PAYE and Payroll for Employers

If you employ anyone in the UK — including yourself as a director taking a salary — you must operate PAYE (Pay As You Earn). PAYE is HMRC's system for collecting Income Tax and National Insurance from employees' wages.

Setting up

1. Register as an employer with HMRC — usually before your first payday.
2. Choose payroll software (HMRC's free tool covers up to 9 employees; commercial software is needed beyond that).
3. Get each new employee's P45 from their previous job, or a starter checklist if they don't have one.

Each pay run

For every payday:

• Calculate gross pay, then deduct Income Tax (using the tax code) and employee NI.
• Pay the net amount to the employee.
• Submit a Full Payment Submission (FPS) to HMRC on or before payday.
• Submit an Employer Payment Summary (EPS) monthly if you've reduced your bill (e.g. statutory pay recovered, Employment Allowance).

Tax codes

The tax code tells you how much tax-free pay an employee gets. The standard code for 2025/26 is 1257L (= £12,570 personal allowance ÷ 10). Common variants:

• L — standard personal allowance.
• BR — all pay taxed at 20% (often for second jobs).
• 0T — no allowance, all pay taxed.
• K — negative allowance (taxable benefits exceed allowance).
• W1/M1/X — emergency code (taxes each pay period in isolation).

National Insurance categories

• A — most adult employees.
• B — married women paying reduced rate (rare now).
• C — over State Pension age (no employee NI).
• H — apprentice under 25 (no employer NI up to £50,270).
• M — under 21 (no employer NI up to £50,270).

For 2025/26, employer NI is 15% above the £5,000 secondary threshold. Employees pay 8% between £12,570 and £50,270, then 2%.

Paying HMRC

Pay your monthly PAYE bill by:

• 22nd of the following month if paying electronically.
• 19th of the following month if paying by post.

Small employers paying under £1,500 a month can pay quarterly.

End-of-year duties

• 5 April — final FPS for the tax year.
• 31 May — give every employee a P60 showing their year's pay and tax.
• 6 July — file P11D / P11D(b) for any taxable benefits and pay Class 1A NI by 22 July.

Employment Allowance

Eligible small employers can reduce employer NI by up to £10,500 per tax year. You can't claim if your only employee is also a director.

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This is general guidance for the 2025/26 UK tax year and is not personal tax advice. Always check the latest figures on GOV.UK or speak to a qualified accountant for your situation.