The complete guide to registering for PAYE in the UK.

For employers in the UK, there are numerous financial rules that you have to keep to. One of these obligations is PAYE. As part of your payroll, you will need to operate PAYE, allowing HMRC to collect different taxes from your employees.

It is important to understand how it works, ensuring you have correctly registered PAYE before payroll. Fines and penalties may be issued for late or incorrect information. So, for a new business, there could be plenty of questions you want us to answer.

What is PAYE? How can my business register for it? Is it mandatory?

If you’re asking these questions, then this guide is for you. In this article, we cover everything you need to know about registering as an employer for PAYE. Let’s get started.

What Is PAYE?

PAYE stands for ‘Pay As You Earn’ and in the UK, employees will usually have to pay tax through PAYE. Whenever you receive your salary, your employer will deduct taxes such as income tax and national insurance, then pay the amount deducted to Revenue.

The role of PAYE is to make sure that each year, the amount of tax that you pay is collected evenly each payday throughout the tax year. It is also used for those receiving an occupational pension from a previous employer.

When Should You Register For PAYE?

Current rules from HMRC state that PAYE must be registered before your first payday. However, you must remember that when receiving your PAYE reference number, it may take up to 5 working days, so be mindful and register at least a week prior.

Furthermore, don’t register too early. We recommended registering within two months of when you first plan to pay your staff.

How To Register For PAYE

Firstly, before you register for PAYE, you will have to register your company. To employ workers, you will need your business to be registered with Companies House. Once your business has been registered, you can register as an employer, applying for your PAYE number.

To receive your PAYE number, the process takes around 5 days. As stated earlier, we recommend doing this before intending to pay employees to avoid problems when issuing your first paycheck.

So, let’s take a look at the steps involved in running payroll yourself.

1. You need to register as an employer. This required receiving a login for PAYE Online from HMRC.

2. Next you need to choose a payroll software to record information to send to HMRC. This includes pay, deductions and employee details.

3. Now is the time to collect and keep all your records for HMRC.

4. You also need to ensure you contact HMRC, advising them about your employees.

5. Before your first payday, you need to record, make deductions and report these to HMRC.

6. Finally, you need to make a payment to HMRC for the tax and National Insurance you owe.

Is Registering For PAYE Mandatory?

In the UK, all employers with more than one employee on the payroll are required by law to register for PAYE. If you avoid registering, there will be fines and penalties to face, possibly leading to legal action from the government. There are some exceptions, which we will cover later.

How Is PAYE Calculated?

PAYE is calculated based on factors such as personal allowance eligibility and how much you earn. Your personal allowance is the tax-free amount you’re able to earn annually.

For 2021/22 the personal allowance figure is £12,570 and for anything above this figure, the amount of tax will depend on if you’re a basic rate, higher rate or additional rate taxpayer, all determined by your income.

What Are The PAYE Tax Rates And Thresholds For 2021/22?

Depending on your employee’s tax code, the amount of Income Tax you deduct will vary, as well as the taxable income level of their Personal Allowance.

It should also be noted that as of April 2022, the rate of National Insurance contributions you pay will change for one year. This figure is increasing by 1.25%, spent on the NHS and social care across the UK.

PAYE tax rates and thresholds	2021 to 2022
Employee personal allowance	£242 per week £1,048 per month £12,570 per year
English and Northern Irish basic tax rate	20% on annual earnings above the PAYE tax threshold and up to £37,700
English and Northern Irish higher tax rate	40% on annual earnings from £37,701 to £150,000
English and Northern Irish additional tax rate	45% on annual earnings above £150,000

What About PAYE On My Pension?

Those that are receiving a pension income will also have PAYE used to collect tax. The money received will be paid net, the amount after tax has been deducted.

Any tax that is owed on your pension will be collected by your pension provider, then passed on to HMRC. For those with two pensions, such as a private pension and workplace pension, HMRC will use one to deduct the tax for your state pension payments.

If your only source of income is from the state pension, a self-assessment tax return must be sent to HMRC and it is your responsibility to declare it.

What About PAYE If I’m Self-Employed?

Those that are self-employed will annually complete their self-assessment tax return forms, making a payment in January and July to HMRC. Sometimes, tax can be paid through PAYE instead, meaning tax is paid automatically, removing the risk of missing a deadline. However, to do this, you must:

Have less than £3,000 owed on your tax bill
Already pay your tax through PAYE
Have submitted your paper tax return by 31 October or your online tax return online by 30 December.

If you tick these boxes, then automatically, HMRC will collect the amount you owe through PAYE. You can ask them not to if you’d prefer that too. For those that aren’t eligible, you are required to pay by instalments.

Can I Overpay PAYE Tax?

There is a possibility that you can overpay HMRC due to the nature of PAYE tax. If you have seen a pay decrease or a bonus that has resulted in higher-than-average tax bills, there is a chance your overall tax within the financial year is more than required.

HMRC will ensure that if there are any overpayments, both the employee and employer will be refunded accordingly.

Who Doesn’t Need To Register For PAYE?

Anyone that is considered a self-employed sole trader cannot employ individuals. Only registered business entities can hire workers. It is not considered employment when those who are self-employed pay other self-employed workers for services. This means the tax on earnings is their responsibility.

In these circumstances, PAYE is not registered. More exceptions include employees earning less than £118 per week. This is due to them not earning enough to pay any form of tax, resulting in no reason to inform HMRC.

However, it is important to note that if your employee earns less than £118 per week, meanwhile are provided with benefits and/or expenses, then PAYE must be registered. This is to ensure tax is paid correctly for any taxable resources provided to the employee.

How Do I Send Payroll Information To HMRC?

To send payroll information to HMRC, you can either do this online or use a paper copy. There are only a few employers allowed to send their payroll information on paper, with the majority required to use online payroll software.

In the past, at the end of each financial year, employers could send their payroll information. However, to send HMRC information, employers now have to use the RTI (Real Time Information) system.

What Happens If I Do Not Report Payroll Information On Time?

It is extremely important to report your payroll information on time, otherwise, some penalties and fines can be issued. This also includes fines for inaccurate information. So, let’s take a look at what happens.

When can you get a penalty?

If your Full Payment Submission (FPS) was late
If the correct number of FPSs wasn’t sent.
If you did not send an Employer Payment Summary (EPS) when you did not pay any employees in a tax month

How much do I have to pay HMRC for not reporting payroll information on time?

The amount you have to pay will depend on the number of employees you have. Below is a table stating the penalty amount.

Number of employees	Monthly penalty
1 to 9	£100
10 to 49	£200
50 to 249	£300
250 or more	£400

For those that run more than one PAYE scheme, penalties can be charged for each.

What happens if I file an inaccurate PAYE report?

If HMRC discovers deliberate or careless mistakes on your report, then there could be penalties issues. The severity of the penalty will depend on the behaviour leading to the error, as well as the amount of potential lost revenue.

Any errors that are spotted, but were done after taking reasonable care will likely result in no fines or penalties. However, any errors due to failure to take reasonable care can be avoided if full and unprompted disclosure is given to HMRC.