How to Register for PAYE as a UK Limited Company: The Complete 2026 Guide

Every UK limited company that pays someone — whether that is a single director drawing a monthly salary or a team of twenty — needs to register as an employer with HMRC and operate Pay As You Earn (PAYE). Yet PAYE registration is one of the most frequently misunderstood obligations in company formation. Some founders register far too early and file nil returns for months. Others forget entirely and discover the gap when their accountant asks for a PAYE reference that does not exist.

The stakes are real. HMRC's Real Time Information (RTI) system expects payroll submissions on or before every payday. Miss a filing window and penalties start accumulating — per employee, per month. For a company with even five staff, a single quarter of missed returns can generate hundreds of pounds in fines before anyone notices.

This guide walks through exactly when PAYE registration is required, how to register with HMRC, what you need to report, and the mistakes that cost UK founders money every year. If you are incorporating a new company or about to pay yourself for the first time, this is the compliance step you cannot afford to skip.

What is PAYE and why does it matter?

PAYE is the system HMRC uses to collect Income Tax and National Insurance contributions (NICs) from employment income at source. Instead of employees settling their own tax bills at the end of the year, the employer deducts the correct amounts from each pay packet and sends them to HMRC on the employee's behalf.

For a UK limited company, the "employer" is the company itself — a separate legal entity from its directors and shareholders. Even if you are the sole director and only shareholder, the moment you pay yourself a salary, the company is acting as an employer and must operate PAYE.

PAYE covers three main deductions:

• Income Tax — deducted according to the employee's tax code, which reflects their Personal Allowance and any adjustments
• Employee National Insurance (Class 1) — for 2026/27, employees pay 8% on earnings between the Primary Threshold (£242/week, £12,570/year) and the Upper Earnings Limit (£967/week, £50,270/year), and 2% above that
• Employer National Insurance (Class 1) — the company pays 15% on earnings above the Secondary Threshold (£96/week, £5,000/year)

In addition, PAYE is the mechanism through which student loan repayments, postgraduate loan repayments, and pension auto-enrolment contributions are collected.

When do you need to register for PAYE?

PAYE registration is not triggered by incorporation. You can form a UK limited company and never register for PAYE if the company never pays a salary. Many dormant companies, holding companies, and property SPVs that pay only dividends have no PAYE scheme at all.

You must register as an employer when any of the following apply:

• You pay any employee (including yourself as a director) £96 or more per week (the Secondary Threshold for 2026/27)
• You pay any employee who has another job, receives a state pension, or receives Jobseeker's Allowance, Employment and Support Allowance, or Incapacity Benefit — regardless of amount
• You provide expenses or benefits to employees (company car, private medical insurance, etc.)
• You use subcontractors in the construction industry (the Construction Industry Scheme sits within PAYE)

The sole-director scenario

If you are the only director and you plan to draw a salary — even a small one to preserve your National Insurance record — you must register for PAYE. HMRC's own guidance is explicit: "You must register even if you're only employing yourself." The fact that you are both the employer (the company) and the employee (the director) makes no difference.

Many sole directors set their salary at or just below the Primary Threshold (£12,570/year for 2026/27) to preserve NIC qualifying years without actually paying employee NICs. Even at this level, if the salary exceeds £96/week, PAYE registration is required. For a deeper look at the salary-vs-dividend calculation, see our guide on how to pay yourself as a director of a UK limited company.

When you do NOT need PAYE

You do not need to register for PAYE if:

• All directors are paid only by dividends (dividends are not employment income and are not processed through PAYE)
• No one is paid a salary, wages, or receives taxable benefits in kind
• The company is dormant and has no employees
• All employees earn below £96/week and have no other employment, pension, or state benefit

Paying dividends is governed by company law and personal tax rules — it does not require a PAYE scheme. However, most tax-efficient director remuneration strategies involve a combination of a small PAYE salary and dividends, which means most active limited companies will need PAYE at some point. Read more in our guide to paying dividends from a UK limited company.

