By
August 30, 2026
How Do I Set Up Payroll for a New UK Company?
To set up payroll for a new UK company, decide how employees and directors will be paid, register as an employer with HMRC where required, choose PAYE-compatible payroll software and collect the necessary information for each worker.
The company must then calculate pay and deductions, provide payslips, report payments to HMRC on or before payday and pay the amounts due to HMRC by the relevant deadline.
Workplace pension duties must be considered separately. They can apply from the date the company’s first member of staff begins work, even if that employee does not immediately need to be automatically enrolled.
Payroll is the process a company uses to calculate, record and report payments to employees and directors.
It can include:
The company pays the employee’s net salary and sends applicable tax, National Insurance and other deductions to HMRC or the relevant organisation.
Payroll information is normally reported to HMRC through Real Time Information, commonly known as RTI.
A company may need to set up payroll when it begins paying:
A company does not automatically need a PAYE scheme simply because it has been incorporated or has appointed a director. The need depends on whether anyone is being paid and whether HMRC’s PAYE registration conditions are met.
Registration may be required where an employee or director:
The applicable earnings thresholds can change each tax year. A company should check the current figures before deciding that PAYE registration is unnecessary.
Even where a PAYE scheme is not required, the company must maintain appropriate records of payments.
A company that needs to operate PAYE must register as an employer with HMRC.
This can apply even when the only person being paid is a director. The director and company are separate legal persons, so a salary paid to the director is employment income.
The company should register:
HMRC will issue the references needed to operate and pay PAYE.
A company should not register far in advance if it has no confirmed plan to pay anyone. Unnecessary registration can create payroll reporting obligations even during periods when no salary is paid.
After registration, HMRC normally provides:
This identifies the company’s PAYE scheme when reporting employee pay and deductions.
This is used when paying PAYE and National Insurance to HMRC.
These references serve different purposes and should be entered correctly into the payroll software.
They should be stored securely because they may be used to access or discuss the company’s tax affairs.
The processing time can vary, so the company should register as soon as it has a confirmed first payday and is within the permitted registration window.
Do not deliberately delay registration until after paying employees.
If the company has to pay someone before its employer PAYE reference arrives, it should generally:
This should be treated as an exceptional situation rather than the company’s normal payroll process.
Identify everyone the company expects to pay through payroll.
For each person, establish:
Do not assume that calling someone self-employed prevents them from being an employee for tax or employment-law purposes. Employment status depends on the actual working arrangement.
Decide whether staff will be paid:
Monthly payroll is common for directors and salaried employees.
Choose a consistent payday and record it in the employment terms. The company must usually report the payment to HMRC on or before that date.
If payday falls on a weekend or bank holiday and the employee is paid early, payroll reporting should follow HMRC’s rules for showing the normal contractual payday.
Register the company with HMRC if it needs to operate PAYE.
Information required may include:
Use the company’s legal name and current address. Ensure that Companies House records are correct before registering.
The payroll system must be capable of calculating deductions and submitting information to HMRC through RTI.
Useful features include:
The company can use commercial payroll software, suitable basic tools or an outsourced payroll provider.
Before selecting software, check that it supports the company’s pay frequency, number of employees and workplace pension scheme.
Before running the first payroll, collect:
The employee’s name should match official records as closely as possible.
If the employee does not have a P45, use the appropriate starter checklist. Do not delay reporting indefinitely because a P45 is unavailable.
Before employing someone in the UK, the company must carry out the required right-to-work check.
The appropriate method depends on the employee’s immigration status and documents.
The company should:
A National Insurance number does not, by itself, prove that a person has the right to work in the UK.
Employees and workers are generally entitled to written information about their employment terms.
The documentation should address matters such as:
The payroll settings should agree with the employment agreement. For example, do not set a monthly salary in the software that differs from the signed employment terms.
The company must ensure that workers receive at least the applicable National Minimum Wage or National Living Wage.
The correct rate can depend on:
The rates usually change periodically. Payroll software may calculate pay but cannot always determine whether every working-time and deduction rule has been followed.
Directors who are office holders without employment contracts may be treated differently for some minimum-wage purposes. The company should obtain advice if the director’s status is unclear.
Workplace pension duties begin when the company’s first member of staff starts work. This is known as the duties start date.
The company must assess each member of staff to determine whether they:
Where eligible staff must be enrolled, the company should choose a qualifying pension scheme and make the required contributions.
The company must also:
The company normally has six weeks from its duties start date to write to staff and five months to complete its declaration of compliance.
These duties can apply even if no employee needs to be automatically enrolled immediately.
Set up the company and employee records in the software.
Check:
Incorrect opening details can affect every payroll calculation that follows.
Enter the employee’s gross pay and any relevant additions or deductions.
The software may calculate:
Review the results before finalising the payroll.
Check for unexpected figures such as:
Do not assume that a calculation is correct simply because it was produced automatically.
The company must normally send a Full Payment Submission, or FPS, to HMRC on or before each payday.
The FPS reports information such as:
The payroll should not be treated as complete until the submission has been accepted.
Save the electronic submission receipt or confirmation.
Employees and workers who are entitled to payslips should receive them on or before payday.
A payslip should show:
It commonly also shows:
Payslips may be provided electronically if employees can access and retain them securely.
Transfer the net pay shown on the payroll to each employee.
The payment reference should make the transaction easy to identify. The amount paid from the bank should agree with the final payroll report.
If the company pays a different amount from the payslip, investigate and correct the difference promptly.
Avoid paying company salaries through a director’s personal account. The payment should normally come from the company’s business account.
Payroll should be recorded in the company’s accounting records.
The bookkeeping entry should distinguish between:
The net amount paid to employees is not the company’s full employment cost.
