Setting up a payroll

Produced by Tolley in association with Vince Ashall

The following Employment Tax guidance note Produced by Tolley in association with Vince Ashall provides comprehensive and up to date tax information covering:

  • Setting up a payroll
  • Registering with HMRC
  • Registering for PAYE Online
  • HMRC Business Tax Account and PAYE
  • Running the payroll
  • Outsourcing the payroll
  • In-house manual payroll
  • In-house electronic payroll
  • Automatic cancellation of a PAYE scheme
  • Ceasing to be an employer

Setting up a payroll

It may be stating the obvious, but to be an employer signifies that there are employees (or at least one employee). Depending on the employee(s) earnings, the employer may have to make certain statutory deductions from employees’ salaries and wages. Statutory deductions include income tax, national insurance contributions (NIC), student loan deductions (SLD) and attachment of earnings orders (AEO). These statutory deductions are all made via the payroll. The collection system for tax and NIC is called pay as you earn (PAYE).

Registering with HMRC

Even though there may only be one employee, an employer needs to register with HMRC if the employee(s):

  1. has another job

  2. is receiving a pension (state or occupational)

  3. has earnings equal to or more than the lower earnings limit (LEL) for national insurance

  4. is receiving benefits in kind from the employer

Registration needs to be undertaken before the first payday. The registration process can take up to two weeks and registration cannot be made more than two months before employees are first paid. The timescale for registering should also take account of the time constraints associated with registering for PAYE Online (see below).

Registration can be by telephone or the internet. The information needed for registration is detailed in checklist 1 in Checklist ― setting up a payroll.

Partnerships and limited companies need to supply further information, as do other types of organisations under certain circumstances. This additional information and the specific circumstances for other organisations can be found integrated in the registration process on the

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