What is PAYE? When And How To Register For It

A Guide to Registering for PAYE with HMRC: What You Need to Know

Written by 
James Morgenstern
Updated on
June 3, 2024

When and how to register for PAYE with HMRC.

Why should I register for PAYE? 

Registering for PAYE (Pay As You Earn) is essential if your business employs staff or if you, as a director, plan to pay yourself a salary.

Paying yourself a salary can often be extremely tax efficient, helping lower your corporation tax bill by up-to £3,142 a year whilst paying yourself £12,570 a year tax free. However, in order for these payments to be classed as salary and attract this corporation tax relief, legally your company must be registered for PAYE. 

What is PAYE?

Pay As You Earn (PAYE) is often confused as being a tax in its own right, however this is not the case. PAYE is a system used by HMRC to collect income tax and National Insurance from employees. 

PAYE registered businesses submit the details of their employees wages and salaries via Payroll Software. This software generates Real Time Information (RTI) submissions that are sent directly to HMRC, informing them of how much each employee has earned and how much tax is due on this income. 

Unless an RTI submission is generated, your payroll has not been submitted. HMRC approved software such as Mighty will automatically handle all aspects of payroll for you, creating your RTI submissions to HMRC, generating your monthly payslips and P60s. 

Do you have to register for PAYE?

You must register for payroll if and of the following apply: 

  • You’re a director of a limited company and will be paying yourself a salary
  • You employ at least one staff member (including yourself) 
  • The salary for your employee(s) is £120 or more per week.
  • You offer employee benefits such as a company car or cover their expenses.

Nevertheless, regardless of your registration status, you're accountable for maintaining precise payroll records. 

Should you pay yourself a salary? 

As a general rule, if you earn under £12,570 per year from inside IR35 contracts, other PAYE employment, or income-taxable investments it’s probably tax efficient to pay yourself a monthly salary. 

To be sure, check-out the most tax efficient way to pay yourself to see whether it’s right for you, and how much salary you should pay yourself. 

When should you register for PAYE?

You must register for PAYE before you can issue your first salary payment. This process can take up-to five weeks - but it’s often much faster and usually completed within 5 days.

When you’re registered for PAYE, you will be sent your Employer Reference Number (ERN) and an Accounts Office Reference Number (AORN) by HMRC - both of which will be needed for your company to file payroll. 

When you register, you can choose a future date as your PAYE registration date. However, you cannot register more than 2 months before you start paying people (including yourself). Therefore, whilst you want to allow time for the references to arrive, don't register until you know you will be making salary payments within the next couple of months.

Can you pay salaries without a PAYE Reference?

If you need to pay yourself (or employees) quickly and cannot wait for the PAYE reference number, you can still pay the relevant salaries whilst awaiting your PAYE Reference.

Once your PAYE reference is issued, you can submit a late RTI submission to HMRC with a late reason (which would be 'reasonable excuse' in the case you're awaiting PAYE references). If you use Mighty, our software makes it easy to make these submissions!

How to Register for PAYE?

Setting up PAYE for your UK-based company is straightforward and should take no more than 10 minutes.

  • Step 1: You’ll need to login to your Government Gateway here. 
  • Step 2: Within here select the option to 'add taxes' and choose ‘Register for PAYE’.
  • Step 3: Complete the HMRC questionnaire. You will be asked for your UK National Insurance number. 

Once submitted, HMRC will post your Employer Reference Number (ERN) and an Accounts Office Reference Number (AORN) to you. These can take up to 30 days to arrive via post, but usually arrives much sooner than that.

How to add your PAYE scheme to your Government Gateway account?

In order to file payroll using your Government Gateway credentials, in addition to registering for PAYE following the steps above, you'll also need to add this PAYE scheme to your account which requires a couple of additional steps:

  • Step 1: Once you have received your PAYE references in the post, you can login to your Government Gateway account and click 'add taxes' and then 'PAYE for Employers'. Here, you can follow the steps including adding in the PAYE references you have now received. This will then trigger a 12-digit activation code to be sent in the post by HMRC.
  • Step 2: Once you receive this activation code, you'll be able to add this into your Government Gateway account and be able to view your PAYE scheme whenever you login.

As well as being able to file payroll using your Government Gateway credentials, you'll also be able to view RTI submission receipts and your tax liabilities and payments within your account.

How to set-up your monthly payroll?

All PAYE and payroll submission must be submitted via RTI compliant software. There are many payroll software providers which work with businesses of varying sizes. 

If you’re a freelancer, contractor or small business with only 1 or 2 directors, Mighty is designed for you. Once you have received your PAYE reference, an Accounts Office Reference and linked your PAYE scheme to your Government Gateway account, you can simply add these references into your Mighty account under the ‘Paying Yourself’ tab.

You can then set your desired monthly salary and whether you would like payroll to run automatically for you (recommended), or if you’d like to manually change your salary from  month to month.

From there, Mighty will generate your payslip, calculate any Income Tax, Employers or Employee National insurance you owe, and you'll be able to submit all details to HMRC via RTI submissions. You’ll also be able to download any payslips, P60s, and see any taxes owed. It couldn’t be easier.

Not sure how much to pay yourself each month? This article on ‘How to pay yourself tax efficiently as a company director’ is here to answer that very question.

Frequently asked:

Sole Trader or Self-Employed: Do I Need PAYE?

If you're operating as a sole trader, normally, the PAYE system does not apply to your own salary. However, if you hire employees within your company, you'll be responsible for registering and managing PAYE on their behalf.

What If You Need to Pay Employees Before Getting Your PAYE Reference Number?

Adhering to best practices, you should aim to be registered in advance. However if an urgent situation arises where you must pay your employees before obtaining a PAYE reference number, it’s important to:

  • Document every payment to employees, noting details like their National Insurance number, tax code and student loan loan scheme. Whilst you can't submit their salary, it's important to still 'run' it so you know the gross pay, net pay and relevant deductions.
  • Upon receiving your reference number, you should submit your back-dated payroll information to HMRC accordingly with employee details to ensure your payroll is correctly submitted.
  • If you use Mighty, our software will automatically explain the reason for the delay for you. 

Mighty makes PAYE easy

PAYE is essential for paying your staff, and is often a critical element to ensure you’re paying yourself tax efficiently. If you’re a small business, looking for an easy and affordable accounting to use solution for your business you can try Mighty free-of-charge here.

Mighty is built to make accounting fast, easy, affordable for freelancers, contractors and micro businesses. It combines best in class software, with smart tax advice and expert accounts on hand to help for one low price, with no hidden costs.

Get in touch to learn more or book free consultation with an expert accountant today. 

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