1. Introduction
If you’re hiring staff in the UK, you’ll need to understand PAYE company requirements. PAYE (Pay As You Earn) is the HMRC system for collecting Income Tax and National Insurance contributions directly from employees’ wages. This guide explains what it means to run a company with PAYE and how to manage it correctly.
2. What Is a PAYE Company?
A PAYE company is any UK business registered with HMRC to operate the Pay As You Earn system. Employers deduct Income Tax and National Insurance from employees’ salaries before paying them, then send the deductions to HMRC.
3. Who Needs to Register as a PAYE Company?
You must register as a PAYE company if you:
- Employ staff earning £123 or more per week.
- Provide employee benefits or expenses.
- Pay employees with pensions or other taxable income.
4. How to Register as a PAYE Company
Step 1: Register as an Employer with HMRC
- Register online before your first payday.
- HMRC provides a PAYE reference number.
Step 2: Set Up Payroll
- Use payroll software approved by HMRC.
- Calculate wages, tax, and National Insurance contributions.
Step 3: Report to HMRC
- Submit Real Time Information (RTI) each payday.
Step 4: Pay Employees
- Deduct taxes and contributions, then pay staff the net amount.
Step 5: Pay HMRC
- Send the deducted amounts to HMRC monthly or quarterly.
5. Employer Responsibilities in a PAYE Company
- Deduct Income Tax and National Insurance.
- Provide employees with payslips.
- Issue P60s at the end of the tax year.
- File P45s when employees leave.
- Ensure compliance with employment laws.
6. Benefits of Running a PAYE Company
- Simplifies employee tax collection.
- Ensures compliance with UK tax law.
- Provides employees with clear wage documentation.
- Builds trust and professionalism as an employer.
- Makes it easier for employees to access credit or mortgages.
7. Challenges of PAYE for Companies
- Time-consuming without payroll software.
- Risk of HMRC fines if reports are late or incorrect.
- Requires regular cash flow to cover tax payments.
8. Alternatives to Handling PAYE Yourself
- Outsourcing payroll to an accountant or payroll service provider.
- Using HMRC’s free Basic PAYE Tools for small companies.
Frequently Asked Questions
Q1: What is a PAYE company?
It’s a business registered with HMRC to deduct Income Tax and National Insurance from employees’ wages.
Q2: Do all companies need PAYE?
No, only companies with employees earning above the weekly threshold or receiving taxable benefits.
Q3: How do I register my company for PAYE?
You can register online with HMRC before your first payday.
Q4: Can a company director be on PAYE?
Yes, directors often pay themselves through PAYE as employees of their own company.
Q5: What happens if a PAYE company doesn’t pay HMRC?
The company can face fines, penalties, and interest charges.
Q6: Do I need payroll software to run PAYE?
Yes, unless you use HMRC’s free Basic PAYE Tools for very small businesses.
Conclusion
A PAYE company ensures employees are paid correctly and taxes are deducted at source. Setting up PAYE is a legal requirement for most employers and helps maintain compliance with HMRC. Whether managed in-house with payroll software or outsourced to an accountant, understanding PAYE is vital for any UK business employing staff.