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Everything You Need To Know About PAYE Registration

PAYE is a form of tax collection system through which HMRC deducts national insurance contributions and income tax from employees’ wages. The other deductions that also come under the PAYE are student loans and pension contributions, if there are any. All kinds of these deductions are made every month while preparing employees’ payrolls.


According to the HMRC’s payroll and PAYE regulations, as an employee, you have to have a tax code that entails all of your credentials that help out your employer to determine deductible PAYE from your salary. The tax code is beneficial for entitling all the possible taxable state benefits, and tax deducts from your income directly. However, in the case of circumstances in which you could not earn extra income apart from the state pension, the HMRC will notify you, and you might be required to file self-assessment returns instead of paying through PAYE.


How to Register As an Employer?

For every business owner, it is essential to get them registered as an employer with HMRC before the moment of employing even a single worker. It is necessary to be done before the first payday; however, this should not be too early as greater than four months before payday. For the registration, the employer is required to provide all the details about employees as well as of the business. After the registration period and allocation of ERN, the company can use all such details to create a payroll system, paying to HMRC, preparing PAYE returns, and paying to employees.


Although you are required to register yourself as an employer with the HMRC at the time of hiring the first employee, the following requirements are essential to meet. They include;

– The employee/worker must be earning equal or greater than that of the PAYE, which is £12,500 annually, according to 2020-21 tax laws. The National Insurance Lower Earning must be £6,240 per annum. 

– The employee should be receiving employee benefits like insurance and a company car.

– The Employee has another job as well or is getting income from the government in the form of pension, any other company, or occupational insurance.


Anytime you want to get yourself registered as an employer with HMRC, you can do it via online channels of the HMRC before the first payday. As if you are up to the stated requirements, you can go for the registration; it does not matter whether you have hundreds of employees or only one. To create your payroll system, it is essential to be registered as an employer with HMRC.


The HMRC has not declared any particular date that when it should be done. However, it will be wise to do it in advance as the whole process takes almost two weeks to get the PAYE reference number, although do not do it too early as of 120 days before the first payday. If you get yourself registered with HMRC and do not pay anything to HMRC, your registration will be canceled automatically. In most cases, online registrations with HMRC are more prone to automatic cancellation. There are certain cases in which you can call and consult with HMRC Customer Operations Employer Office, such as;

– You have the usual business structure like a limited liability partnership which has 110 or fewer directors who are not qualified for National Insurance or they do not reside in the UK.

– Your company has unusual payment mechanisms like you are operating an offshore company or hold a profit-sharing scheme.


How Employers Deduct PAYE Tax?

The HMRC provides employers with tax codes that help them determining deductible PAYE from every employee’s wage. If the HMRC does not have sufficient information about employee PAYE credentials, then employers are supposed to use the emergency tax code at the time of deducting PAYE till the time HMRC gets enough details and information about the employee and will adjust the deductions accordingly.


At the time of filing PAYE for employers to HMRC, the employer is always provided with a tax code that can be found on;

– The payslips

– Mailed to the employer by the tax office

– Pension statements in case if you are getting any occupational pension.


In case the employer is not provided with the tax code of an employee, all the deductions will be made based on the emergency tax code until the employee gets a tax code, and then all the deductions will be adjusted accordingly. If considering the emergency tax code, if overpayments are made, the extra money will be refunded. And similarly, if it goes otherwise, the employer will be notified to make the right deductions in order to make certain that PAYE is adjusted for the respective employee.


What is the Employer Reference Number (ERN)?

When you register yourself as an employer with HMRC, you are given a unique number that is called employer reference number. This number is used by the tax authority and other legal departments to find your business among other employers. The provided ERN is a unique combination of numbers and letters and contains two parts one is the HMRC’s three-digit office number, and the other is your unique reference number. There are too many aspects and circumstances where you need ERN, and this specific for filing PAYE returns at the end of the year. Failure to have this number on your returns to HMRC can be a major reason for rejections by the HMRC. Along with PAYE, you will also need ERN for;

– Applying for student loans

– Applying for tax credits

– Buying an employer’s liability insurance


Even having ERN is of great importance, there are certain types of businesses that do not require it. They include;

– A business without employees

– A business having employees earning below the PAYE threshold

– All the businesses registered outside of England, Wales, Scotland, and Northern Ireland.

Before that, you decide that your business does not need an ERN, you must be consulting with the HMRC.


What To Do In Case You Lose Your ERN?

