Visitor Register Now

Login
Logout
My profile

Starting up:
Payroll and PAYE

PAYE stands for "Pay As You Earn". It is a system for collecting income tax and national insurance contributions (NIC) from employees and directors as it is earned. In effect, the employer acts as a tax collector for HM Revenue & Customs (HMRC).

If your business is an employer (and your company will be an employer even if you are its only employee) then you need to maintain a payroll system and operate PAYE. Firstly you need to register with HMRC, who will provide you with an employer reference number which you need to use on official forms and correspondence.

Your payroll system can be manual or computerised, or you may find it more efficient to let someone else run your payroll for you, and we would be happy to assist you with this. Even if you run your own payroll, you may want to obtain additional help from your accountant at certain times, for example assistance in preparing the year end forms.

Related literature:

Your payroll obligations include:

Keeping records of your employee's details, payments made, tax credits, deductions from pay such as income tax and NIC, and employer's NIC;

Following procedures when new employees start and providing records to employees, such as the monthly or weekly payslip, the year end summary (Form P60) and a Form P45 on leaving;

Paying tax over to HMRC.
Completing and submitting the year end forms, including:
- Form P14, an end of year summary for each employee summarising all payments made to them and deductions during the year;
- Form P35 which is a summary of the deductions for all employees; and
- Form P11D, a summary of benefits (such as a company car) provided to employees.

There are various time limits for the submission of the forms and payments to HMRC, and you may be charged interest and possibly penalties if you are late.

HM Revenue & Customs generally require the PAYE and NIC (net of any deductions such as tax credits) to be paid monthly, although quarterly payments are allowed where the payroll is small (PAYE and NIC less than �1,500 per month on average). For more information on PAYE, see our Running a business section.