Becoming a PAYE employer: registering with HMRC in 10 steps

Starting to pay yourself a salary through your limited company is an exciting milestone, but it comes with important legal responsibilities. Even if you're the sole employee of your limited company, you must operate PAYE (Pay As You Earn) tax on your salary. This means registering as an employer with HMRC and running payroll properly. Getting this right from the outset avoids costly fines, incorrect tax payments, and headaches down the line.

Why You Must Register as a PAYE Employer

Many new company directors assume they only need to register as an employer when they hire staff. But HMRC requires limited companies to register as PAYE employers if they pay any employee a salary above the National Insurance thresholds, including the director themselves. This is because PAYE is the system HMRC uses to collect Income Tax and National Insurance Contributions (NICs) from employees’ earnings.

Failing to register on time can result in penalties starting from £100, plus interest and further fines if the issue continues. Even if you pay yourself very little, or only occasionally, you still must register and report payroll information to HMRC on or before each payday.

Step 1: Check If You Need to Register for PAYE

If your company pays any employee, including yourself as director, a salary above the current secondary thresholds for National Insurance (£123 per week or £533 per month for 2023/24), you must register for PAYE. This also applies if you pay benefits in kind or expenses that count as taxable earnings.

Even if you only pay dividends to yourself and no salary, you are not required to register as an employer. However, most directors pay a small salary to use personal allowances and reduce dividend tax liabilities.

Step 2: Gather Necessary Company and Personal Details

Before registering, make sure you have the following information at hand: your company’s Unique Taxpayer Reference (UTR), company registration number, your details as the director, including your National Insurance number, and the company’s contact details. You’ll also need a valid email address and phone number to set up your employer PAYE online account.

You can find your company's UTR on previous HMRC correspondence or by contacting HMRC if you don’t have this information.

Step 3: Register as an Employer with HMRC

You must register online as an employer via the HMRC website. The process is straightforward but can take up to 10 working days to receive your employer PAYE reference and Accounts Office reference. Both are essential for payroll submissions.

During registration, HMRC will ask for your company details, expected payroll start date, and contact information. Use your company’s registered address for consistency.

Step 4: Choose Payroll Software

Once registered, you need to run payroll using HMRC-approved software that can submit Real Time Information (RTI) reports. RTI is mandatory for all UK employers and involves sending payroll data to HMRC every time employees are paid.

For small employers, BrightPay is an excellent choice. It’s free for companies with up to three employees and offers a user-friendly interface, automatic tax code updates, and easy RTI submissions. Other options include Sage, Xero Payroll, and FreeAgent, but BrightPay’s free tier is ideal for many startups and side hustles.

Step 5: Set Up Payroll Software and Enter Employee Details

After selecting your software, set up your payroll by entering your company’s employer PAYE reference, Accounts Office reference, and bank details. Then add employee records with their full names, dates of birth, National Insurance numbers, and tax codes.

For directors, payroll software often has options to mark them as company directors, which can affect National Insurance calculations. Make sure to input salaries and any benefits in kind accurately to ensure correct tax deductions.

Step 6: Run Your First Payroll and Submit RTI

Run your first payroll run before the payday—this means calculating your salary, Income Tax, and NICs deductions. Then submit your Full Payment Submission (FPS) to HMRC on or before the payday. The FPS notifies HMRC how much you have paid and deducted.

If you miss this deadline, you risk penalties and inaccurate tax records. The payroll software will usually remind you of deadlines and allow you to submit FPS directly from the platform.

Step 7: Pay HMRC and Submit Employer Payment Summary

After payroll, you must pay any Income Tax and employee/employer National Insurance you owe to HMRC. Payments are usually due monthly or quarterly, depending on your PAYE liabilities. Check HMRC’s payment deadlines carefully to avoid interest charges.

Alongside payments, you submit the Employer Payment Summary (EPS) if you need to report statutory payments or claim Employment Allowance, which can reduce your NICs bill.

Step 8: Keep Accurate Payroll Records

HMRC requires companies to keep payroll records for at least three years after the end of the tax year they relate to. These include payslips, FPS submissions, payment receipts, and records of any adjustments.

Accurate records help in case of HMRC enquiries and make end-of-year reporting easier. Most payroll software stores these records digitally for convenience.

Step 9: Prepare for Year-End Reporting

At the end of the tax year (5 April), you need to prepare and submit final payroll reports, including the Employer Annual Return (P35) and employee forms (P60). Payroll software often automates much of this process.

You must provide employees with their P60 forms by 31 May following the tax year end and send final payroll data to HMRC by 19 May (paper) or 31 May (online).

Step 10: Stay Updated and Compliant

Payroll and tax rules change regularly. For example, tax codes, National Insurance thresholds, and reporting requirements can be updated annually. Stay subscribed to HMRC alerts and update your payroll software each year to reflect these changes.

Consider consulting an accountant or payroll specialist if you’re unsure about any aspect of PAYE compliance. It’s a worthwhile investment to avoid penalties and ensure your business runs smoothly.

"“Setting up PAYE was daunting at first, but using BrightPay and registering early with HMRC made the process straightforward. It’s a must-do for any director paying themselves a salary.” – Sarah Jones, Founder of TechLaunch Ltd"

Common Questions About PAYE Registration

• Q: How long does PAYE registration take? A: Usually up to 10 working days to receive your employer references from HMRC.
• Q: Can I run payroll without registering? A: No, you must register before the first payday to avoid penalties.
• Q: What if I pay myself only dividends? A: No PAYE registration is needed if you pay no salary or benefits.
• Q: Is BrightPay really free? A: Yes, for companies with up to three employees, BrightPay is free to use.
• Q: When do I pay HMRC? A: PAYE payments are generally due monthly or quarterly, depending on your liabilities.

Becoming a PAYE employer might seem complicated, but breaking the process into clear steps and using the right tools makes it manageable. Register early, choose reliable payroll software, and keep on top of deadlines to enjoy peace of mind as you grow your business.