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PAYE - HMRC Pay As You Earn

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What is PAYE?

Pay as you earn or PAYE is HMRC’s system for collecting National Insurance contributions and income tax from employees. Business owners do not need to register for PAYE unless employees earn £123 or more per week. However, even companies that pay small sums must keep records.

Whenever employers make payments to employees, they must make deductions via PAYE. These include tax and social security payments, but they can also include state pension contributions and student loan repayments.


How to set up PAYE

To run payroll yourself under the PAYE scheme you need to submit all payment information including payments, deductions and PAYE liability each month. You’ll also need to set up a PAYE account with the tax authority before you pay your first round of salaries.

Here’s how it works:

  1. Get a login for PAYE Online by registering an employee with HM Revenue and Customs (HMRC).
  2. Choose which payroll software you’ll use to record employee payment and deduction details, and report them to HMRC.
  3. Start recording who you hire and what you pay them.
  4. Update HMRC if you hire any new employees.
  5. Contact HMRC about any payments and deductions before payday.
  6. Pay the tax you owe, NI and income respectively.


Legal requirements for PAYE

If you begin using PAYE, you will need to adhere to various legal requirements. For instance, you will need to keep records of:

  • How much you pay employees and the deductions you make
  • Any taxable expenses or benefits and tax code notices
  • Correspondence you have with HMRC
  • Details about employee absences or sick leave
  • Payments made to HMRC


If your records are lost, stolen or damaged and you can’t replace them with backups, you should recreate them as best you can. In some cases, HMRC will provide you with information that makes this easier.


Lastly, you should follow data protection laws. Make sure that you read up on the regulations if your brand uses or stores personal information.

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