How to register for PAYE: step by step

HMRC's registration process is straightforward, but timing matters. Here is the complete sequence.

Step 1: Decide when your first payday will be

Before you can register, you need to know when you will first pay someone. This is important because:

• You must register before the first payday — HMRC needs to issue your employer PAYE reference number in time for your first payroll submission
• You cannot register more than 2 months before you start paying people — HMRC will reject premature applications

The sweet spot is 2–4 weeks before your intended first payday. This gives HMRC enough time to process the registration and post your employer PAYE reference and Accounts Office reference to your registered office or correspondence address.

Step 2: Register online with HMRC

Most UK limited companies can register online at GOV.UK. You will need:

• Your company UTR (Unique Taxpayer Reference) — the 10-digit number HMRC posts to your registered office after incorporation, usually within 2–3 weeks
• Your company registration number (from your certificate of incorporation)
• The date of your first payday
• Details of the employees or directors you will be paying
• Your company's registered office address

The online registration takes around 10 minutes. HMRC will confirm receipt and begin processing.

Step 3: Receive your employer PAYE reference

After registration, HMRC posts a letter containing two critical numbers:

• Employer PAYE reference — a combination of a three-digit HMRC office number and a reference code (e.g. 123/AB45678). You will need this for every RTI submission, P60, and P45.
• Accounts Office reference — a 13-character code used when making PAYE payments to HMRC

This letter typically arrives within 5–10 working days, though HMRC's own guidance notes that delays can occur. If you use a registered office address service, make sure the provider forwards HMRC correspondence promptly — missing this letter is one of the most common reasons founders run payroll late.

Step 4: Choose payroll software

HMRC requires all payroll submissions to be made electronically through RTI-compatible payroll software. The software calculates tax and NICs, generates the correct submission files, and sends them directly to HMRC.

Options include:

• HMRC's Basic PAYE Tools — free, suitable for companies with fewer than 10 employees. Limited features but handles core RTI submissions.
• Commercial payroll software — services like Xero Payroll, FreeAgent, Sage, BrightPay, or Moneysoft offer fuller automation, auto-enrolment integration, and employee self-service portals. Costs typically range from £5–£15 per month for small companies.
• Accountant-managed payroll — many small limited companies delegate payroll to their accountant. This is the simplest route if you are a sole director with a fixed monthly salary and no other employees.

Step 5: Run your first payroll

On or before your first payday, your payroll software must calculate the correct deductions and generate a Full Payment Submission (FPS) to send to HMRC. We will cover FPS requirements in detail below.

If your PAYE reference has not arrived by your first payday, you can still run payroll and store the FPS. Submit it to HMRC as a late FPS as soon as you receive your reference. HMRC expects this to happen occasionally and provides a "late reporting reason" code for it, but you should not rely on this as a habit.

What you must report to HMRC: RTI explained

Since April 2013, all UK employers must report payroll information to HMRC in real time — the system known as Real Time Information (RTI). There are no end-of-year returns to catch up; every pay event must be reported as it happens.

Full Payment Submission (FPS)

The FPS is the core payroll report. You must send one to HMRC on or before every payday. It includes:

• Each employee's name, National Insurance number, date of birth, and address
• Tax code and pay frequency (weekly, monthly, etc.)
• Gross pay for the period
• Tax deducted
• Employee and employer NICs
• Student loan and postgraduate loan deductions
• Pension contributions
• Any statutory payments (maternity, paternity, adoption, shared parental, bereavement, or neonatal care pay)
• Year-to-date cumulative figures for pay, tax, and NICs

Your payroll software generates and submits the FPS automatically — you do not need to compile this manually. But you do need to ensure the underlying data (employee details, tax codes, salary amounts) is correct.

