What you need to know about PAYE as an employer

There are more than 30 million payrolled employees in the UK, so PAYE is an important tax system for employers to understand. According to 2025 ONS and HMRC data, 94.4% of these employees are aged 18–64, so PAYE tax impacts all demographics, and getting it right as an employer can be crucial.

Ensuring payroll is correct, including PAYE deductions, confirms your people are accurately paid and that your business is complying with regulations.

In this guide, we’ll help you understand what PAYE is, how deductions work, and what your responsibilities are as an employer—plus, whether payroll software or a payroll provider could be right for you.

What is PAYE and what does it stand for?

PAYE, short for Pay As You Earn, is a system created by HM Revenue and Customs (HMRC) to ensure National Insurance and income tax are collected from an employee’s wages.

To ensure an employee doesn’t have to pay tax in one go, PAYE rolls out the income tax bill across the entire tax year, spanning from April 6 to April 5 the following year.

The way PAYE tax works means it’s not a precise calculation of each employee’s tax responsibilities. Instead, it is an estimation of the tax an employee must pay, based on what HMRC understands of their projected income and their situation.

When should an employer register for PAYE?

An employer must register for PAYE within the current tax year when any of the following factors apply to an employee:

• They receive company benefits or can claim expenses
• They are paid £96 or more per week
• They’ve been employed before
• They’re getting a pension
• They’ve received any of the following: Incapacity Benefit, Jobseeker’s Allowance, Employment and Support Allowance.

As an employer, you must typically use the PAYE system as part of your payroll process and must register before you employ staff and pay your first employee. You are also considered an employer if you run a limited company and are the sole director; therefore, you must register for PAYE in this instance as well.

How do I get a PAYE login?

To get a PAYE login, you need to register as an employer, enrol for the PAYE Online service, and then activate your account.

If you register as an employer online, you’ll automatically be enrolled for PAYE Online. Once you’ve registered, you’ll receive an activation code from HMRC via the post within 10 days—you must then activate the account within 28 days of the letter’s date.

How is PAYE calculated?

PAYE tax is calculated with the help of a tax code given to each employee by HMRC. The amount of tax an employee pays depends on their earnings, and tax codes vary from person to person.

Employers use these tax codes in a PAYE tax calculator to work out how much tax an employee owes and, therefore, what to deduct.

Every employee can earn a certain amount of money within the tax year before paying income tax, also known as their Personal Allowance. For example, the Personal Allowance for the 2024/25 tax year was £12,570. After this figure, the amount of tax each employee pays increases in accordance with taxable income brackets. The brackets feature a basic rate, a higher rate, and an additional rate, all with differing tax rate percentages.

What payments and deductions are sorted via PAYE?

There are several payments and deductions that are sorted via PAYE.

Employee payments that are sorted via PAYE include:

• salary or wages
• tips and bonuses
• statutory sick pay
• parental leave payments
• bereavement pay

Deductions that are sorted via PAYE include:

• income tax
• National Insurance
• student loan repayments
• pension contributions
• payroll giving donations
• child maintenance payments

Before or on,each payday, you must report employee payments and deductions to HMRC if you run payroll yourself. In instances where you need to claim reductions on what you owe HMRC (statutory pay, for example), another report needs to be sent.

At the end of the tax year, you’ll need to separately report expenses or benefits such as company cars or uniforms.

Is there a PAYE calculator?

Yes, there are useful PAYE calculators available to help with the payroll process. The HMRC PAYE tools are the best to use and can assist with working out employee income tax.

Before you use the HMRC PAYE tax calculator, you’ll need the following:

• employee tax code
• payment date and period of pay
• figure paid before deductions

You may also require total gross pay, tax due, and the amount of tax not deducted due to regulatory limits from the previous period.

In addition, before you get started with basic PAYE tools, you must be registered as an employer with HMRC and have a PAYE Online login.

How do employers operate PAYE?

There are two ways to operate PAYE, and the option you choose will likely depend on your business structure and preferences. You can either:

• Employ a payroll provider to do it on your behalf—an accountant, for example
• Do it yourself with the help of payroll software

There are different considerations with each option. To do it yourself, you’ll need to register with HMRC, tell them your employees’ details, and find payroll software you’re comfortable with using.

If you choose to go with a payroll provider and pay them for their services, you’ll have to decide how much support you’ll need with the process. Some providers offer as little or as much support as you need. For example, they may be able to provide payslips, maintain employee records, and pay HMRC on your behalf.

Please note that even when you pay someone else for PAYE, you are legally responsible for its completion.

What should I do if I’ve made an error on PAYE?

Ultimately, your employees have a responsibility to ensure their tax codes are correct. However, errors can happen. A payroll error can also mean an employer may not receive the right monthly PAYE bill.

There are several things you can check when you think something doesn’t look right with your PAYE bill, including ensuring you sent your Full Payment Submission (FPS) or Employer Payment Summary (EPS) on time.

You can also check:

• The correct date was used on your FPS report—the date your employees were paid, not the date you sent it
• All other FPS details, such as deductions and payments, were reported correctly
• Your EPS was reported correctly
• You have paid HMRC the correct amount previously
• Correct reporting was carried out for any employees who have left or joined your business.

There are ways to fix errors with FPS, EPS, or running payroll. For example, if you’ve reported incorrect pay or deductions in the current tax year, you can correct it by updating the year-to-date figures in the following FPS submission. HMRC has different processes for previous tax years.

There are ways to fix multiple FPS errors, including:

• Payment dates
• Employees’ start or leaving dates
• Employees’ personal information
• National Insurance category letters

Find out more about correcting FPS and EPS errors with HMRC.

Although errors happen, using a PAYE calculator coupled with powerful payroll software can help you pay your people with confidence and calculate the payments you need to make with ease.