PAYE for Employers

Before you pay your first employee, you must register as an employer with HMRC. You can do this online at GOV.UK. HMRC will issue you a PAYE reference number (also called an Employer Reference Number or ERN) and an Accounts Office Reference — keep both safe as you will need them for every payroll submission.

Allow up to five working days for HMRC to process your registration, so register as soon as you know you are taking on staff. You cannot submit payroll until your registration is confirmed. You will also need payroll software that is compatible with HMRC's RTI system — many providers offer free software for small businesses with fewer than 10 employees.

Each time you pay employees you must calculate gross pay, then deduct income tax using the employee's tax code and National Insurance using the appropriate NI category letter. You must also calculate your own employer's National Insurance contributions on earnings above the Secondary Threshold (£9,100 in 2025/26).

Under Real Time Information (RTI), you must submit a Full Payment Submission (FPS) to HMRC on or before each payday — not at the end of the month. If you do not make any payments in a pay period, you must submit an Employer Payment Summary (EPS) instead. Late submissions can attract penalties.

You must pay the tax and NICs you owe to HMRC by the 19th of the month following the end of the tax month (22nd if paying electronically). HMRC's tax month runs from the 6th to the 5th of the following month. If you consistently pay less than £1,500 per month, you may be able to pay quarterly instead.

Keep payroll records for at least three years from the end of the tax year to which they relate. These include payslips, P45s for leavers, and P60s issued to employees at year end. HMRC can inspect these during a PAYE compliance check. Penalties for incorrect or late PAYE returns can be significant.

Real Time Information (RTI) imposes strict reporting obligations on every employer. The centrepiece is the Full Payment Submission (FPS), which must be filed on or before each payday — not monthly, not at year end, but every single time you pay employees. The FPS reports individual employee earnings, tax, and NI for that pay period. Where no payments are made in a period, an Employer Payment Summary (EPS) must be submitted by the 19th of the following month to avoid HMRC assuming outstanding amounts are owed.

HMRC operates an automated late filing penalty regime. Employers who file late or fail to file receive penalty notices as follows: up to 9 employees attracts a £100 monthly penalty; 10–49 employees £200; 50–249 employees £300; and 250 or more employees £400 per month. Penalties can be appealed if you have a reasonable excuse — for example, a system outage or a bereavement — but persistent lateness will not be excused. HMRC also charges interest on PAYE paid late at the standard rate.

At tax year end, employers must submit a final FPS marked as the last submission of the year, and issue P60 forms to all employees still in employment by 31 May. Failure to issue P60s is a separate compliance failure. HMRC's Basic PAYE Tools (free software) can handle RTI for employers with nine or fewer employees.