Daily Junction.mobi portalBusiness · September 16, 2023 · Marcus Vale · 6 min
A practical UK guide to PAYE for employers: what it is, what you must deduct and report to HMRC, key deadlines, payslips and forms, and how to stay compliant when you take on staff.
Taking on your first member of staff is a milestone — and the moment you become responsible for collecting tax on the government's behalf. PAYE is the machinery that makes that happen: every payday, you work out what to deduct, report it to HMRC, and pass the money on. Done well it is routine; done badly it leads to penalties and unhappy staff. This guide explains what PAYE is, what you must deduct and report, the deadlines that matter, the forms involved, and how to keep on the right side of HMRC. This is general information, not tax or legal advice.
PAYE — Pay As You Earn — is the system employers use to deduct Income Tax and National Insurance contributions from employees' wages and pay them to HMRC. Rather than employees settling their whole tax bill at the end of the year, tax is taken from each payslip as they earn, hence the name.
As an employer, you do not just pay wages — you operate PAYE on HMRC's behalf. That means calculating the right deductions for each person, recording them, reporting them to HMRC, and paying over the tax and National Insurance you have withheld (plus the employer's own National Insurance). For the employee's side of how this works, our explainer on what PAYE is is a useful companion to this employer-focused guide.
Not every payment triggers PAYE, but most employment does. You generally need to register as an employer and operate PAYE if any of your employees:
In practice, if you are paying someone a normal wage, you will almost certainly need to operate PAYE. Even where an employee earns too little to pay any tax, you may still need to register and report their pay. You should usually register before your first payday, and registration can take a little time, so do not leave it to the last minute. If you are at the very start of this, our guide on how to hire your first employee sets the wider scene.
PAYE is not optional once you employ someone above the threshold. It is a legal duty, and registering late or failing to report can lead to penalties.
PAYE is more than just Income Tax. Each payday, you typically calculate and handle:
The employee's tax code is central: it tells you how much tax-free pay they are entitled to and therefore how much to deduct. Codes come from HMRC and can change during the year, so you must apply updates promptly.
The UK runs PAYE on a Real Time Information (RTI) basis. This means you report pay and deductions to HMRC every time you pay an employee, on or before payday — not once a year. The two key submissions are:
| Submission | Purpose |
|---|---|
| Full Payment Submission (FPS) | Reports each employee's pay, tax and deductions, sent on or before payday |
| Employer Payment Summary (EPS) | Reports adjustments, such as reclaiming statutory payments or telling HMRC no one was paid that period |
You make these submissions through payroll software. Most employers use commercial payroll software or an accountant; HMRC also provides basic free tools for very small employers, though these have limits. Whatever you use, the principle is the same: report on time, every time.
After reporting, you pay HMRC what you owe — the tax and National Insurance you deducted, plus employer's National Insurance, less anything you can reclaim. The usual deadlines are:
Missing these deadlines can trigger interest and penalties, so build the payment into your routine. Setting money aside as you run each payroll helps avoid a nasty surprise when the bill is due.
PAYE comes with obligations to your employees as well as to HMRC. You must:
You must also keep payroll records for the period HMRC requires (currently several years), covering what you paid, what you deducted and reported, and any leave and benefits.
PAYE is manageable, but it rewards good habits:
Payroll also overlaps with wider employment matters. Different contract types — for example a zero-hours contract — still go through PAYE when the person is your employee, and even when employment ends, perhaps via a settlement agreement, some payments may be taxable through payroll. Getting the basics right keeps all of this straightforward.
PAYE is the system that turns you, the employer, into a collector of Income Tax and National Insurance for HMRC. You register before your first payday, deduct the right amounts each time you pay staff, report them in real time through payroll software, pay HMRC by the monthly or quarterly deadline, and give employees their payslips and year-end forms. It is a legal duty with real penalties for getting it wrong, but with good software or a reliable accountant and a steady routine, it becomes a predictable part of running a business. This is general information, not tax or legal advice; check GOV.UK and HMRC, and take professional guidance for your circumstances.
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