Understanding PAYE for UK Employers

Pay As You Earn (PAYE) is the system through which UK employers collect income tax and National Insurance from their employees and pay it to HMRC. Running PAYE correctly is a legal obligation — errors can result in penalties and significant back-payments of tax on behalf of employees. This guide explains what you need to do as a UK employer.

Registering as an Employer

You must register as an employer with HMRC before your first payroll run or, if you take on your first employee, within 4 weeks of paying them for the first time. Register at gov.uk/register-employer. You will receive an Employer PAYE Reference and an Accounts Office Reference — keep both safe, as you will use them in every payroll submission.

Real Time Information (RTI)

Since 2013, employers must submit payroll data to HMRC in real time using the Full Payment Submission (FPS). You must submit an FPS on or before the day you pay your employees — not monthly in arrears. The FPS reports each employee's gross pay, income tax deducted, employee NI, employer NI, and any student loan deductions. If you pay no employees in a period but wish to continue operating the PAYE scheme, submit an Employer Payment Summary (EPS) instead.

Tax Codes

Every employee has a tax code that tells you how much of their salary is tax-free. The standard code for 2025/26 is 1257L, representing the £12,570 Personal Allowance. Non-standard codes may apply for employees with multiple jobs, benefits in kind, or outstanding debts. HMRC issues tax code notices to employers electronically — apply these promptly to avoid over- or under-deducting tax.

National Insurance

As an employer, you deduct employee National Insurance from employees' pay and also pay employer NI on top. For 2025/26, employees pay 12% NI on earnings between £12,570 and £50,270, and 2% above. Employers pay 13.8% on all earnings above the Secondary Threshold (£9,100). Employer NI rates increased to 15% from April 2025 per the October 2024 Budget changes — ensure your payroll software is updated to reflect the correct rate.

The Employment Allowance

Most small businesses can claim the Employment Allowance, which reduces the employer NI bill by up to £10,500 per year from April 2025 (increased from £5,000). You cannot claim if you are a sole director with no other employees, if the employer NI bill was over £100,000 in the previous tax year, or if you are a public body. Claim via your payroll software's EPS submission.

Statutory Payments

As an employer, you may be responsible for paying Statutory Sick Pay (SSP), Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), and Statutory Adoption Pay (SAP) to qualifying employees. These are paid through your normal payroll and you can recover 92% of SMP, SPP, and SAP from HMRC (or 103% if you qualify as a small employer for SMP).

Paying HMRC

PAYE and NI are due to HMRC by the 19th of each month (by post) or the 22nd (electronically). If your average monthly PAYE and NI liability is under £1,500, you may pay quarterly instead. Set up a standing order or Direct Debit to HMRC's Accounts Office reference to ensure payments arrive on time.

Year-End

At the end of each tax year, submit a final FPS marked as the last for the year by 19 April. Issue P60 certificates to all employees still in employment by 31 May. If any employees left during the year, issue their P45 when they leave — not at year end.