If you’re running a business in the UK and have employees, one of the key responsibilities you’ll face is ensuring that your payroll is compliant with the tax system. For most employers, this means setting up and maintaining a PAYE (Pay As You Earn) scheme. However, not every business will need to register for PAYE. Understanding when it’s necessary to set up a PAYE scheme is essential for staying compliant with HMRC and avoiding any potential penalties.
This article explains the situations where you are required to register , the process of doing so, and the consequences of failing to comply.
When Do You Need to Register for Pay As You Earn?
The general rule is that if you employ someone and pay them above the National Insurance Lower Earnings Limit, you will need to register for PAYE. However, there are specific conditions that determine whether you need to set up a PAYE scheme:
1. You Have Employees and Pay Them Salaries or Wages
If your business employs individuals and pays them salaries or wages, regardless of whether the employees are full-time or part-time, you will need to registering for PAYE with HMRC. This applies to both permanent and temporary employees.
2. Your Employees Earn Above the Income Tax Personal Allowance or the National Insurance Lower Earnings Limit
For the 2025/2026 tax year, the National Insurance Lower Earnings Limit is £123 per week. If an employee earns above this threshold, you are legally required to set up PAYE. The same rule applies if employees earn above the Income Tax Personal Allowance (which for the 2025/2026 tax year is £12,570 annually).
If your employees earn below these limits, you are not required to register for Pay as you earn unless they have other sources of taxable income that exceed the threshold.
3. Your Employees Are Directors of the Company
Even if your company has only one director and no other employees, you may still need to registering for PAYE. This is because company directors are also considered employees for tax purposes and are required to pay tax on any salary they take.
4. You Have Employees Who Are Paid Through Benefits in Kind
In some cases, employees receive benefits other than cash salaries (such as private health insurance or a company car). If your business provides these benefits, you must report the value of these benefits to HMRC. In such cases, you will need to registerto correctly process the payments and report them for tax purposes.
When Do You Not Need to Register for PAYE service online?
Not every business will need to set up a PAYE scheme. Some exceptions include:
1. No Employees or Only Pay Contractors
If you don’t have any employees or only hire self-employed contractors, you do not need to set up PAYE. Contractors are responsible for managing their own taxes through the self-assessment
process. However, if you have employees who are also directors or receive wages, PAYE is still required.
2. Employees Earn Below the Threshold
If your employees earn below the thresholds for Income Tax and National Insurance, such as if they only work part-time with very low earnings, you may not need to register. In some cases, employees may opt to pay voluntary National Insurance contributions if they wish to build up their state pension.
Conclusion
If you are running a business with employees, it is vital to understand whether or not you need to register for PAYE. The requirements are straightforward for most employers—if your employees earn above a certain threshold, you must register and set up the system. By doing so, you will ensure compliance with HMRC and avoid potential penalties.
If you’re uncertain whether you need to set up a PAYE scheme or require help with registering, it’s a good idea to consult a tax professional or payroll expert.
