If you are about to take on your first employee, or you are a limited company director paying yourself a salary for the first time, you need to register for PAYE. It is a legal requirement, not an optional extra. And the deadline is tight: you must register before your first payday.
This guide covers exactly how to register for PAYE, what you need before you start, the deadlines you cannot miss, and what happens after HMRC confirms your registration. We work with limited companies, sole traders, and partnerships across the UK, and this is one of the most common questions we answer for new employers.
What Is PAYE and Who Needs to Register?
PAYE stands for Pay As You Earn. It is the system HMRC uses to collect Income Tax and National Insurance from employees' wages. As an employer, you are responsible for deducting these amounts from your employees' pay and sending them to HMRC.
You must register for PAYE if any of the following apply to you:
- You are a limited company director paying yourself a salary (even if you are the only director and the only employee)
- You take on your first employee, whether full-time, part-time, or casual
- You employ someone through an agency or umbrella company arrangement
- You take on an apprentice or trainee
- You pay a subcontractor through your own payroll rather than through the Construction Industry Scheme (CIS)
If you are a sole trader or a partnership and you employ anyone other than yourself, you need to register. The only exception is if your only employee is your spouse or civil partner and they earn below the National Insurance secondary threshold (currently £9,100 a year for 2025/26). In that case, you can choose not to register, but most employers still do for simplicity.
When to Register for PAYE
The rule is straightforward: you must register for PAYE on or before the date your first employee starts work. Not the day you remember. Not the day you process payroll. The day they start.
If you are a limited company director paying yourself a salary, you must register before your first pay date. Many directors set up payroll from the date the company starts trading, even if they do not take a salary immediately.
HMRC can issue penalties for late registration. The penalty is based on the number of employees and the length of the delay, starting at £100 per month per 50 employees for late returns, but the registration itself is a trigger point. If you miss the deadline, you may also face a penalty for failing to report a new employee on time.
What Happens If You Register Late?
If you realise you should have registered and did not, do not delay further. Register immediately. HMRC will backdate your registration to the date you should have registered, and you will need to submit late Full Payment Submissions (FPS) for each pay period you missed. You may face penalties for late FPS submissions, but registering late and catching up is better than staying unregistered.
What You Need Before You Register
Before you start the online registration process, have the following information ready:
- Your Government Gateway user ID and password. If you do not have one, you can create one during the process.
- Your company name, registered address, and Companies House registration number (if you are a limited company).
- Your business name and address (for sole traders and partnerships).
- Your Unique Taxpayer Reference (UTR) for your business.
- The date your first employee starts work.
- The number of employees you expect to have in the next 12 months.
- Your payroll software details or confirmation you will use HMRC's Basic PAYE Tools (free software for small employers with 9 or fewer employees).
If you are a limited company, you also need your company's Corporation Tax UTR and your company registration number. Sole traders and partnerships use their personal UTR.
How to Register for PAYE: Step by Step
The entire registration process is done online through HMRC's website. There is no paper form for new PAYE registrations. Here is how it works.
Step 1: Log into HMRC Online Services
Go to the HMRC website and sign in to your Government Gateway account. If you do not have one, select the option to create an account. You will need your National Insurance number and a valid email address.
Step 2: Select the PAYE Registration Service
Once logged in, navigate to the PAYE section. You will see an option called "Register as an employer." Select this. If you already have an existing PAYE scheme, you will not see this option, so make sure you are using the correct Government Gateway account.
Step 3: Provide Your Business Details
HMRC will ask for your business type: limited company, sole trader, partnership, or other. Enter the relevant details:
- For limited companies: your company name, registered address, Companies House number, and Corporation Tax UTR.
- For sole traders: your full name, trading name (if different), business address, and your personal UTR.
- For partnerships: the partnership name, address, and the partnership UTR.
Step 4: Confirm Your First Employee's Start Date
Enter the date your first employee starts work. If you are a director paying yourself, use the date you intend to pay your first salary. HMRC uses this date to set your PAYE reference number and your reporting schedule.
Step 5: Choose Your Payroll Software
HMRC will ask whether you will use payroll software or their free Basic PAYE Tools. If you have 9 or fewer employees, Basic PAYE Tools is free and meets all legal requirements. It handles FPS submissions, payslips, and year-end P60s. If you have 10 or more employees, you must use commercial payroll software.
Most limited company directors and small businesses we work with use cloud-based payroll software integrated with their accounting software. Xero, FreeAgent, and QuickBooks all include payroll modules. Sage 50 and BrightPay are also common choices for businesses with more complex payroll needs.
Step 6: Submit Your Registration
Review all the information you have entered. Once you submit, HMRC will process your registration. You will receive a PAYE reference number immediately. This is your employer reference, typically in the format 123/AB45678. You will also receive an Accounts Office reference number, which you use when making payments to HMRC.
