All You Need To Know About PAYE

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Published: March 30, 2021
Last Updated: March 10, 2025

What is PAYE?

PAYE (Pay As You Earn) PAYE is a system wherein HMRC (HM Revenue and Custom) collects Income Tax and National Insurance (NI) from employers on behalf of their employees. It a way through which most employees pay their income tax.

Who needs to register for PAYE?

As an employer, you have to operate PAYE as part of your payroll. However, if none of your employees is paid £120 or more a week, get expenses and benefits, have another job or get a pension, you do not need to register for PAYE, but you must keep payroll records. You must register for PAYE before you start paying your staff, after which you have to deduct the right amount of NI and tax from staff’s wages. In case you are self-employed, you can pay your self-assessment bill through PAYE as well. This is applicable in the case where you –

Owe less than £3,000 on your tax bill
Already pay tax through PAYE
Submitted your paper tax return by 31 October or your online tax return online by 30 December.

How to Register for PAYE?

Registering for PAYE is simple. You need to register as an employer with HMRC, and if you are doing this online, you will get a login for PAYE Online. Most businesses register online; however, businesses with unusual employability or ownership circumstances can be exempted from online registration. When you register, you must make sure to do it before the first payday. Once registered, you will get your employer’s PAYE reference number within 5 working days. You must ensure that you do not register earlier than 2 months from the time you start paying people.

What all is considered in PAYE?

Apart from the salary and wages, all amount paid to employees needs to be included in the calculation of PAYE. A few of the payments included in PAYE are Statutory Sick Pay (SSP), Parental Pay, Tips (if they’re paid into your till), Bonus, Commission, Inducement Payment, and much more. Basically, everything can be converted into cash.

What deductions are applicable?

When paying your employees, you also need to make deductions for PAYE. These include student loan repayments, pension contributions, payroll giving donations, and child maintenance payments.

How is PAYE processed?

PAYE can be processed in two ways. You can run it yourself with your own payroll software, or you can have a payroll service provider do it on your behalf. While a payroll service provider can help you with keeping employee records, providing payslips, and paying to HMRC however, legally you still will be responsible for completing all PAYE tasks.

How is PAYE calculated?

PAYE is calculated based on how much the employee has earned and whether they are eligible for the personal allowance. You can easily get to know the amount you owe with the help of the HMRC calculator, or you can always take help from your accounting outsourcing service provider in the UK.

When is PAYE due?

The monthly payments of PAYE can be done in two ways Postal and Electronic, by the postal method the due date is the 19th of each month, and by the electronic method, it is to be paid by the 22nd of each month.

Calculating PAYE, reporting, and paying the same amount to HMRC can be a tedious process, but it is an important part of your business. Additionally, you have to report to HMRC when a new employee joins and if there is a change in employee’s circumstances change. While it is not complex as it seems but the real issue whether you can dedicatedly report and pay HMRC in due time without any mistake. You can consult our payroll experts who can help you with the PAYE process and assist in overall seamless payroll processing.