Pay As You Earn (or PAYE for short) is the process used by employers to collect Income Tax and National Insurance on behalf of HMRC. Employers make tax deductions from the wages they pay to employees, and then pay the deductions to HMRC, but not all employers need to register.
Who needs to register for PAYE?
If you run a business which employs other people or you plan to take on staff, you’ll need to register for PAYE if any of your employees earn more than the Lower Earnings Limit for National Insurance. The threshold for 2023/24 is £123 per week, or £6,396 per year.
You’ll need to register even if you only have one employee or director earning over the Lower Earnings Limit. Employers should also register if any members of staff:
- Receive expenses and benefits (also known as benefits in kind)
- Have another job
- Receive a pension
When do I need to register for PAYE?
You’ll need to make sure that you’re registered for PAYE before your first payday.
PAYE is part of the payroll process, but payroll refers to the entire process of paying staff in your business. It’s a crucial point because setting up your payroll doesn’t mean that you’ve enrolled for PAYE.
Be aware that it can take up to fifteen working days to get your unique PAYE number from HMRC, so make sure you’re registered well in advance—the earlier the better. You can register up to 2 months in advance.
It’s also essential that you keep payroll records to document the hours your employees work, and any leave such as sickness absences or holidays. You’ll need these to pay your staff correctly, even if you don’t need to register for PAYE.
Do I need to register for PAYE if I’m a sole trader?
Only if you employ someone else and they meet the criteria for registration. If you only ever work by yourself then you won’t need to register for PAYE to pay yourself, because sole traders can simply take any profits out the business for themselves.
If your self-employment is a side hustle to employment, then only your employer that will need to register for PAYE. There’s nothing for you to worry about.
How do I register for PAYE?
You’ll need to register for PAYE online via the HMRC registration page, and answer a series of questions about the people in your business. Some employers (such as insurance companies) are subject to special rules, but following the step-by-step guide will help you get everything set up correctly.
As part of the process, you’ll also need to confirm the details of your business, as well as what day you expect the first payday to fall on. It’s also essential that you:
- Check each employee has the legal right to work in the UK
- Comply with the national minimum wage legislation
- Set up a workplace pension and automatically enroll eligible staff if necessary
What do I need to do once I register for PAYE?
Once registered it’s up to you whether you operate PAYE yourself using payroll software, or outsource it to a provider or accountant. Whichever one you go for, it’s your responsibility to keep up-to-date information about your employees.
The details of any payments and deductions should be reported each time you run payroll, and any deductions paid on to HMRC by the 22nd of each month.
Employers also need to let HMRC know if any information changes. For instance, the details of any new starters or leavers, or other updates such as a name change.
The importance of good bookkeeping habits
Solid bookkeeping habits are a crucial part of owning a business, especially when you employ staff and pay them wages. This is true whether your employees are earning enough to require you to register for PAYE or not. Don’t forget, salaries are an allowable expense, so you can offset these against your tax bill too!
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