer must register for PAYE before their first payday. PAYE (Pay As You Earn) is the system through which you deduct income tax and National Insurance from employee pay and submit it to HMRC in real time. Registration takes up to 5 working days and can be done online via HMRC's business tax account. If you pay an employee — even one, even irregularly — PAYE registration is mandatory.
What is PAYE?
PAYE (Pay As You Earn) is HMRC's system for collecting income tax and National Insurance contributions (NICs) from employed workers. As an employer, you are responsible for:
- Calculating how much tax and NIC each employee owes on their pay
- Deducting it from their gross pay before it reaches their bank account
- Paying the deducted amounts to HMRC on or before the 19th of the following month (22nd for electronic payments)
- Reporting each payment to HMRC in real time using payroll software
You also pay employer National Insurance contributions on top of the employee's pay — this is a cost to your business, not a deduction from the employee.
Do I need to register for PAYE?
You must register for PAYE if any of the following apply:
- You pay any employee at or above the Lower Earnings Limit (£123 per week in 2025/26)
- You pay an employee who has another job (even if their pay from you is below the LEL)
- You pay an employee who is receiving a pension
- You provide employees with taxable expenses or benefits
You do not need to register if you are a sole trader with no employees, or if you pay sub-contractors who invoice you (though you may need to register for the Construction Industry Scheme).
How to register for PAYE
- Create a Government Gateway account if you do not already have one
- Go to HMRC's online registration service and register as an employer
- Allow up to 5 working days — HMRC will send your PAYE reference number and Accounts Office reference by post
- Set up payroll software (HMRC's Basic PAYE Tools is free for up to 9 employees)
- Add your employees and run your first payroll
Register at least 2 weeks before your first payday. You cannot submit payroll without your PAYE reference.
Real Time Information (RTI) — submitting payroll to HMRC
Since April 2013, PAYE operates on Real Time Information (RTI). This means you must submit a Full Payment Submission (FPS) to HMRC on or before every payday — not monthly.
| Submission type | When to submit | What it contains | |---|---|---| | Full Payment Submission (FPS) | On or before each payday | Employee pay, tax, NICs for that period | | Employer Payment Summary (EPS) | By 19th of following month | Any adjustments (e.g. statutory pay reclaimed) | | Earlier Year Update (EYU) | After 5 April | Corrections to previous tax year data |
Late FPS submissions result in automatic penalties starting at £100 per month for employers with 1 to 9 employees.
PAYE rates and thresholds (2025/26)
| Threshold | Weekly | Annual | |---|---|---| | Lower Earnings Limit (LEL) | £123 | £6,396 | | Personal Allowance | £242 | £12,570 | | Basic rate income tax band | Up to £962/week | Up to £50,000 | | Employer NIC threshold (ST) | £175 | £9,100 | | Employer NIC rate | 15% above the threshold | | | Employee NIC rate (primary threshold to UEL) | 8% | |
From April 2025, the employer NIC rate increased from 13.8% to 15% and the Secondary Threshold dropped from £9,100 to £5,000 — a significant cost increase for employers with multiple low-paid staff.
Employer National Insurance — the Employment Allowance
Most small employers can claim the Employment Allowance, which reduces your employer NIC bill by up to £10,500 per tax year (2025/26 rate). You claim it through your payroll software.
You cannot claim the Employment Allowance if your employer NIC liability was £100,000 or more in the previous tax year, or if you are the sole employee and also a director.
Common PAYE mistakes
Not registering before the first payday. If you register late, you may not have your PAYE reference in time and will submit a late FPS.
Using wrong tax codes. Employee tax codes are issued by HMRC. If you use the wrong code, the employee pays too much or too little tax. Always use the code on the employee's P45 or the HMRC notice.
Missing the payment deadline. PAYE and NIC must reach HMRC by the 22nd of each month (19th by cheque). Late payment attracts interest and penalties.
Not reporting leavers. When an employee leaves, submit a final FPS with their leaving date and issue a P45. Failing to do this leaves the employee unable to prove their year-to-date figures to their next employer.
Frequently asked questions
Do I pay PAYE if I only have one employee? Yes. PAYE applies from your first employee. Register before their first payday and submit an FPS each time you pay them.
What payroll software should I use? HMRC's Basic PAYE Tools is free and suitable for up to 9 employees. Paid options include Xero, QuickBooks, Sage, and BrightPay — most of which automate RTI submissions and integrate with bookkeeping.
What happens if I do not register for PAYE? HMRC can identify unregistered employers through other data (VAT returns, company accounts, self-assessment). Penalties for failing to register and operate PAYE include back-dated tax and NICs, interest, and civil penalties.
Can I run PAYE annually if I only pay myself once a year? Yes — annual payroll is permitted for directors who take a single annual salary. You must still submit an FPS on or before each payment date and pay any tax and NIC owed by the monthly deadlines.
What is a P60 and when do I issue it? A P60 is an end-of-year summary of the employee's pay and deductions. You must issue a P60 to every employee who was employed on 5 April (the last day of the tax year) by 31 May following the end of the tax year.