Having ERN is of great importance, and you need it throughout the year to cope with PAYE and payroll proceedings, you must be keeping it at your fingertips. However, if you lose it, you must be using an employer PAYE reference such as a finder, checker, and look up to make sure its availability at the time of filing your returns. In this regard, relying on any PAYE communication with the HMRC, P60, P40 forms of your previous employees can be a technique. In case if you tally all the records and papers and don’t find your ERN, there are great chances that you might not have registered yourself with HMRC yet. In that case, do it on an as soon as possible basis before making the first payment to your employee.


How to Set A PAYE for A Limited Company?

If you are into a limited company, then your hired accountants must be helping you in setting up a payroll system that should be reflecting the PAYE number of all of your employees and workers. Go with the following steps to set up a payrolls system for your limited company, whenever you are ready;

– Be assured that you are registered with HMRC as an employer and have ERN

– Make sure that all of your employees are listed with the HMRC. In case if they do not have their tax codes, you can initially utilize the information available on their P45 form.

– Make sure that your accountants are making use of accounting software, which is fully capable of automatic transfers of information to the HMRC.

– If your employees owe any taxes to HMRC, you should be making sure that the debts are paid within the given time.


How do PAYE Schemes work?

As soon as you are registered with the HMRC as an employer, you can go for the PAYE scheme online. After application, the HMRC will provide you with your unique PAYE reference number. Your accountants will be using the latest accounting software in order to set up your limited company’s payroll number. You will need to utilize the form P45 for getting the tax code for every employee to ensure that you are doing the accurate PAYE calculations and NIC deductions.


The monthly payslips of your workers’ must-have details like net payment, gross income, and all kinds of deductions for the income tax. Your accountant should be making it certain that payslips have PAYE number. There are deadlines to meet when the income tax of employees should be paid. In this regard, having the support of professional accountants becomes essential for preparing your monthly payroll accurately.


If you are submitting your PAYE tax returns manually, you are required to file them by the 19th of the respective month. However, if you go through online submissions, this date will be the 21st of each month. For instance, if your income is lesser than the PAYE registration threshold, you are required to file nil returns to HMRC to avoid penalties for failing to submit. Furthermore, if you add new employees to your business, you must be adding them to your payroll system and to prove the P60 at the end of the tax year.


Some Common Questions That You May Ask Yourself About PAYE Scheme


– Is it compulsory that I should set a payroll system?

Until unless you are into a sole proprietorship and do not have any employees, you do not need to do this. But if you have even a single employee, you are required to register for the PAYE scheme and to create a payroll system.

– Are company directors considered as employees?

As a director of a company, you are observed as a distinct entity from the business, and therefore you are an employee. In that case, the company is your owner, and you are the employee for it.

– What is the procedure for setting up a payroll?

The first thing that you need to perform is informing the HMRC that you are an employer. After that, you will be given an employee reference number (ERN), which you will utilize for registering for a payroll system.

– How much wage should I pay to my employees?

The assessment of how much you ought to wage your employees is completely up to you. However, you need to ensure that you are reaching at least the National Minimum Wage and particularly if you have signed an agreement. If you have executives and directors, then you can wage them as much as the business can manage to pay since there is no agreement signed.

– How much wage should you pay yourself?

Though the choice on how much salary to pay yourself is up to you, it will be wise to keep your wage within the annual personal allowance tax to maintain the State Pension and also to avoid wasting the allowance. You can additionally save on tax by getting your income in the form of dividends.

– How regularly you should pay your employees and the HMRC?

This decision depends on your business cash flow, in which you can see that either you can pay your employees monthly, bi-weekly, weekly, or daily. Whichever regularity you select, you must ensure that it is the most appropriate for your business. Also, avoid selecting a regularity that may end up being too difficult for your company cash wise.

– Can I fill my payroll online?

The sure response to the question is yes. Implementation of an online payroll system is helpful enough to assist your accountant in doing your payrolls accurately and in a timely manner. And doing so also makes sure that your workers are never dissatisfied due to late payments. Furthermore, you will not ever get into distress with HMRC for providing incorrect information while filing your returns.


For the right and smooth proceedings for PAYE registration, it is always found wise to have the assistance of a professional accountant who knows the entire process and ways to deal with it. Even in the preparation of your payroll, there might come multiple deductions and complicated calculations to make it difficult for you to handle it on your own. Hiring outsourced service providers in this regard can benefit you in the following ways;

– In comparison to dedicated accountants, outsourced accountants come cheaper as they charge on the basis of work done.

– Your payroll may be done in a timely manner. It will benefit you to never be late to wage your workers, and similarly, you will be submitting your tax returns timely.

professional accountant will also support you with secretarial tasks

An outsourced professional accountant can offer you complimentary services such as support with auditing, formulation of monthly financial statements, modifying your chart accounts, and generating a line between your company and the payroll system.

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