How to Set Up PAYE as a New Employer

If you are about to employ someone for the first time, one of the first things you need to do is set up PAYE — Pay As You Earn — with HMRC. PAYE is the system through which you collect income tax and National Insurance from your employees' wages and send it to HMRC.

Setting up PAYE might sound daunting, but the process is logical and well-documented. This guide walks you through it from start to finish.

Do you need to register for PAYE?

You must register for PAYE if you:

• Pay any employee £123 or more per week (the figure changes annually — check the current threshold)
• Pay any employee who has another job
• Pay any employee who receives a pension
• Provide employee benefits or expenses

In practice, almost every employer needs to register for PAYE. Even if your only employee is paid below the threshold, you may need to register if they have another source of income or if you provide benefits.

If you are unsure, it is safer to register. There is no penalty for registering and not using PAYE, but there are penalties for paying employees without registering.

When to register

You must register with HMRC before you first pay any employee. HMRC recommends registering at least two weeks before your first payday, as registration can take time to process.

Do not leave it until the last minute. If your registration is not complete by the time you need to run your first payroll, you will not be able to submit your RTI data to HMRC, which creates compliance issues from day one.

Step 1: Register with HMRC

You can register for PAYE online through the HMRC website. You will need:

• Your company's registered name and address
• Your company registration number (for limited companies) or National Insurance number (for sole traders)
• Your Unique Taxpayer Reference (UTR) — this is the number HMRC issued when you registered for self-assessment or corporation tax
• The date you started employing people (or the date you will start)
• Details of your first employee (name, NI number if available, start date)

What you receive

After registering, HMRC will send you:

• PAYE reference number: A unique identifier for your employer account, in the format 123/AB45678. You will use this on all payroll submissions.
• Accounts Office reference: Used for making PAYE payments to HMRC.
• Activation code for the Government Gateway: Needed to submit RTI electronically.

Keep these details safe — you will need them throughout your time as an employer.

Step 2: Choose payroll software

You need software that can:

• Calculate pay, tax, NI, and other deductions
• Generate payslips
• Submit Full Payment Submissions (FPS) and Employer Payment Summaries (EPS) to HMRC via RTI
• Handle pension auto-enrolment
• Produce year-end returns (P60s)

Your options

HMRC Basic PAYE Tools: Free software from HMRC that handles basic payroll for up to nine employees. It is functional but limited — no invoicing, no HR features, no integration with other systems.

Commercial payroll software: Products ranging from simple, low-cost solutions for micro-businesses to comprehensive platforms that combine payroll with HR, accounting, and workforce management. Platforms like Relentify bring payroll into a single system alongside accounting and timesheets, which eliminates the need for multiple disconnected tools.

Accountant or payroll bureau: Outsourcing payroll to your accountant or a specialist bureau. They handle the calculations, submissions, and compliance, and you receive payslips to distribute and a summary of amounts to pay.

For most new employers, starting with payroll software and managing it yourself is the most cost-effective approach. As your business grows, you can evaluate whether outsourcing makes more sense.

Step 3: Set up your payroll

Once you have your PAYE reference and payroll software, set up your employer account:

Employer details

Enter your business name, address, PAYE reference, and Accounts Office reference. Configure your tax year start (always 6 April in the UK).

Pay frequency

Choose how often you will pay your employees: weekly, fortnightly, four-weekly, or monthly. This determines when you need to submit FPS data and how tax and NI are calculated per period.

Employee details

For each employee, enter:

• Full name and date of birth
• National Insurance number
• Tax code (from their P45, starter declaration, or HMRC notification)
• NI category letter
• Salary or hourly rate
• Bank details for payment
• Pension enrolment information

Tax codes for new employees

If your new employee provides a P45 from their previous employer, use the tax code shown on it. If they do not have a P45 (perhaps this is their first job), they complete a starter declaration that determines which tax code to use.

