PAYE & Payroll: A Plain‑English Guide for Small UK Employers

Setting up payroll can feel scarier than HMRC’s hold music.  This quick guide walks you through PAYE, tells you when you must register, and gives you a six‑step checklist to get wages sorted—without the headaches.

What Is PAYE?

PAYE (Pay As You Earn) is HMRC’s system for collecting Income Tax and National Insurance straight from wages or pensions.  Employers run PAYE as part of payroll and send Real‑Time Information (RTI) reports every payday.

Do I Need to Register for PAYE?

Register as an employer if any worker:

• earns £123 or more per week (2025/26 Lower Earnings Limit)
• receives expenses or benefits
• has another job
• draws a workplace pension

If no one ticks those boxes you can skip PAYE—but you must still keep payroll records.

Six Steps to Set Up Payroll

1. Register with HMRC
   – Apply online as an employer and create a PAYE Online account.  Allow up to 10 days for activation codes.
2. Pick payroll software
   – Choose RTI‑compliant software that creates payslips and handles pension uploads.  (Free options exist for very small teams.)
3. Add employee details
   – Name, address, DOB, NI number, start date, tax code, student‑loan status.
4. Run your first pay run
   – Calculate gross pay, deduct PAYE, NI, student‑loan and pension.  Produce payslips.
5. File the Full Payment Submission (FPS)
   – Send to HMRC on or before payday via your software.
6. Pay HMRC
   – Settle PAYE & NI by the 22nd of the following month (or quarterly if your total liability stays under £1,500 a month).

Auto‑Enrolment: Don’t forget to assess staff for workplace pensions and submit contributions—another reason good software helps.

Reporting & Payment Deadlines

• Every payday – FPS with pay and deductions.
• Monthly/Quarterly – PAYE & NI payment to HMRC.
• By 19 April – Final EPS & year‑end declarations.
• By 31 May – Give P60s to staff.
• By 6 July – Submit P11Ds for benefits/expenses (if applicable).

You must also notify HMRC when a new employee joins, leaves, becomes a director or hits State Pension age.

DIY vs Outsourced Payroll

Five Common Mistakes (and How to Dodge Them)

1. Using the wrong tax code – always check the starter checklist.
2. Missing the ‘on or before’ filing rule – HMRC fine £100+ for late FPS.
3. Forgetting quarterly small‑employer election – overpays cash flow.
4. Ignoring auto‑enrolment letters – fines start at £400.
5. Not recording staff tips/bonus correctly – could trigger an HMRC review.

Need a Hand?

Blue Rocket’s payroll team keeps 300+ Kent businesses penalty‑free every month.  Fancy the same peace of mind?

Call us on 01322 555 442 or visit our Payroll Service page (link) and let’s blast off your admin woes.

Updated May 2025.  Thresholds correct at publication—always check HMRC for the latest figures.

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