Employer registration and set-up in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
Before you can pay a single employee in the United Kingdom, you must register as an employer with HMRC and set up a compliant payroll. Skipping or delaying any step creates penalties, so it pays to understand exactly what is required and in what order.
Register with HMRC before the first payday
You must register as an employer with HMRC before you run your first payroll. Do this online through the Government Gateway. HMRC will issue you a PAYE reference number and an Accounts Office reference — keep both, as you will need them on every payment and submission.
Allow up to five working days to receive your references after registering. If your first payday is imminent, register as early as possible. You cannot submit payroll data to HMRC without these references.
If you are setting up a limited company, you will also need to register with Companies House first. Your PAYE registration sits on top of the corporate entity, not alongside it.
Set up payroll and understand your reporting obligations
Once registered, you need a payroll system capable of calculating tax and National Insurance and submitting data to HMRC in real time. Under Real Time Information (RTI), you must send a Full Payment Submission (FPS) to HMRC on or before each payday — not monthly, not after the fact. Late or missing submissions trigger automatic penalties.
Each FPS reports the employee's earnings, tax code, income tax deducted, and National Insurance contributions. Employee National Insurance is charged at 8% on earnings within the standard band and 2% above the upper earnings limit. Employer National Insurance is charged at 13.8% on earnings above the secondary threshold (category A employees). These amounts must be calculated accurately for every pay period.
At the end of each tax year you must issue a P60 to every employee still on your payroll by 31 May. If you provide taxable benefits in kind — a company car, private medical insurance, interest-free loans above the relevant threshold — you must file a P11D for each affected employee by 6 July and pay the associated Class 1A National Insurance.
Apply the correct tax codes and handle income tax
Every employee needs a tax code before you can calculate income tax correctly. New starters complete a starter checklist (which has replaced the paper P45 as the primary onboarding document in most cases) so you can assign the right code. The standard tax code for the 2026/27 tax year reflects the personal allowance of £12,570, meaning employees pay no income tax on earnings up to that amount. Earnings above that are taxed at 20% (basic rate), 40% (higher rate), and 45% (additional rate) depending on total income.
Using the wrong tax code — for example, applying an emergency code when a valid P45 exists — leads to under- or over-deduction of tax and a correction process that is time-consuming for both you and the employee. HMRC issues tax code notices (P9 and P6 forms) during the year; you are required to act on them promptly.
Enrol eligible employees into a workplace pension
Auto-enrolment is a legal obligation, not an optional benefit. You must assess your workforce as soon as you take on staff. Employees who are aged between 22 and state pension age and earn above the earnings trigger must be automatically enrolled into a qualifying pension scheme. You must contribute at least 3% of qualifying earnings; employees contribute a minimum of 5%. You cannot opt employees out on their behalf — they must do so themselves if they choose.
You also have a duty to re-enrol eligible workers who have opted out every three years. The Pensions Regulator enforces auto-enrolment separately from HMRC, so non-compliance carries its own penalty regime.
Know your day-one statutory obligations to employees
Registration and payroll mechanics are only part of the picture. From the moment someone starts working for you, a set of statutory entitlements applies regardless of contract wording. Employees are entitled to 5.6 weeks of statutory annual leave per year (equivalent to 28 days including bank holidays for a standard five-day week). Statutory Sick Pay applies when an employee is off sick for the qualifying period, and statutory family-leave payments apply where eligibility criteria are met.
The Employment Rights Act 2025 has strengthened day-one rights further, meaning certain protections that previously required a qualifying period now apply from the first day of employment. Make sure your contracts and HR policies reflect the current legal position, not assumptions based on older rules.
Keep accurate records
HMRC requires you to keep payroll records for at least three years after the end of the tax year they relate to. This includes records of payments made, tax and National Insurance deducted, employee details, and any statutory payments. If HMRC conducts a PAYE compliance check, these records are your primary evidence. Disorganised or incomplete records significantly increase the risk of a penalty even where the underlying payments were correct.
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