The company’s total cost can include gross pay, employer National Insurance, employer pension contributions and other benefits.
The company must pay HMRC the PAYE and National Insurance due by the applicable deadline.
Payment will generally include:
Electronic payments are normally due later than postal payments. Most employers pay monthly, although some smaller employers may be permitted to pay quarterly.
Use the correct Accounts Office reference and payment-period suffix where required. An incorrect reference can cause HMRC to allocate the payment to the wrong period.
Pension contributions deducted from employees, together with the employer’s contributions, must be sent to the pension provider by the scheme’s deadline.
The company should reconcile:
Do not treat pension deductions as company cash available for ordinary expenses.
A Full Payment Submission reports employee payments and deductions to HMRC.
An FPS is generally required on or before payday, even if the company pays HMRC quarterly.
The FPS tells HMRC what was paid rather than merely what the company intended to pay.
If the submission is late, the company may need to provide a late-reporting reason. Repeated late reporting can lead to penalties and discrepancies in employees’ tax records or benefit calculations.
An Employer Payment Summary, or EPS, is used for payroll information that is not included in the ordinary FPS.
It can be required where the company needs to report matters such as:
Submitting an EPS does not replace the FPS when employees have actually been paid.
A sole director does not automatically need to run payroll.
Payroll may be required if the company pays the director a salary that must be reported under PAYE. The position depends on:
If the director takes no salary and receives only properly declared dividends, there may be no salary to process. However, dividends cannot be used as a substitute for salary unless the company has sufficient distributable profits and follows the correct dividend procedure.
Money withdrawn without being classified correctly may create a director’s loan rather than salary or dividends.
Directors can be subject to special National Insurance rules because they may be able to influence when they are paid.
National Insurance for directors is generally assessed using an annual earnings period. Payroll software may offer:
The correct director status and appointment date must be entered into the software.
Do not process a director as an ordinary employee without checking whether the payroll system applies the director rules correctly.
A company with only one director may have no automatic-enrolment duties if that director is the only person working for the company and does not have an employment contract.
The position can change if:
The company should assess its actual circumstances rather than assuming that all directors are automatically exempt.
Yes, but the correct tax and National Insurance treatment depends on the circumstances.
Relevant factors include:
UK directors’ fees and remuneration can be subject to special tax-treaty rules. A non-resident director should not automatically be placed on an ordinary UK payroll without considering the cross-border position.
The company may need advice in both the UK and the director’s country of residence.
A UK company employing someone who works from another country may create obligations in that country.
These can include:
The fact that the employer is incorporated in the UK does not mean UK payroll is the only system that matters.
Cross-border employment should be reviewed before the employee starts work.
Yes. A company can appoint an accountant, payroll bureau or other specialist to process payroll.
The provider may:
The company remains responsible for ensuring that:
Directors should review payroll reports before salaries are released.
The company should retain records of:
PAYE records must generally be kept for at least three years from the end of the tax year to which they relate. Longer retention may be appropriate where other company, pension, employment or tax requirements apply.
Employee information should be protected through suitable access controls and data-retention policies.
When an employee leaves, the company should:
Payments made after the leaving date must be reported using the appropriate payroll procedure.
The UK tax year ends on 5 April.
The company should:
Tax rates and thresholds can change each year, so payroll software should be updated before processing the first payment of the new tax year.
A company that employs staff will generally need employers’ liability insurance, subject to limited exceptions.
The policy should normally be in place when the company becomes an employer. The company should also consider:
Insurance does not replace the company’s health and safety or employment-law responsibilities.
Before the first payday:
New companies should avoid:
The company should register before its first payday. If the reference has not arrived in time, it should run and retain the payroll information and follow HMRC’s procedure for submitting the delayed FPS.
Yes. A director can run payroll using suitable PAYE-compatible software. The company must still calculate pay correctly, report on time and maintain complete records.
No. An accountant is not legally required merely because the company operates payroll. The company can use its own software or appoint a payroll provider.
Potentially, yes, provided the company can meet the payment and its other liabilities. Salary is normally a company expense, unlike dividends, which require sufficient distributable profits.
A shareholder-director may receive dividends if the company has sufficient distributable profits and follows the proper approval and documentation process. Dividends are not payroll salary and do not reward a non-shareholder employee for work.
If employees are paid monthly, payroll must normally be run and reported each month. If no one is paid during a period, an EPS or other notification may be required.
The FPS must normally be sent to HMRC on or before the employee’s payday.
Most employers pay monthly by the applicable deadline. Some eligible employers may arrange quarterly payments. The exact deadline depends on the payment method and reporting period.
No. Automatic-enrolment eligibility depends on age and earnings. Other employees may have the right to opt in or join. Every relevant worker must still be assessed and informed.
An eligible employee must first be enrolled. They can then opt out using the prescribed process. Employers must not encourage or pressure staff to opt out.
No. The company must also consider PAYE registration, employee information, RTI software, pension duties, right-to-work checks, insurance and employment records.
Company salaries should normally be paid from the company’s business account. Using a director’s personal account can create bookkeeping and legal-entity confusion.
To set up payroll for a new UK company, register as an employer with HMRC before the first payday where PAYE is required, obtain the employer references and choose RTI-compatible payroll software.
Collect each employee’s information, check their right to work, establish the correct tax code and National Insurance category, and assess workplace pension duties. On every payday, calculate gross pay and deductions, send an FPS to HMRC, provide a payslip and pay the employee’s net salary.
The company must then pay PAYE and National Insurance to HMRC, send pension contributions to the pension provider and maintain complete payroll records. Directors remain responsible for payroll compliance even when an accountant or payroll bureau processes it for them.