Write both numbers down. You will need them for every payroll submission and every payment.
What Happens After You Register
Once your PAYE registration is confirmed, you have ongoing legal obligations. Here is what changes.
You Must Submit a Full Payment Submission (FPS) Each Pay Period
Every time you pay an employee, you must submit an FPS to HMRC on or before the pay date. This tells HMRC how much you paid each employee, how much tax and NI you deducted, and what your employer NI liability is. Late FPS submissions trigger automatic penalties starting at £100 per month per 50 employees.
You Must Keep Payroll Records
HMRC requires you to keep payroll records for at least 3 years from the end of the tax year they relate to. These records include:
- Employee names, addresses, and National Insurance numbers
- Gross pay, deductions, and net pay for each pay period
- Dates of employment
- P45s and P60s
- Any benefits in kind reported on P11Ds
You Must Report Leavers and New Starters
When an employee leaves, you submit a late FPS showing the leaving date and the final pay. You then issue a P45. When a new employee starts, you include their start date and starter declaration on the next FPS.
You Must Make Payments to HMRC
You pay the Income Tax and National Insurance you deducted from employees, plus your own employer NI, to HMRC. Most small employers pay monthly, with the payment due by the 22nd of the following month (19th if paying by post). If your average monthly liability is less than £1,500, you can pay quarterly.
You Must Submit an Employer Payment Summary (EPS)
If you claim any statutory payments (like Statutory Sick Pay or Statutory Maternity Pay) or the Employment Allowance, you submit an EPS each month to report these. The EPS reduces the amount you owe HMRC.
Special Cases: Directors, Sole Traders, and Partnerships
The registration process is the same regardless of your business structure, but a few points matter for each.
Limited Company Directors
If you are a director paying yourself a salary, you must register for PAYE. Even if you are the only director and the only employee, HMRC requires a PAYE scheme. You can pay yourself a salary up to the National Insurance primary threshold (£12,570 for 2025/26) without paying employee NI, but you still need to submit FPS returns each pay period. Many directors combine a salary at this level with dividends for tax efficiency. Our director pay and dividends guide covers the numbers in detail.
Sole Traders
As a sole trader, you do not pay yourself through PAYE. Your drawings are not wages. But if you employ anyone else, even a part-time assistant, you must register for PAYE and run payroll for them. Your own income is declared through your Self Assessment tax return.
Partnerships
Partners are not employees for PAYE purposes. Their profit share is reported through the partnership tax return. But if the partnership employs any staff, including salaried partners (who are treated as employees for tax purposes), you need a PAYE scheme.
Common Mistakes When Registering for PAYE
We see the same errors repeatedly. Here are the ones to avoid.
Registering too late. The most common mistake. Register before the first payday, not after. If you miss it, register immediately and catch up on submissions.
Using the wrong Government Gateway account. If you already have a personal account for Self Assessment, you may need to create a separate business account for PAYE. Check before you start.
Not registering at all as a director. Some directors assume that because they are the only employee, they do not need PAYE. You do. HMRC expects to see FPS submissions even for a single director salary.
Choosing the wrong payroll software. Basic PAYE Tools works for very small payrolls, but it does not integrate with your accounting software. If you use Xero or FreeAgent for bookkeeping, use their payroll module instead. It saves time and reduces errors.
Forgetting to register for the Employment Allowance. If your employer NI liability is below £10,500 for the year, you can claim the Employment Allowance to reduce your NI bill. You register for this through your payroll software or the EPS. Many small businesses miss this entirely.
What About Contractors and IR35?
If you are a contractor working through your own limited company and you are caught by IR35, your client (or the agency) is responsible for operating PAYE on your fees. You do not register for PAYE in that scenario. Your company still needs its own PAYE scheme for your director salary.
If you are a contractor outside IR35, your company registers for PAYE in the normal way for your salary. Dividends are not subject to PAYE and are reported separately on your personal Self Assessment tax return.
How We Can Help
Registering for PAYE is a straightforward process, but the ongoing compliance is where most businesses trip up. Late FPS submissions, missed payments, and incorrect employee records all trigger penalties. As ICAEW qualified accountants, we help our clients set up their payroll correctly from day one and manage the monthly submissions without the stress.
If you are taking on your first employee, setting up a director salary, or just want to check your payroll is compliant, get in touch. We work with limited companies, sole traders, and partnerships across the UK, from London to Manchester to Glasgow. We can handle your payroll setup, your monthly FPS submissions, and your year-end reporting.
For a broader overview of what it means to run payroll, our business fundamentals guide covers the key obligations every employer should know.