1. Introduction to PAYE

As an employer, you normally have to operate PAYE as part of your payroll. PAYE is HM Revenue and Customs’ (HMRC) system to collect Income Tax and National Insurance from employment.

You’re exempt from PAYE if none of your employees is paid £112 or more a week, gets expenses and benefits, has another job or gets a pension. However, you must keep payroll records.

Payments and deductions

When paying your employees through payroll you also need to make deductions for PAYE.

Payments to your employees

Payments to your employees include their salary or wages, as well as things like any tips or bonuses, or statutory sick or maternity pay.

Deductions from their pay

From these payments, you’ll need to deduct tax and National Insurance for most employees. Other deductions you may need to make include student loan repayments or pension contributions.

Reporting to and paying HMRC

Reporting pay and deductions

If you run payroll yourself, you’ll need to report your employees’ payments and deductions to HMRC on or before each payday.

Your payroll software will work out how much tax and National Insurance you owe, including an employer’s National Insurance contribution on each employee’s earnings above £155 a week.

You’ll need to send another report to claim any reduction on what you owe HMRC, eg for statutory pay.

Paying HMRC

You’ll be able to view what you owe HMRC, based on your reports. You then have to pay them, usually every month.

If you’re a small employer that expects to pay less than £1,500 a month, you can arrange to pay quarterly - contact HMRC’s payment enquiry helpline.

Other things to report

As part of your regular reports, you should tell HMRC when a new employee joins and if an employee’s circumstances change, eg they reach State Pension age or become a director.

You have to run annual reports at the end of the tax year - including telling HMRC about any expenses or benefits.

Choose how to run payroll

If you have to operate PAYE, you can choose how to run your payroll.