For UK employers, Pay As You Earn (PAYE) is an essential part of running payroll and meeting legal obligations. While the system is designed to be structured and automated, employers remain responsible for ensuring deductions are calculated correctly, reported accurately, and paid to HM Revenue & Customs (HMRC) on time.
At Hanley & Co. Accountants, this month’s blog looks at PAYE and how it works. For more information, call us near Kendal on 01539 821869.
How Does PAYE Work?
Simply put, the PAYE system sees employers as a tax collector on behalf of HMRC. It deducts the tax an employee will owe on their wages, and send it to HMRC along with a report which explains the amount paid and deducted.
Employers operate PAYE as part of payroll, deducting tax and National Insurance before paying employees their wages. Other deductions that can be processed through payroll include pension contributions and student loan repayments.
Registering as an Employer
Before paying anyone, you must register as an employer with HMRC. This should be done before the first payday as it can take up to 15 working days. You will then be issued your employee reference number.
Additionally, some contractors also need to register for PAYE so they can become CIS registered.
What are my Reporting Responsibilities as an Employer?
As an employer, it is your responsibility to inform HMRC about the people you employ and how much you pay them. You will need to use special payroll software to submit this information. You will also need to inform HMRC if you no longer employ anyone and de-register from PAYE.
Under Real Time Information (RTI), employers must submit payroll information to HRMC on or before each payday.
Why PAYE Compliance Matters for Employers
PAYE compliance is more than a technical requirement. It also directly affects your business’s reputation and financial stability. Correct PAYE operation:
- Reduces the risk of HMRC penalties & audits
- Builds trust with employees
- Ensures accurate pension and benefit entitlements
- Demonstrates professionalism and good governance
From an employer’s perspective, PAYE is a continuous responsibility.
Contact Hanley & Co. Accountants
If you require accounting advice, contact Hanley & Co. Accountants near Kendal. Serving across Cumbria, call us on 01539 821869. Alternatively, send us a message via our contact form and we will be in touch.
