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 do not need to register for PAYE if none of your employees are paid £123 or more a week, get expenses and benefits, have another job or get 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 £175 a week.
You’ll need to send another report to claim any reduction on what you owe HMRC, for example for statutory pay.
You’ll be able to view what you owe HMRC, based on your reports. You then have to pay HMRC, 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
- if an employee’s circumstances change, for example 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.