How to register for PAYE: a step-by-step guide for founders

If you’re thinking about employing staff — or even paying yourself a salary as a limited company director — it means your business is growing, and that’s fantastic news. It also means you have a new responsibility: registering for PAYE.

You’re probably already familiar with the term PAYE. But as a first-time company founder, you might be unfamiliar with the registration process. 

Registering for PAYE might sound a bit formal and potentially difficult, but it’s quite straightforward. Don’t worry, though – we’re here to walk you through what PAYE is, when you need to register for it, and how to get it all sorted, stress-free. 

Key takeaways

• The PAYE registration process is free and generally done online 
• You’ll need to register for PAYE if you’re the only employee or director of your limited company, and you want to take a salary above the current threshold
• You must register for PAYE with HMRC before your first payday
• It can take a few weeks for HMRC to process your registration, so advanced planning is a good idea

PAYE stands for Pay As You Earn. It’s the official system HMRC uses to collect income tax and National Insurance Contributions (NICs) from an employee’s wages. 

There are three ‘people’, or entities, involved in the PAYE process: 

1. The employee
2. The company
3. HMRC

The company (i.e. the employer) is essentially the middleman in the PAYE process.

Every time the company runs payroll (which could be monthly or biweekly), it needs to calculate the correct amount of income tax and NICs the employee owes and deduct it from the employee’s pay cheque. This money is then sent to HMRC on the employee’s behalf. 

PAYE makes sure that every employee pays their income tax and NICs throughout the year in a manageable way — spread over 12 months instead of a big lump sum at the end of the year. 

HMRC uses the PAYE system to ensure that everyone is contributing the correct amount of taxes, which are then used to fund public services. The PAYE system simplifies things because all this is done automatically via your company payroll, which calculates it all for you. Much easier than getting the calculator out!  

Excellent question. Every company in the UK needs to register for PAYE with HMRC if one or more of the following apply:

• Your company pays at least one employee, including any company directors, at least £96 per week (£417 per month, £5,000 per year). This is the current national insurance lower earnings limit for the 2024/2025 tax year
• Your company employs someone who has another job, and they’re receiving a state, company or occupational pension
• Your company provides expenses or benefits to any employees or directors
• Your company hires subcontractors

Therefore, if you own a limited company and pay yourself a director’s salary above the current national insurance threshold, you must register your company for PAYE. 

If your director’s salary is below the threshold, you may still choose to register because this way, you’ll receive NICs towards your state pension.  

If you’re a sole trader: You don’t need to register for PAYE if you’re only paying yourself. This is because you’re considered self-employed and not an employee of a company. However, if you decide to hire employees or subcontractors, like construction workers, you must register as an employer with HMRC and set up PAYE.

You’ll need to make sure that you’re registered for PAYE before your first payday (i.e. before your company runs its first payroll).

You can register for PAYE up to a maximum of 2 months in advance of when you plan to pay anyone, including yourself. 

Once you submit your PAYE application, HMRC typically takes up to 15 working days to process your application and send your Employer PAYE reference and Accounts Office reference numbers in the post.  These numbers have two different purposes: 

• Your Employer PAYE reference is used to identify your specific PAYE scheme and is your company’s main identifier for payroll. It’s usually in this format: 123/AB12345
• Your Accounts Office reference is your payment reference number when you make payments to HMRC. It’s usually in this format: 123PA1234567

You can also find both reference numbers in your HMRC online account once you’ve registered for PAYE online.

Don’t worry, it happens. If you’ve applied to register for PAYE but your reference numbers haven’t arrived before your first payroll, you still need to pay your employees (and directors) on time.

This means you should still run payroll as planned and calculate the correct deductions for tax and national insurance yourself (based on employee or director tax codes). You then need to:

1. Keep accurate records of the payments — including your tax calculations 
2. Once you get your Employer PAYE reference number and Accounts Office reference from HMRC, you should process the payroll in your payroll software using the payment date you used earlier 
3. Then, you should submit your Full Payment Submission (FPS) to HMRC with a late reporting reason 

HMRC usually allows new employers to send their first PAYE submission within 30 days of the first payroll without incurring a penalty. 

Here’s our step-by-step guide on how to register for PAYE to help make the process as simple as possible. 

Step 1: Check how you should register
First of all, if you haven’t already, you’ll need to check how you should register for PAYE. 

Go to: https://www.gov.uk/register-employer 

Select ‘start now’ and then you’ll be asked three questions about your company:

1. Does at least one company director have a UK national insurance number?
2. Is the company an offshore employer outside the European Economic Area that doesn’t pay UK National Insurance?
3. Over the next two months, will the company pay out any non-cash incentive awards?

You can only answer yes or no to these questions — and at the end, HMRC tells you if you can register online. If not, you can register by phone or post, and you can arrange a call with HMRC to help with this. 

Most small business founders (typically with no employees) select ‘yes’ to question one, and ‘no’ to the other two questions, which means you’re eligible to register for PAYE online. 

Step 2: Sign in using your Government Gateway ID
From here, you’ll be asked to sign in to your Government Gateway account with your Government Gateway ID. This lets you access the PAYE registration service.  

If you have an account, sign in now. 