Employer Payment Summary (EPS)

The EPS is a secondary report used to:

• Claim reductions against your PAYE bill — such as statutory maternity pay, statutory sick pay, or the Employment Allowance
• Report a nil payment month — if you did not pay any employees in a tax month, send an EPS by the 19th of the following month to tell HMRC not to expect an FPS

The EPS must be filed by the 19th of the month following the tax month it relates to. Tax months run from the 6th to the 5th (e.g. tax month 1 is 6 April to 5 May; the EPS for that month is due by 19 May).

Year-end obligations

At the end of each tax year (5 April), you must:

1. Send your final FPS — mark the last FPS of the year with the "final submission" indicator, on or before your last payday of the tax year
2. Issue P60s to every employee on the payroll on 5 April — deadline is 31 May
3. Report expenses and benefits on forms P11D (or payroll the benefits) — deadline is 6 July
4. Update your payroll software for the new tax year rates and thresholds from 6 April

How and when to pay HMRC

Every month, you must pay HMRC the total of Income Tax deducted, employee NICs, and employer NICs — minus any reductions claimed via the EPS (statutory pay recoveries, Employment Allowance, etc.).

Payment deadlines depend on how you pay:

• Electronic payments (bank transfer, direct debit, online banking) — due by the 22nd of the following month
• Cheque payments — must reach HMRC by the 19th of the following month

If your average monthly PAYE payment is below £1,500, you can arrange to pay quarterly instead of monthly. Quarterly payments are due on the 22nd after the end of each quarter (22 July, 22 October, 22 January, 22 April for electronic payments). Most sole-director companies with modest salaries qualify for quarterly payment.

You pay using your Accounts Office reference (from your PAYE registration letter). HMRC accepts payment by direct debit, Faster Payments, BACS, CHAPS, or online/telephone banking.

Employment Allowance: reducing your employer NICs bill

The Employment Allowance lets eligible employers reduce their annual Class 1 employer NICs liability by up to £10,500 for 2026/27. This is a significant saving — for many small companies, it wipes out the employer NIC bill entirely.

Who can claim?

Most small and medium employers are eligible. However, there is one critical exclusion that catches many founders:

• Single-director companies with no other employees cannot claim Employment Allowance. If the company's only employee is the sole director, the allowance is not available. As soon as you hire a second person (even a part-time employee), the company becomes eligible.
• Companies carrying out more than 50% of their work in the public sector cannot claim

You claim Employment Allowance through your payroll software — it reduces your PAYE liability from the first payroll run of the tax year until the full £10,500 is used up.

The director's salary sweet spot for 2026/27

For sole directors of limited companies, PAYE often involves a carefully chosen salary set to optimise the tax position. The most common strategies for 2026/27 are:

• Salary at the Primary Threshold (£12,570/year, £1,047.50/month) — this preserves a qualifying year for State Pension purposes without triggering employee NICs. However, with the Secondary Threshold now at £5,000/year, the company will pay employer NICs at 15% on the salary above £5,000 — roughly £1,135.50 per year in employer NICs. This is still usually worthwhile because the salary is a deductible expense for Corporation Tax.
• Salary at the Secondary Threshold (£5,000/year, £416.67/month) — this avoids all NICs entirely (both employee and employer) but does not generate a NIC qualifying year. Consider this if you already have 35 qualifying years or are building up credits through other employment.

In either case, the remaining profits are typically extracted as dividends, which are taxed at lower rates: 10.75% (basic rate), 35.75% (higher rate), or 39.35% (additional rate) for 2026/27 — with a £500 tax-free dividend allowance. See our director pay guide for a full worked example.

Pension auto-enrolment: the obligation that arrives with your first employee

If you hire anyone beyond yourself, the company will almost certainly trigger pension auto-enrolment duties. Every employer must enrol eligible workers into a qualifying pension scheme.

An employee must be auto-enrolled if they are:

• Aged between 22 and State Pension age
• Earning more than £10,000 per year
• Working in the UK (or ordinarily working in the UK)

The minimum total contribution is 8% of qualifying earnings, with at least 3% from the employer. Qualifying earnings are those between £6,240 and £50,270 per year (2026/27 bands — verify on GOV.UK).

