How to register as an employer with HMRC and set up PAYE

Registering as an employer with HMRC and setting up PAYE is a key step when your UK startup hires its first employee. The process involves notifying HMRC, choosing suitable payroll software and preparing for Real Time Information (RTI) submissions from day one.

This guide explains the practical actions required, the reasoning behind each stage and how to handle onboarding smoothly while staying compliant. All figures and requirements change regularly, so always verify the latest details directly on GOV.UK.

Deciding when you need to register as an employer

You must register with HMRC as an employer before you start paying anyone through PAYE. This includes full-time staff, part-time workers, directors who take a salary, or even family members if they receive taxable pay. The trigger is usually the point at which you agree to pay someone above the level where deductions become necessary.

Early-stage founders often delay this until the first hire is confirmed. Registering in advance gives breathing room to set up systems without rushing. Delaying past the point when payments begin risks penalties, so plan to complete registration at least four weeks before the first payday.

Registering with HMRC as an employer

Use the GOV.UK online service to register as an employer. You will need your company registration number, Unique Taxpayer Reference if already issued, and details of the first person you intend to pay. The process asks questions about the type of workers, expected pay dates and whether you will use a payroll provider.

After submission HMRC issues an Accounts Office Reference and a PAYE reference. These are essential for all future submissions. Keep records of the confirmation email and reference numbers in a secure place. Registration is free but must be completed before any taxable payments are made.

Reasoning: Early registration avoids last-minute compliance issues when you are focused on product launch or customer acquisition. It also lets you explore payroll options with accurate references ready.

Choosing payroll software for RTI compliance

Real Time Information (RTI) requires you to send payroll data to HMRC on or before each payday. Most startups therefore need payroll software that supports RTI. Options range from free or low-cost basic tools suitable for one or two employees to more comprehensive platforms that integrate with accounting packages.

Spreadsheets are no longer sufficient for RTI unless you use HMRC-approved commercial software that transmits data electronically.
Popular choices include cloud-based services that handle payslips, deductions and automatic RTI filing.
Some accounting platforms offer built-in payroll modules that reduce the need to switch between systems.

Consider ease of use, cost (which changes and should be checked on the provider site) and whether the software will grow with the business. Test the trial version with sample data before committing. The goal is reliable, accurate submission without manual calculation errors.

Setting up PAYE for your first employee

Once registered, add your first employee to the payroll system. Collect their personal information, National Insurance number, P45 from any previous employer or a starter checklist if they have never been employed in the UK. The starter checklist helps determine the correct tax code.

Enter the employment start date, salary or hourly rate, and payment frequency. The software will calculate income tax, National Insurance contributions and any other deductions. Generate the first payslip and prepare the Full Payment Submission (FPS) that must reach HMRC on or before payday.

Reasoning: Getting the first run right builds confidence. Mistakes on the initial FPS can trigger automatic queries from HMRC, so double-check employee details and payment amounts against the contract.

Understanding and running RTI submissions

RTI consists mainly of the Full Payment Submission (FPS) sent each pay period and the Employer Payment Summary (EPS) when required. The FPS reports gross pay, deductions, net pay and other details for each employee. Even if no payment is made in a month you may still need to submit a Nil FPS in some cases.

Additional reports such as the Employer Annual Return (P14/P60) are generated automatically by compliant software at year end. The system also handles statutory payments like sick pay or maternity pay when eligibility arises.

Practical tip: Set calendar reminders for payroll day and the RTI deadline. Running payroll a few days early allows time to correct errors before the submission cut-off. Most software sends confirmation once HMRC accepts the data.

Onboarding your first employee and ongoing admin

Provide the employee with a written statement of employment before or on their first day. Issue payslips on or before payday. Register for construction industry scheme or other specific schemes only if relevant to your operations.

Keep clear records of contracts, payslips, RTI submissions and any statutory payments. Review the payroll process after the first three months to identify improvements. As the team grows, consider whether to handle payroll in-house or outsource it to a specialist provider.

Founders at places like Loomworks often manage these tasks alongside product development, so simple, repeatable processes are essential.

Common pitfalls and how to avoid them

New employers sometimes miss the requirement to send an FPS even when no tax or National Insurance is due. Others forget to update employee details after a pay rise or change of circumstances. Late submissions can attract penalties that increase with repeated failures.

Check the GOV.UK employer helpline if unsure about a specific situation. Reconcile payroll figures against bank payments each month. Treat the payroll system as a core part of the business infrastructure rather than an afterthought. Regular attention prevents small errors becoming larger compliance problems later.

Frequently asked questions

Do I need to register with HMRC before offering a job?

You must register as an employer before the first payment date. It is wise to register as soon as you have a firm start date for the new employee so that your PAYE references are ready and you have time to set up payroll software.

Can I use a spreadsheet for payroll and RTI?

Basic spreadsheets cannot submit data to HMRC. You need HMRC-recognised payroll software that transmits RTI information electronically. Many low-cost or free options exist for small teams.

What information do I need to collect from a new employee?

Collect their full name, address, National Insurance number, P45 if available, and completed starter checklist. These details determine the correct tax code and ensure accurate RTI submissions from the first payday.

How often must I submit RTI data?

You send a Full Payment Submission on or before each payday. If you pay monthly this means twelve submissions per year. Additional reports are required at year end or when specific events occur.

What happens if I make a mistake on an FPS?

Most payroll software allows you to submit a corrected FPS. Early identification and correction usually prevents penalties. Keep records of all submissions and corrections for your own audit trail.