Setting Up PAYE for the First Time: What New Employers Need to Do — and How BrightPay Guides You Through It

When a business takes on its first employee, or pays a director for the first time, it enters the PAYE system. This is not optional and it is not something that can be started informally and regularised later. HMRC requires employers to register before their first payroll run, to operate PAYE correctly from day one, and to submit Real Time Information returns on or before each payday.

For accountants advising new employers — start-ups taking on their first member of staff, sole traders moving from self-employment, or new limited companies appointing a director-shareholder — getting the setup right at the beginning saves significant remedial work further down the line.

When Must an Employer Register for PAYE?

An employer must register for PAYE if they pay any employee or director at or above the Lower Earnings Limit (£6,500 per year / £125 per week in 2026/27), even if the amount is below the Primary Threshold and no income tax or NIC is actually due. The reason is that paying at or above the LEL creates a NIC record for the employee, which counts towards their state pension entitlement — HMRC needs to track this through the PAYE/RTI system.

An employer also needs to operate PAYE if they are providing benefits in kind to employees, even if no cash wages are paid, once those benefits are payrolled.

The registration must be completed before the first payday. HMRC recommends registering at least two weeks before the first payment, as the PAYE reference numbers needed to submit RTI returns are issued after registration and there can be a short processing delay.

Registering as an Employer with HMRC

The employer registration process is completed online via HMRC’s website. The business needs to provide:

• The business name, address and contact details

• The nature of the business (industry/sector)

• The date the first employee will be paid (the first payroll date)

• Whether the business is a limited company, partnership or sole trader

• The business’s Unique Taxpayer Reference (UTR) if it has one

Once registered, HMRC issues two reference numbers:

Employer PAYE Reference. This is a three-digit HMRC office number followed by a forward slash and a further reference (e.g. 123/AB12345). It is required for all PAYE correspondence and RTI submissions.

Accounts Office Reference. This is the reference used when making PAYE payments to HMRC. It follows the format of the office number plus a two-letter code and digits (e.g. 123PA00012345). It must be quoted on all PAYE payment references.

Both references are included in the confirmation letter HMRC sends after registration. They should be recorded carefully — they are needed before any payroll can be submitted.

What to Collect Before the First Payroll Run

Before setting up employees in the payroll system, the employer or their accountant needs to collect the following from each employee:

Starter declaration (or P45 from previous employer). The starter declaration — part of the new starter form — captures the employee’s name, address, date of birth, National Insurance number, and their employment status (first job, second job, or receiving a state pension or other employment income). The answers determine the opening tax code to apply. If the employee has a P45 from their previous employer, the tax code and year-to-date figures from that document are used instead.

National Insurance number. Every employee should have an NI number, issued by HMRC. If the employee does not yet have an NI number (for example, a new arrival in the UK), payroll can still be processed using a temporary reference — but the NI number should be applied to the record once it is available.

Bank account details. For payment of net wages by BACS or bank transfer.

Pension enrolment information. If the employee meets the auto-enrolment age and earnings criteria (aged 22 to State Pension age and earning above £10,000 per year), they must be enrolled in a qualifying pension scheme from their first day of employment with the employer. If the employer does not yet have a pension scheme, one must be set up before the employee is enrolled.

How BrightPay Sets Up a New Employer

When a new employer is set up in BrightPay, the system walks through the key configuration steps:

Employer details. The business name, address, PAYE reference, Accounts Office reference, tax year, and payroll frequency are entered. BrightPay validates the PAYE reference format and configures the RTI submission settings.

Employee records. Each employee is added with their personal details, NI number, tax code, employment start date, contracted hours or salary, and pay frequency. If a P45 is available, the year-to-date figures are entered to ensure the cumulative tax and NIC calculations are correct from the first run. If no P45 is available, the appropriate starter declaration code (1A, 1B or 1C) is applied.

Pension scheme. The employer’s pension scheme details are entered, including the pension provider, the scheme reference, and the contribution rates. BrightPay assesses each employee against the auto-enrolment criteria and produces the required employer duty communications.

First payroll run. Once setup is complete, the first payroll is processed. BrightPay calculates gross pay, tax, NIC, and pension deductions, and produces payslips for each employee. The Full Payment Submission — the RTI return that must be submitted to HMRC on or before the first payday — is generated and submitted directly from BrightPay.

The Full Payment Submission and RTI Obligations

From the first payday onwards, the employer has an ongoing RTI obligation. The Full Payment Submission (FPS) must be submitted to HMRC on or before each payday — late submission is a compliance breach that generates HMRC penalty notices.

The FPS contains, for each employee paid: their name and NI number, their tax code, their gross pay for the period, the tax and NIC deducted, the year-to-date cumulative figures, and the pension contribution. HMRC uses this information to reconcile with the employee’s tax account and to monitor employer PAYE compliance.

In addition to the FPS, employers may need to submit an Employer Payment Summary in certain circumstances: to report that no employees were paid in a period (nil return), to claim the Employment Allowance, to recover statutory payments (SSP, SMP, SPP), or to report CIS deductions suffered.

BrightPay generates and submits both the FPS and EPS directly within the payroll workflow, ensuring the RTI obligations are met as a routine part of each pay period.

Frequently Asked Questions

When must a new employer register for PAYE? A new employer must register for PAYE before their first payroll run. HMRC recommends registering at least two weeks before the first payday to allow time for the PAYE reference numbers to be issued. PAYE registration cannot be backdated, so if a business begins paying employees before registering, they are operating outside the PAYE system and must regularise the position as quickly as possible.

What is the difference between the Employer PAYE Reference and the Accounts Office Reference? The Employer PAYE Reference (e.g. 123/AB12345) is used for RTI submissions and PAYE correspondence with HMRC. The Accounts Office Reference (e.g. 123PA00012345) is used when making PAYE payments to HMRC — it must appear on the payment reference so HMRC can allocate the payment to the correct employer account. Both are issued by HMRC after registration.

What tax code should be applied to a new employee? If the employee has a P45 from their previous employer, the tax code and year-to-date figures on the P45 are applied. If no P45 is available, the employee completes a starter declaration and the tax code is determined from their answers: 1257L on a cumulative basis for their first job (code 1A), 1257L on a week/month 1 emergency basis for a second job where they have already used their main allowance (code 1B), or BR (basic rate) where they have another job or pension (code 1C).

What is a Full Payment Submission and when must it be filed? A Full Payment Submission (FPS) is the RTI return submitted to HMRC each time employees are paid. It must be submitted on or before each payday. Late submission — even by one day — is a technical breach. HMRC issues warning letters initially and then penalty notices for persistent late filing. The FPS includes each employee’s pay, tax, NIC, and year-to-date cumulative figures.

Does a director of a limited company need to be on PAYE? Yes, if the director is paid a salary above the Lower Earnings Limit. Director-shareholders of owner-managed companies typically pay themselves a low salary (often set at the National Insurance Primary Threshold to avoid both income tax and NIC) plus dividends. Even a salary at or below the Lower Earnings Limit may require PAYE registration if the director wishes to protect their NIC record for state pension purposes.

BrightPay guides new employers through the full PAYE setup — employer details, employee records, pension configuration, and the first FPS to HMRC — making a compliant first payroll run straightforward for any practice or new employer. Find out more about BrightPay or speak to your account manager.

This content may have been developed with the assistance of AI tools. Content is reviewed by a member of the Bright team before publication. Guidance on legislation can be obtained from your industry body.