How to register as an employer and set up payroll

If you're about to hire your first employee, you must register as an employer with HM Revenue and Customs (HMRC) before their first payday. This process sets you up on the PAYE (Pay As You Earn) system, which is how you’ll manage and pay the necessary Income Tax and National Insurance contributions for your staff. At the same time, you'll need to choose a payroll system to handle the calculations, report to HMRC, and manage your legal duties for workplace pensions.

What is PAYE?

PAYE is the system HMRC uses to collect Income Tax and National Insurance directly from employees' wages. As an employer, you are responsible for calculating these deductions, paying your staff their net pay (after deductions), and paying the collected tax and National Insurance over to HMRC. It ensures that employees pay tax on their income throughout the year, rather than in one large bill.

When do you need to register?

You need to register for PAYE before the first payday if you are hiring staff and any of the following apply:

• You will be paying them £123 or more a week.
• They have another job or a pension.
• They are receiving employee benefits.

The key deadline is that you must be registered before you pay your new employee for the first time. The registration process can take a few weeks, so it’s vital to start this process as soon as you know you are hiring someone.

How to register as an employer with HMRC

Registering is a straightforward online process. Here’s what you need to do:

1. Gather your information: You’ll need your business's details, including its name, address, and your Unique Taxpayer Reference (UTR). You will also need basic information about your first employee, such as their start date and how much you will pay them.
2. Complete the online form: Go to the GOV.UK website and search for 'Register as an employer'. The online service will guide you through the questions. Most businesses can register online, and it can take up to 5 working days.
3. Receive your reference numbers: Once your registration is processed, HMRC will send you two important reference numbers in the post: an Accounts Office reference and a PAYE reference. You will need these to set up your payroll software and make payments to HMRC. These can take a couple of weeks to arrive, so factor this time in.

Choosing and setting up your payroll system

Once you are registered, you need a way to run your payroll. For most small businesses, using payroll software is the most efficient option.

Payroll Software
Modern accounting software like Xero, QuickBooks, or FreeAgent often includes a fully-featured payroll function. There are also specialist payroll providers like BrightPay or The Payroll Site. This software will:

• Calculate tax and National Insurance deductions automatically.
• Generate payslips for your employees.
• Submit your payroll data to HMRC in real-time (known as Real Time Information or RTI).
• Help you manage pension contributions.

Using an Accountant or Payroll Bureau
If you don’t want to manage the administration yourself, you can outsource it to an accountant or a dedicated payroll service. You provide them with your staff's hours and pay rates, and they handle all the calculations and submissions for a fee.

Top Tips

• Start early: Don't leave registration until the day before your first payday. Give yourself at least a month to be safe.
• Keep detailed records: You are legally required to keep records of your employees' pay, deductions, and your reports to HMRC for at least three tax years.
• Don't forget pensions: As soon as you hire your first member of staff, you have a legal duty to set up a workplace pension scheme and automatically enrol eligible employees. Most payroll software is designed to help you with this process.

Setting up payroll is a major step in growing your business from a solo venture to an employer. By registering correctly and choosing the right system, you can ensure you meet your legal obligations and pay your team accurately and on time.