What is PAYE and why does it matter?
If you employ staff — even one person — you are required to operate PAYE (Pay As You Earn). PAYE is the system HMRC uses to collect Income Tax and National Insurance contributions from employees through their wages. As an employer, you are responsible for calculating, deducting, and paying these on time.
Getting payroll wrong is one of the most common and costly mistakes small businesses make. Penalties for late or incorrect submissions start immediately — and HMRC does not typically offer much sympathy for genuine errors if they become a pattern.
What you need to set up before running payroll
- Register as an employer with HMRC— you must do this before your first payday. Registration can take up to five working days.
- Set up payroll software— HMRC requires you to use compatible payroll software to submit Real Time Information (RTI). There are free options for businesses with fewer than 10 employees.
- Collect information from each employee— full name, address, National Insurance number, date of birth, and tax code (from their P45 if they have one).
Key deadlines to know
Real Time Information (RTI) submissions.Every time you pay employees, you must submit a Full Payment Submission (FPS) to HMRC on or before the payday. Late submissions trigger automatic penalties.
Payment to HMRC.The tax and National Insurance you deduct must be paid to HMRC by the 19th of the month following the pay period (22nd if paying electronically).
Year end.By 19 April each year you must submit your final payroll submission for the tax year and issue P60s to all employees who were on payroll at 5 April.
National Minimum Wage
Ensure every employee is paid at least the National Minimum Wage (or National Living Wage if aged 21 or over). Rates are updated each April. Paying below minimum wage — even accidentally — carries significant penalties and reputational risk.
Common payroll mistakes to avoid
- Missing the RTI submission deadline — even by a day
- Using the wrong tax code for a new employee
- Forgetting to include benefits in kind on P11D forms
- Not enrolling eligible employees into a workplace pension (auto-enrolment)
Payroll is not complicated once you have a reliable process in place. The key is getting set up correctly from the start — with the right software, accurate employee records, and a calendar of deadlines you check every month.