A sole director with no other staff is exempt from auto-enrolment — you cannot be "auto-enrolled" into your own pension. But you can (and probably should) make employer pension contributions voluntarily, which are a tax-efficient way to extract value from the company and reduce the Corporation Tax bill.

Common PAYE mistakes that cost founders money

These are the errors we see most often — and each one is avoidable with a basic understanding of the rules.

1. Registering too late (or not at all)

If you start paying salaries before registering for PAYE, every payroll submission is late by definition. HMRC's late filing penalties apply from your first missed deadline. The solution is simple: register 2–4 weeks before your first payday, and no earlier than 2 months before.

2. Confusing dividends with salary

Dividends are not employment income and are not processed through PAYE. Some founders assume that because they are "paying themselves," dividends need to go through payroll. They do not. Equally, some assume they can pay themselves purely in dividends and avoid PAYE entirely — which is possible, but means no NIC qualifying year and no employer NIC-deductible salary.

3. Not filing nil EPS returns

If you have an active PAYE scheme but did not pay anyone in a particular month, you must send an EPS to HMRC by the 19th of the following month to confirm no payments were made. If you do not, HMRC assumes you have missed an FPS and may issue a late filing penalty. This catches many directors who pay themselves quarterly but have a monthly PAYE scheme.

4. Missing the FPS deadline

The FPS must be submitted on or before the payday. Not the day after, not end-of-week, not "whenever you get around to it." Payroll software can schedule submissions in advance, but many founders running manual payroll forget. Late FPS submissions trigger penalties for every employee on the payroll, every month the filing is late.

5. Using the wrong tax code

HMRC issues tax codes to employers via P9 notices. If you use the wrong code — or a generic emergency code when a specific one exists — your employee will overpay or underpay tax. The error compounds over the year and creates a headache at P60 time. Always apply the most recent tax code notice from HMRC.

6. Forgetting to close the PAYE scheme

If you stop paying all employees (including yourself), you should tell HMRC the scheme is inactive by sending a final EPS. Otherwise, HMRC will continue expecting monthly FPS submissions and will issue penalties when they do not arrive. If you are making your company dormant, closing the PAYE scheme should be on your checklist.

PAYE penalties: what happens when you get it wrong

HMRC applies penalties for both late filing and late payment. Understanding the structure helps you see why even small delays can add up.

Late filing penalties

Late FPS penalties are charged per month and scale with the number of employees:

• 1–9 employees: £100 per month
• 10–49 employees: £200 per month
• 50–249 employees: £300 per month
• 250+ employees: £400 per month

HMRC operates on quarterly penalty periods. Penalties are not issued for the first late filing in a tax year — the first default acts as a warning. After that, each late FPS in the quarter attracts a penalty at the rate above. An additional 5% of the tax and NICs outstanding may be charged if the FPS is more than 3 months late.

Late payment penalties

If you do not pay the PAYE, NICs, and student loan deductions you owe to HMRC by the deadline (22nd of the following month for electronic payments), penalties are charged based on how many times you pay late in a tax year. The first late payment in a tax year does not count as a default; after that, the penalty rises with the number of defaults:

• 1–3 defaults: 1% of the amount outstanding
• 4–6 defaults: 2% of the amount outstanding
• 7–9 defaults: 3% of the amount outstanding
• 10 or more defaults: 4% of the amount outstanding
• Plus an additional 5% if any amount is still unpaid after 6 months, and a further 5% after 12 months

For a sole director with a small salary, the amounts may be modest. But for a company with even a handful of employees, a quarter of missed payments can easily produce four-figure penalty notices.