If you don’t have an account, select ‘Create sign in details’ and follow the steps: 

1. Enter your email address
2. Check your inbox — HMRC will send you a confirmation code —  and enter this code in the box
3. Enter your name 
4. Create a password and password recovery details 
5. You’ll then see your Government Gateway user ID on screen — it’s a good idea to make a note of it now 
6. Finally, select ‘organisation’ when prompted to choose the type of account you need

You did it! And now you can sign in.

Step 3: Prepare your information
Before completing the PAYE registration form, take a moment to gather the following key information. This includes:

• Company name
• Name and NI number of every director — even if it’s just you
• Trading name of the business (this might be different to your company name)
• Registered office address 
• Company telephone number
• Type of business
• Company registration number
• Company Unique Taxpayer Reference (UTR) 
• The date you want PAYE to start (i.e. your first payday)

Step 4: Select ‘PAYE for Employers’ in your account
Now that you’ve got the information ready, you can select what type of tax you want to register for in your Government Gateway account. 

This is where you’ll choose: ‘PAYE for Employers’.

You’ll need to state that you’re registering for PAYE as a limited company and enter your company’s UTR.

Step 5: Complete the PAYE registration form
Here, you’ll input all the information you gathered a little earlier — name, registered office address, date you want payroll to start, etc.

This is an easy form to complete, and it’s there to guide you through the process. You’ll also need to answer questions about how many employees you have and if you need to register for other schemes like CIS (Construction Industry Scheme), which is relevant if you plan to hire subcontractors in the construction industry. 

Step 6: Submit your form and wait
When you’ve answered all the questions, that’s it, you’re done for now — yay! 

Then, upon successful registration, HMRC will send your Employer PAYE reference number and Accounts Office reference numbers within 15 days. These numbers are unique to your business and are essential for reporting and running payroll.

About 10 days after registering for PAYE, HMRC will send you an activation code in the post. Use this pin to activate your online PAYE account — which you must do within 28 days of the date on the letter. 

And that’s it, you really are done now. Once you’ve activated your online account, you can do important things like pay your PAYE bill and access employee and director tax codes.

When your company runs payroll using the PAYE system, it basically acts as HMRC’s tax collection agent. Your payroll software calculates two types of payments that must be sent to HMRC:

1. Deductions from the employee’s pay: Money taken directly out of the gross salary
2. Employer’s contributions: An additional cost paid by the company

Let’s look at employee tax deductions in a little more detail:

These amounts are taken directly from the employee’s (or director’s) gross wage before they receive their pay:

• Income tax: Calculated based on your employee’s earnings and their individual tax code
• National insurance contributions (NICs): This money goes towards your employee’s or director’s state pension and other benefits (like sick pay)
• Student loan repayments: If your employee is repaying a student loan, this is automatically deducted
• Employee pension contributions: For auto-enrolment pensions, the employee’s share is taken from their wage

You need to report these deductions and contributions to HMRC on or before every payday via your payroll software — this is called Real Time Information (RTI) reporting. 

Now let’s look at those employer contributions. These are additional costs your company must pay on top of your employee’s salary.

Payments to HMRC

• Class 1 employer’s NICs: Your company must pay a percentage (currently 15%) of your employee’s earnings to HMRC once their wage crosses the current tax year’s secondary threshold (currently £417 per month, £5,000 per year). This is an unavoidable cost of employing staff that you must budget for

The total amount of all these items (employee deductions + employer contributions) is what your company must pay to HMRC every month.

Other employer contributions: 

• Employer Pension Contributions: Your company’s share of the auto-enrolment pension payment is also calculated via the payroll process, but this contribution is paid directly to the pension provider, not to HMRC.

Employer Class 1 NICs might feel like an extra, hidden cost that your business budget needs to cover, which is why many limited company directors choose to take a director’s salary that sits under the NIC threshold. Simply put, this means your company can save money on tax. 

Registering for PAYE and running payroll are important parts of your company’s bookkeeping. Getting it right at the start means you’ll keep HMRC happy, avoid any penalties and have a clear picture of your business’s financial health as you pay employees and directors.

If you’re looking for a simple way to help manage your business finances, our smart business current account app could be a game-changer for your business. It includes tools designed for small business bookkeeping, like setting aside income for tax, attaching receipts to transactions and personalised tax timelines. 

Who said bookkeeping wasn’t fun? Definitely not us. 

Yes, if you’re a limited company director and you plan to pay yourself a salary above the taxable threshold, or if you receive taxable employee benefits, you must register your company for PAYE and run payroll. 

Yes, absolutely. Many accountants or payroll companies will handle the process of registering PAYE on behalf of their limited company clients. If you have an accountant, they can use their own software and systems to complete the registration and manage the payroll reporting for you.

Yes, as a small employer, you might be able to run an annual payroll — submitting the required Full Payment Submission to HMRC just once a year. However, this is only allowed if you pay all your employees (including directors) annually and the tax year is completely covered by that single payment date.

Yes, you can tell HMRC that you no longer need PAYE if you stop employing staff or stop paying directors a salary above the necessary thresholds. This is important — if you don’t close the scheme, HMRC will expect to receive regular reports from you and may issue late filing penalties.