The starter declaration asks whether this is the employee's first job, whether they have another job, or whether they receive a pension. The answers determine the tax code:

• First job since last 6 April: Use the standard personal allowance code on a cumulative basis
• Second job: Use BR (basic rate) or other code as appropriate
• Receiving a pension: Use the code specified by HMRC

Step 4: Process your first payroll

When payday arrives:

1. Enter hours or confirm salary: For hourly workers, enter the hours worked. For salaried employees, confirm the standard pay.
2. Calculate deductions: Your software calculates income tax, NI, pension contributions, and any other deductions.
3. Review the results: Check the payslip for each employee. Does the net pay look correct?
4. Submit the FPS: Send the Full Payment Submission to HMRC on or before payday.
5. Pay your employees: Transfer the net pay to each employee's bank account.
6. Issue payslips: Give each employee their payslip (electronically or on paper).

Your first payroll will feel unfamiliar, but by the second or third run, the process becomes routine.

Step 5: Set up pension auto-enrolment

As a new employer, you have a duty to provide a workplace pension for eligible employees. Your "duties start date" is the date your first employee starts work.

Within a specified timeframe, you must:

1. Choose a pension scheme: NEST, The People's Pension, or another qualifying provider
2. Assess your employees: Determine who is an eligible jobholder
3. Enrol eligible employees: Set up their pension and start contributions
4. Communicate: Write to each employee about their pension enrolment
5. Complete your Declaration of Compliance: Submit to The Pensions Regulator within five months of your duties start date

Do not delay this — The Pensions Regulator actively monitors new employer registrations and follows up on missing declarations.

Step 6: Pay HMRC

After each pay period, you owe HMRC the total of:

• Income tax deducted from employees
• Employee NI contributions
• Employer NI contributions

Minus:

• Employment Allowance (if claimed)
• Statutory payment recoveries (SMP, SPP, etc.)

Payment is due by the 22nd of the month following the end of the tax month (or the 19th if paying by post). Tax months run from the 6th of one month to the 5th of the next.

Set up a direct debit with HMRC to automate payments and avoid late payment penalties.

Step 7: Keep records

From day one, keep comprehensive payroll records:

• Employee personal details and tax information
• Pay calculations for every pay period
• FPS and EPS submission confirmations
• Payslips
• P45s issued to leavers
• P60s issued at year-end
• Pension enrolment and contribution records

Records must be kept for a minimum of three years after the end of the tax year they relate to. Your payroll software stores most of this automatically, but make sure you have a backup.

Year-end obligations

At the end of each tax year (5 April), you need to:

1. Submit your final FPS: With the "final submission for year" indicator
2. Submit a final EPS: If you are reclaiming statutory payments or reporting other adjustments
3. Issue P60s: To every employee who was on your payroll on 5 April, by 31 May
4. File P11Ds: By 6 July, if you provided any benefits in kind
5. Pay any outstanding PAYE/NI: Settle your account with HMRC
6. Start the new tax year: Update tax codes, thresholds, and rates for the new year

Your payroll software will guide you through most of these steps and apply the new year's rates automatically.

Common mistakes for new employers

Registering too late

Do not wait until after you have paid someone to register for PAYE. Register at least two weeks before your first payday.

Not submitting RTI on time

Your FPS must be submitted on or before payday, every payday. Late submissions attract penalties from the first occurrence.

Using the wrong tax code

If a new employee does not provide a P45 and does not complete a starter declaration, you may apply the wrong code. Always get one or the other.

Forgetting pension auto-enrolment

Your pension duties start from the first day you employ someone. Do not assume you can sort it out later.

Not paying HMRC on time

PAYE and NI payments are due monthly. Late payments attract interest and penalties. Set up a direct debit.

Not issuing payslips

Every employee is legally entitled to a payslip. Issue one every payday without exception.

Getting started with confidence

Setting up PAYE is a one-time process that, once complete, gives you the foundation for running payroll correctly from day one. The key steps are:

1. Register with HMRC (before your first payday)
2. Get payroll software set up
3. Enter your employee details
4. Process payroll and submit RTI on time
5. Set up pension auto-enrolment
6. Pay HMRC by the deadline each month

Modern payroll platforms like Relentify handle the complexity — tax calculations, RTI submissions, pension enrolment — so you can focus on running your business. The setup takes a few hours. The payoff is a compliant, efficient payroll that runs smoothly from the start.