- Register before your first payday, but no more than 2 months before you start paying people1.
- Software: HMRC-recognised payroll software, or free Basic PAYE Tools for fewer than 10 employees25.
- Every payday: a Full Payment Submission (FPS) on or before the day you pay3.
- Pay HMRC by the 22nd of the next tax month (19th by post); quarterly if you usually owe under £1,500 a month3.
- Year end: P60s by 31 May; benefits by 6 July4.
How to set up payroll, step by step
- Register as an employer with HMRC. You get an employer PAYE reference and an Accounts Office reference1.
- Choose software. Basic PAYE Tools is free for businesses with fewer than 10 employees and calculates tax and NI and reports to HMRC5. If you buy software, check it can produce payslips, handle pension deductions, pay people on different frequencies and send an EPS: some products cannot. HMRC lists recognised products but does not recommend one2.
- Collect each employee's details: P45 or starter checklist, NI number, date of birth, address and bank details.
- Choose a workplace pension scheme that accepts auto-enrolment before your first payroll.
- Decide your pay frequency (weekly or monthly) and payday, and put it in each written statement.
What to do every payday and every month
- Run payroll: the software works out income tax from each tax code, employee and employer NI, pension and any student loan.
- Send an FPS to HMRC on or before payday, even if you pay HMRC quarterly3.
- Send an Employer Payment Summary (EPS) by the 19th of the next tax month if you are claiming anything, such as statutory pay recovery or Employment Allowance3.
- Pay HMRC by the 22nd of the next tax month if you pay electronically, or the 19th by post3.
- Give each employee a payslip, and pay pension contributions to the scheme.
Worked example: a three-person team
A shop employs three people on £25,000, £30,000 and £40,000. None is a company director, so the business can claim Employment Allowance6.
| Item | Per year |
|---|---|
| Gross pay | £95,000.00 |
| Employer NI before allowance (15% above £5,000 each) | £12,000.00 |
| Employment Allowance | −£10,500.00 |
| Employer NI actually paid | £1,500.00 |
| Minimum employer pension (3% of qualifying earnings) | £2,288.40 |
| Total employer cost | £98,788.40 |
Employer NI: £3,000 + £3,750 + £5,250. Pension: 3% of each salary above £6,240. Employee tax and NI come out of the gross pay, so they are not an extra cost to the business.
The allowance is used up month by month. Employer NI runs at £1,000.00 a month, so months 1 to 10 cost nothing, month 11 costs £500.00 and month 12 the full £1,000.00. Budget for the step-up in February and March.
End-of-year deadlines
Penalties and records
A late FPS can bring a monthly penalty that depends on the number of employees: £100 for 1 to 9, £200 for 10 to 49, £300 for 50 to 249 and £400 for 250 or more8. HMRC does not usually charge for the first late filing in a tax year, or where the payments on the FPS are within 3 days of payday, but it can contact employers who are regularly late8.
Keep payroll records, including pay, deductions, reports, payments to HMRC, leave and sickness, for 3 years from the end of the tax year they relate to. If records are incomplete, HMRC can estimate what you owe and charge a penalty of up to £3,0009.
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