How to Set Up PAYE as a New Employer

If you're about to employ someone for the first time, you need to set up PAYE — Pay As You Earn — with HMRC. It's the system through which you collect income tax and National Insurance from employees' wages and send it all to HMRC. Sounds bureaucratic. It is. But the process is logical, and once it's done, it runs on autopilot. This guide walks you through it step by step.

Do you need to register for PAYE?

Almost certainly, yes. You must register if you:

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

In practice, even if your only employee earns below the threshold, you'll likely need to register if they have another income source or you provide any benefits. When in doubt, register. There's no penalty for registering and not using it, but there are penalties for paying someone without being registered. (Spoiler: penalties hurt.)

When and how to register with HMRC

Register with HMRC before your first payday — ideally at least two weeks ahead. Registration can take time to process, and if it's incomplete when you need to run payroll, you won't be able to submit Real Time Information (RTI) data, which creates compliance headaches from day one.

You can register online via HMRC. You'll need:

Your company's registered name and address
Company registration number (for limited companies) or National Insurance number (for sole traders)
Unique Taxpayer Reference (UTR) — issued when you registered for self-assessment or corporation tax
The date you started employing people (or will start)
Basic details of your first employee

After registering, HMRC will send:

PAYE reference number (format: 123/AB45678) — you'll use this on every payroll submission
Accounts Office reference — for PAYE payments to HMRC
Government Gateway activation code — needed for RTI submissions

Keep these details safe. You'll need them constantly.

Choose payroll software

You can use HMRC's free Basic PAYE Tools (handles up to nine employees), hire an accountant or payroll bureau, or use commercial software. For most new employers, software is the sweet spot — it automates tax calculations, RTI submissions, and compliance reporting without the cost of outsourcing.

The right software handles:

Pay calculations, tax, and deductions
Payslip generation
Full Payment Submissions (FPS) and Employer Payment Summaries (EPS) to HMRC
Pension auto-enrolment
Year-end returns (P60s)
Integration with your accounting and time-tracking systems (if you choose a unified platform)

A platform like Relentify combines payroll with accounting, invoicing, timesheets, and helpdesk — one login, no Zapier juggling. Saves time and reduces the "did I export the right file?" panic.

Setting up payroll and processing your first run

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

Employer details: Enter your business name, address, PAYE reference, and Accounts Office reference. Your tax year always starts on 6 April in the UK.

Pay frequency: Decide whether you'll pay weekly, fortnightly, four-weekly, or monthly. This affects when you submit FPS data and how tax is calculated per period.

Employee details: For each person you're onboarding, add:

Full name and date of birth
National Insurance number
Tax code (from their P45 if they have one, or from a starter declaration if they don't)
NI category letter
Salary or hourly rate
Bank details
Pension enrolment information

Tax codes: If your new employee has a P45 from a previous job, use the code on it. If they don't (maybe it's their first job), they'll complete a starter declaration that asks whether this is their first job, whether they have another job, or whether they receive a pension. Their answers determine the tax code — often the standard personal allowance code for first jobs, or BR (basic rate) for second jobs.

When payday arrives, process your first payroll by:

Entering hours worked (for hourly staff) or confirming salary (for salaried staff)
Letting your software calculate tax, National Insurance, pension contributions, and any other deductions
Reviewing each payslip — does the net pay look right?
Submitting the FPS to HMRC on or before payday
Transferring net pay to each employee's bank account
Issuing payslips (electronically or paper)

Your first payroll will feel unfamiliar. By the second or third run, it becomes routine.

Pension auto-enrolment, National Insurance, and record-keeping

As a new employer, you have a legal duty to provide a workplace pension for eligible employees. Your "duties start date" is when your first employee starts. Within a specified timeframe, you must:

Choose a pension scheme (NEST, The People's Pension, or another qualifying provider)
Assess which employees are eligible jobholders
Enrol them automatically and start contributions
Write to each employee about their enrolment
Submit your Declaration of Compliance to The Pensions Regulator within five months

Don't delay this. The Pensions Regulator actively follows up on new employer registrations.

After each pay period, you owe HMRC the total of income tax, employee National Insurance, and employer National Insurance contributions, minus Employment Allowance (if claimed) and statutory payment recoveries. Payment is due by the 22nd of the month after the tax month ends (or the 19th if you pay by post). Set up a direct debit to automate payments and avoid penalties.

From day one, keep comprehensive records:

Employee personal details and tax information
Pay calculations for every period
FPS and EPS submission confirmations
Payslips
P45s, P60s, and P11Ds
Pension records

Keep them for at least three years after the tax year ends. Your payroll software handles most of this automatically; just make sure you back it up.

At year-end (5 April), you'll:

Submit a final FPS (marked "final for year")
Submit a final EPS (if reclaiming statutory payments)
Issue P60s to employees by 31 May
File P11Ds by 6 July (if you provided benefits in kind)
Settle any outstanding PAYE and National Insurance with HMRC
Update tax codes and rates for the new year

Your payroll software will guide you through most of this.

Frequently Asked Questions

Q: What's the difference between RTI and a traditional payroll submission? A: RTI (Real Time Information) means you submit payroll data to HMRC every payday, not once a year. It's more frequent, but it's actually simpler — your software does it automatically, and HMRC processes it in real-time, so there are fewer year-end corrections.

Q: Do I really need to register before hiring my first employee? A: Yes. You must register before you pay anyone. HMRC recommends at least two weeks' notice before your first payday to allow time for processing. Paying someone without being registered attracts penalties and creates a compliance nightmare.

Q: What if my employee doesn't have a P45 or hasn't completed a starter declaration? A: This is a common hole. If they've no P45 and no starter declaration, you're on shaky ground. Ask them to complete one immediately — it's a simple form that asks about their employment history and tells you which tax code to use. If they can't or won't, contact HMRC for guidance.

Q: Can I process payroll manually without software? A: Technically, yes, but you'd still need to submit RTI electronically. HMRC Basic PAYE Tools is free and can handle this for up to nine employees. For anything larger, or if you want to integrate payroll with accounting and time recording, commercial software is worth the cost.

Q: What happens if I miss an RTI submission deadline? A: HMRC charges a penalty for each late submission. The first few penalties are relatively small, but they add up. Set a calendar reminder for payday every pay period — most software allows scheduled submissions.

Q: When does pension auto-enrolment start? A: Your duties start from the first day your first employee works. You then have time (usually around three months) to choose a scheme, assess eligibility, and complete enrolment. But don't wait — start the process early to avoid rushing.

Q: Do I need to register for PAYE if all my staff are contractors? A: No. Contractors are responsible for their own tax and National Insurance. But be careful with the classification — HMRC has strict rules about what counts as a contractor versus an employee. If HMRC decides someone should be an employee, you could face penalties and arrears.

Q: What's the easiest way to stay on top of deadlines? A: Use payroll software that automates submissions and sends you reminders. Set up direct debit for HMRC payments. Create calendar alerts for year-end obligations. Most compliance issues come from missed deadlines, not calculation errors — automate everything you can.

Get set up right from day one

Setting up PAYE is a one-time process that, once complete, gives you the foundation for running payroll correctly from the start. Register early, choose software that fits your business (whether that's HMRC Basic PAYE Tools or a unified platform like Relentify), and submit RTI on time. Pension auto-enrolment, tax codes, and HMRC payments follow a predictable rhythm once you've done it a few times.

The setup takes a few hours. The payoff is a compliant, efficient payroll that keeps both you and HMRC happy. Try Relentify free for 14 days to see how unified payroll, accounting, and timesheets can simplify your setup and ongoing administration.