Taking on your first employee is a big step, and payroll is where a lot of small businesses first run into HMRC penalties. The rules are not complicated once you see them laid out, but they never stop: every payday creates a filing and every month creates a payment. Here is what UK employers need to get right.
You need to register with HMRC as an employer before your first payday, and you can do it up to 4 weeks before you pay anyone. You must register even if you are the only person on the payroll, for example a director paying themselves a salary through a limited company. HMRC then gives you a PAYE reference and an Accounts Office reference, which you will use for every submission and payment.
Before someone starts work, you also need to check their right to work in the UK and keep a record of that check. This is a Home Office rule rather than an HMRC one, but the fines for getting it wrong are far bigger than any payroll penalty.
Under Real Time Information (RTI), you send HMRC a Full Payment Submission (FPS) on or before each payday. It shows what each employee was paid and what was deducted for income tax, National Insurance, student loans and pensions.
If you did not pay anyone in a tax month, or you are reclaiming statutory pay such as maternity or paternity pay, you send an Employer Payment Summary (EPS) by the 19th of the following month. A nil EPS matters more than people think. Without it, HMRC estimates what you owe and starts chasing you for it.
Late FPS penalties depend on the size of your payroll, from £100 a month for 1 to 9 employees up to £400 a month for 250 or more. The first late month in each tax year is normally let off, but after that they add up quickly.
The income tax and National Insurance you deduct, plus your employer National Insurance, is due by the 22nd of the following tax month if you pay electronically, or the 19th if you pay by cheque. Tax months run from the 6th to the 5th, so the liability for the month ending 5 November is due by 22 November.
If you expect to pay HMRC less than £1,500 a month on average, you can ask to pay quarterly instead. This suits a lot of small director only payrolls.
Late payments bring penalties of up to 4% of the amount paid late, plus interest. It is also worth checking whether you can claim the Employment Allowance, which reduces your employer National Insurance bill each year. Companies where a director is the only employee paid above the secondary threshold cannot claim it.
The tax year ends on 5 April, and a few deadlines follow from it:
HMRC is making payrolling of benefits mandatory from April 2027, which will replace most P11D reporting. If you provide benefits, it is worth getting your payroll software ready well before then.
Every employer has auto-enrolment duties from the day their first employee starts. Staff aged 22 up to State Pension age who earn over £10,000 a year must be enrolled automatically. Total minimum contributions are 8% of qualifying earnings, with at least 3% coming from the employer.
You also need to complete a declaration of compliance with The Pensions Regulator within 5 months of your duties start date, and re-enrol eligible staff who opted out every 3 years. Directors without an employment contract are often exempt, but confirm it rather than assume it.
That last one is the easiest to fix. A quick monthly check that the PAYE balance in your accounts matches what HMRC says you owe catches most problems while they are still small, instead of at year end when they take hours to unpick.
We run monthly payroll, RTI submissions, auto-enrolment and year end forms for UK employers, and keep your books reconciled to HMRC every month.
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