PAYE and your other tax obligations

PAYE does not exist in isolation. Here is how it connects with the other taxes your limited company may need to manage:

• Corporation Tax — salaries and employer NICs are deductible expenses, reducing your Corporation Tax bill. You must register for Corporation Tax within 3 months of starting business activity.
• VAT — salaries are not subject to VAT. However, if your company is VAT-registered, you will be managing VAT returns alongside payroll. VAT registration is only mandatory once taxable turnover exceeds £90,000 in any rolling 12-month period.
• Self Assessment — if you are a director receiving dividends, you will likely need to file a personal Self Assessment tax return each year to report dividend income and pay any additional tax due.
• Confirmation statement — this is a Companies House filing (not HMRC), due every 12 months. It has no direct connection to PAYE, but it is part of your annual compliance calendar. See our confirmation statement guide.

A practical PAYE timeline for new limited companies

If you are setting up a new company and plan to draw a salary, here is the typical sequence:

1. Incorporate the company — costs £100 online with Companies House (or through Filing HQ)
2. Receive your company UTR — posted by HMRC to your registered office, usually within 2–3 weeks of incorporation
3. Decide your salary level and first payday — typically the last working day of the month
4. Register for PAYE — 2–4 weeks before the first payday, no more than 2 months ahead
5. Choose payroll software — HMRC's free Basic PAYE Tools or a commercial alternative
6. Receive your employer PAYE reference and Accounts Office reference — within 5–10 working days of registration
7. Run your first payroll and submit the FPS — on or before your first payday
8. Pay HMRC — by the 22nd of the following month (or quarterly if eligible)
9. Repeat monthly — FPS on or before each payday, payment to HMRC by the 22nd, EPS if claiming reductions or reporting nil months

For most sole-director companies, the entire setup takes less than an hour once you have the UTR. The ongoing monthly obligation — one FPS submission and one HMRC payment — takes minutes with good payroll software.

Frequently asked questions

Do I need PAYE if I only pay myself dividends?

No. Dividends are distributions of company profit, not employment income. They are not subject to PAYE, Income Tax at source, or National Insurance. If every director and shareholder receives only dividends and no salary, the company does not need a PAYE scheme. However, most tax advisers recommend a small PAYE salary alongside dividends to preserve NIC qualifying years and create a Corporation Tax deduction.

Can I register for PAYE before I have my company UTR?

In practice, HMRC's online registration requires the company UTR. If you have not yet received it (it typically arrives 2–3 weeks after incorporation), you can chase HMRC by calling the newly registered companies helpline. In urgent cases, you can register by post, but this is slower. The best approach is to plan your first payday so that the UTR and PAYE registration timings align.

What happens if I run payroll before receiving my employer PAYE reference?

You can run payroll using your software, calculate the deductions, and store the FPS. Once your reference arrives, submit the FPS to HMRC as a late filing with the appropriate late reporting reason code. HMRC expects this to happen occasionally during initial setup and will generally not penalise a first submission that is late due to the reference not arriving in time.

Is a sole-director company eligible for Employment Allowance?

No. A company whose only employee is the sole director cannot claim the Employment Allowance. The allowance (up to £10,500 for 2026/27) becomes available once the company has at least one other employee. This is a specific HMRC exclusion, not a general Companies House rule.

How does PAYE interact with identity verification under ECCTA?

PAYE registration is an HMRC process and is separate from the Companies House identity verification requirement introduced by the Economic Crime and Corporate Transparency Act (ECCTA) on 18 November 2025. Identity verification applies to directors and PSCs and must be completed via GOV.UK One Login or an Authorised Corporate Service Provider (ACSP). It is a one-off per person and does not need to be repeated for each appointment. PAYE registration does not require identity verification, but if you are a new director, you will need to have verified your identity before Companies House will accept your AP01 appointment filing. Read more in our identity verification guide.

Can I close my PAYE scheme if I stop paying salaries?

Yes. If you stop paying all employees, send a final EPS to HMRC indicating that the scheme is no longer active. HMRC will stop expecting monthly submissions. If you later need to start paying salaries again, you can reactivate the scheme or register a new one. Do not leave an inactive scheme open — HMRC will issue penalties for the missing FPS submissions it continues to expect.