If you employ staff in the UK, you must understand your responsibilities under the PAYE (Pay As You Earn) system. This guide breaks down what PAYE is, what your payments include, how and when to pay HMRC, and best practices for compliance.
What is PAYE?
PAYE is HMRC’s system for collecting:
- Income Tax
- Class 1 National Insurance Contributions (NICs) (employee and employer)
- Class 1A and 1B NICs (on benefits-in-kind and termination payments)
- Student loan repayments
- Construction Industry Scheme (CIS) deductions (if you’re a contractor)
- Apprenticeship Levy (This applies if your annual pay bill exceeds £3 million.)
You’re issued a unique PAYE reference and Accounts Office reference number when you register as an employer.
What Does Your PAYE Bill Include?
Your monthly PAYE bill typically includes:
- Income Tax deducted from employees
- Employee and Employer NICs
- Student loan and postgraduate loan repayments
- Class 1A NICs (if applicable)
- CIS deductions
- Apprenticeship Levy
PAYE Payment Deadlines
- Electronic payments: Due by the 22nd of the following tax month
- Postal payments: Must reach HMRC by the 19th
- Quarterly payments: If your average monthly PAYE bill is less than £1,500, you can pay quarterly (22nd of the month after the end of each quarter)
Late payments may result in interest and penalties from HMRC.
How to Pay HMRC
You can pay your PAYE bill using one of the following methods:
- Direct Debit
- Online or mobile banking (Faster Payments, BACS, CHAPS)
- Debit or corporate credit card via HMRC website
- At a bank or building society using a paying-in slip
Always use your 13-character Accounts Office reference number to make sure your payment is allocated correctly.
Best Practices for Employers
- Submit Full Payment Submission (FPS) reports on or before payday using RTI-compliant payroll software.
- Check for allowances like the Employment Allowance which could reduce your NICs bill.
- Keep records of PAYE, payroll, and employee details for at least 3 years.
- Reconcile your account regularly through your HMRC online account.
Additional Considerations
- P11D & Class 1A NICs: Benefits-in-kind must be reported by 6 July following the tax year via form P11D. Class 1A NICs are due by 22 July if paying electronically.
- Mandatory payrolling of BIKs will replace P11Ds from April 2026. Prepare your systems early.
Need Help?
Managing payroll can get complex. Consider working with a payroll provider or tax accountant to ensure you’re paying the correct amounts on time and staying compliant with HMRC regulations.