PAYE & Payroll

Set up PAYE for your employees, understand tax codes, run payroll, and submit RTI to HMRC on time.

Last updated: 15 July 2026

What is PAYE?

PAYE (Pay As You Earn) is HMRC's system for collecting Income Tax and National Insurance contributions from employment income. As an employer, you're responsible for deducting these amounts from your employees' wages and paying them to HMRC.

This applies whether you're paying employees, yourself as a director, or both. Even if you're the only director taking a salary, you need to register for PAYE.

When Do You Need to Register for PAYE?

You must register as an employer with HMRC before your first payday if you're paying anyone:

£123 or more per week (2024/25 threshold)
Any amount if they have another job or pension
Any amount if they're receiving employment benefits
Yourself as a director if taking a salary

Register in Time

How Do Tax Codes Work?

Tax codes tell you how much tax-free pay an employee is entitled to. The most common code is 1257L, which means the employee has a tax-free Personal Allowance of £12,570.

Common Tax Codes Explained

1257LStandard personal allowance

BRBasic rate (20%) on all earnings

D0Higher rate (40%) on all earnings

0TNo tax-free allowance

NTNo tax to be taken

HMRC will notify you of employees' tax codes. If you're unsure, use the starter checklist to determine the correct code for new employees.

Running Payroll

Each pay period, you need to calculate and record:

Gross Pay

The total amount before any deductions, including salary, bonuses, and any taxable benefits.

Income Tax

Calculate based on the employee's tax code using HMRC's tables or payroll software.

National Insurance

Both employee and employer contributions. Rates and thresholds change each tax year.

Other Deductions

Student loan repayments, pension contributions, attachment of earnings orders, etc.

Most employers use payroll software to handle these calculations. HMRC provides a list of recognised software, or you can use their Basic PAYE Tools for small employers.

Real Time Information (RTI)

RTI is the system for reporting payroll information to HMRC. You must submit an RTI report on or before each payday.

Full Payment Submission (FPS)

Sent on or before each payday with details of payments and deductions for each employee.

Employer Payment Summary (EPS)

Sent monthly if you're claiming statutory pay recoveries or haven't paid any employees.

Late Reporting Penalties

Penalties for late FPS submissions start at £100 per month for 1-9 employees, increasing with company size. Penalties are charged for each month you're late.

When Do You Pay HMRC?

You must pay your PAYE bill to HMRC by the 22nd of the following month (or the 19th if paying by post). This includes:

Income Tax deducted from employees
Employee and employer National Insurance contributions
Student loan deductions
Less any statutory pay recoveries you're claiming

Small Employers' Relief

If your average monthly PAYE liability is less than £1,500, you can pay quarterly instead of monthly.

Year-End Responsibilities

At the end of the tax year (5 April), you must:

Send your final FPS on or before your last payday of the tax year
Mark it as your final submission for the year
Provide P60s to all employees by 31 May
Submit P11D forms for expenses and benefits by 6 July
Pay any Class 1A National Insurance on benefits by 22 July

Common Questions

PAYE & Payroll FAQs

Yes, if you're taking a salary. PAYE applies whether you're paying employees, yourself as a director, or both. Register before your first payday, and allow time: it can take up to 5 working days to receive your PAYE reference.

You must register with HMRC before your first payday if you're paying anyone £123 or more per week (2024/25 threshold), any amount if they have another job or pension, any amount if they're receiving employment benefits, or yourself as a director if taking a salary.

It's the most common code and means the employee has the standard tax-free Personal Allowance of £12,570. Other codes you might see are BR (basic rate 20% on all earnings), D0 (higher rate 40% on all earnings), 0T (no tax-free allowance), and NT (no tax to be taken). HMRC will notify you of your employees' tax codes, and for new employees you can use the starter checklist to determine the correct code.

Real Time Information is the system for reporting payroll information to HMRC. You must send a Full Payment Submission (FPS) on or before each payday with details of payments and deductions for each employee, plus a monthly Employer Payment Summary (EPS) if you're claiming statutory pay recoveries or haven't paid any employees. Late FPS penalties start at £100 per month for 1-9 employees, increase with company size, and are charged for each month you're late.

By the 22nd of the following month, or the 19th if paying by post. The bill covers Income Tax deducted from employees, employee and employer National Insurance, and student loan deductions, less any statutory pay recoveries you're claiming. If your average monthly PAYE liability is less than £1,500, you can pay quarterly instead of monthly.

At the end of the tax year (5 April): send your final FPS on or before your last payday of the year and mark it as your final submission, provide P60s to all employees by 31 May, submit P11D forms for expenses and benefits by 6 July, and pay any Class 1A National Insurance on benefits by 22 July.

Sources

Rates and thresholds on this page come from the official HMRC and Companies House guidance below. Tax rules change, so check the source if you are relying on a figure.

Would you rather we handled this for you? See our Payroll Services service, or read the full set of guides.

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