If you are taking on your first employee, paying yourself a salary as a company director, or hiring domestic staff, you are required to register as an employer with HMRC and set up a PAYE scheme before your first payday, but no more than two months before that payday. PAYE stands for Pay As You Earn and is the system HMRC uses to collect income tax and National Insurance Contributions from employees’ wages in real time. Getting this right from the start matters because missing registrations, late submissions, and incorrect deductions all carry automatic penalties.
Do You Need to Register?
You need to register for PAYE if any of the following apply. You are paying an employee at or above the Lower Earnings Limit of £96 per week in 2026/27. You are a limited company director paying yourself a salary through the company. You have an employee who has a second job or receives a pension. You are providing benefits in kind to employees that need to be payrolled.
You do not need a PAYE scheme if you are a sole trader or a partnership with no employees, or if you are a director taking income purely as dividends with no salary at all. However, most directors pay at least a small salary to preserve National Insurance credits and take advantage of the personal allowance, and that requires PAYE registration.
It is also worth noting that since April 2025, the registration threshold has changed to the secondary threshold, meaning employers now need to send an RTI return for employees who earn less than the Lower Earnings Limit but above the Secondary Threshold of £5,000 per year.
When to Register?
You must register before your first payday, but no more than two months before employees start being paid. This window is fixed. Register too early, and HMRC will not accept the application. Leave it too late, and your reference numbers may not arrive before your first payroll date.
HMRC takes up to 40 to 45 working days to process the registration and send your reference numbers by post. The safest approach is to register as soon as the two-month window opens. If your reference numbers have not arrived in time for your first payday, run payroll as normal, store your Full Payment Submission, and send it to HMRC as a late submission once your references arrive. This is HMRC’s own recommended workaround and will not automatically result in a penalty provided you act promptly.
What You Need Before You Start?
Before beginning the registration process, have the following ready: your business name and address, your contact details, your business type (sole trader, limited company, or partnership), the number of employees you expect to employ, your planned PAYE scheme start date, your anticipated first payday if known, and your National Insurance number. You will also need a Government Gateway account. If you do not have one, you can create it during the registration process itself.
The Registration Process
Sign in to HMRC’s employer registration service using your Government Gateway credentials. You will be taken through a short series of questions about your business and the employees you plan to pay. The form takes around 10 to 15 minutes to complete. Once submitted, HMRC will post your two reference numbers to your registered address within 40 to 45 working days.
The Two Reference Numbers HMRC Sends You
HMRC issues two separate references after registration, and both are required before you can submit anything or make payments.
The Employer PAYE Reference is typically formatted as 345/AB56564. This identifies your PAYE scheme and appears on all payslips, P45s, P60s and RTI submissions. The Accounts Office Reference is a 13-character code formatted as 123PF00012345. This is used solely when making your monthly tax and NIC payments to HMRC. The two references serve different purposes and are not interchangeable.
Keep both letters safe. If you cannot locate them later, they are available through your HMRC online account under PAYE for Employers, or you can call the HMRC Employer Helpline on 0300 200 3200.
Setting Up Payroll After Registration
Once your references arrive, enroll for PAYE Online through your Government Gateway account and set up HMRC-recognized payroll software. HMRC requires that payroll data be submitted digitally for most employers.
Under Real Time Information (RTI), you must report to HMRC every time you pay an employee, on or before the date of payment. There are two main submission types. A Full Payment Submission (FPS) is sent on or before each payday and reports each employee’s pay, tax, and NIC deductions. An Employer Payment Summary (EPS) is submitted separately to claim statutory payment reclaims, declare periods of inactivity, or claim the Employment Allowance.
Tax and NIC collected must be paid to HMRC by the 22nd of the following month if paid electronically, or by the 19th if paid by cheque. Late payments attract interest from the date they were due.
Employment Allowance
The Employment Allowance lets eligible employers reduce their employer NIC bill by up to £10,500 in 2026/27. It can be claimed at any point during the tax year by submitting an EPS; claiming earlier means the benefit starts sooner, but there’s no requirement to claim right at the start. The key restriction is that sole directors who are the only employees of their company cannot claim it. If you employ at least one other person paid above the £5,000 secondary threshold, in addition to the director, you can generally claim it. There is no longer an upper employer NIC cap to qualify, as that restriction was removed from 2025/26 onwards.
Penalties for Not Registering or Filing Late
Failing to operate PAYE when required can result in penalties of up to £3,000 per tax year. Late RTI submissions incur automatic penalties starting at £100 per month for employers with one to nine employees, rising to £200, £300, or £400 per month for larger employers, with a further tax-geared penalty of 5% of the unpaid tax and NIC if a return remains outstanding for three months or more. Separately, late payment of PAYE and NIC carries its own penalty regime, an escalating 1–4% penalty depending on how many payments are late in the tax year, plus an additional 5% surcharge if the debt remains unpaid at six and twelve months. Interest is also charged on unpaid income tax and NIC from the date they were originally due.
Conclusion
Registering as an employer with HMRC is a straightforward process when approached in the right order. Register before your first payday but within the two-month window, wait for both reference numbers to arrive, set up compliant payroll software, and begin submitting RTI returns from day one. Staying on top of monthly FPS submissions and HMRC payments keeps your business fully compliant and avoids the automatic penalty regime that kicks in quickly when deadlines are missed.
