How Do I Set Up My Company to Start Paying People?
Everything you need to know about registering with HMRC for PAYE, understanding when you need to run payroll, and what thresholds apply.
Whether you're hiring your first employee or setting up a salary for yourself as a director, you'll likely need to register with HMRC as an employer and operate PAYE (Pay As You Earn). This guide walks you through the process step by step — including when you might not need to bother.
Getting this right from the start avoids penalties and ensures your employees are taxed correctly from day one.
Step 1: Register with HMRC for PAYE
Before you can legally pay an employee — or yourself as a director above certain thresholds — you need to register as an employer with HMRC. This is done online and is completely free.
How to register
- Visit the HMRC employer registration page (link below)
- You'll need your company's UTR (Unique Taxpayer Reference) or Companies House number
- Provide your business name, address, and the date your first employee will be paid
- HMRC will send you a PAYE reference number and Accounts Office reference within 10 working days
Step 2: Understand the Payroll Thresholds
Not every company needs to run payroll. If your employees (or you as a director) earn below certain thresholds, you may not need to operate PAYE at all.
Key thresholds for 2024/25
Lower Earnings Limit (LEL)
£123 per week / £533 per month — below this, no NI contributions are due, but employees may still qualify for state benefits.
Primary Threshold (Employee NI)
£242 per week / £1,048 per month — employees start paying National Insurance above this.
Secondary Threshold (Employer NI)
£175 per week / £758 per month — employers start paying National Insurance above this.
Personal Allowance (Income Tax)
£12,570 per year / £1,048 per month — no income tax is due below this amount.
Do I still need to register?
If all employees earn below the PAYE threshold (£242/week), you technically don't need to operate PAYE. However, many directors choose to pay themselves just above the Lower Earnings Limit to protect their State Pension entitlement — in this case, you do still need to register and submit RTI returns, even if no tax or NI is being deducted.
Step 3: Get Set Up to Run Payroll
Once you've registered and received your PAYE reference, you'll need a few things in place before running your first payroll:
Payroll software
Use HMRC-recognised software (like Xero, FreeAgent, or HMRC's own Basic PAYE Tools) to calculate pay, tax, and NI.
Employee details
Collect each employee's full name, address, date of birth, National Insurance number, and P45 (or Starter Checklist).
Bank details
Set up a reliable method to pay employees — typically via BACS or faster payment.
Employers' liability insurance
A legal requirement as soon as you hire anyone (even if it's just one part-time employee). Fines of up to £2,500 per day apply if you don't have cover.
Real Time Information (RTI)
You must report payroll information to HMRC on or before each payday using a Full Payment Submission (FPS).
Paying Yourself as a Director
Many limited company directors pay themselves a combination of a small salary and dividends. The most tax-efficient salary is typically set at or just above the Lower Earnings Limit (£123/week for 2024/25), which:
- Protects your State Pension qualifying year
- Keeps you below the NI thresholds, so no employer or employee NI is due
- Counts as a business expense, reducing your Corporation Tax bill
Even at this low salary level, you still need to register for PAYE and submit RTI returns to HMRC. We can help you decide the optimal salary/dividend split for your circumstances.
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Common Questions
How do I register my company with HMRC for PAYE?
You can register as an employer with HMRC online at gov.uk/register-employer. You'll need your company details, including your Companies House registration number and business address. HMRC will then send you a PAYE reference number and Accounts Office reference, which you'll need to run payroll.
Do I need to register for PAYE if I'm the only director?
If you're a director paying yourself a salary below the Secondary Threshold (£175 per week for 2024/25), and your only income from the company is dividends, you may not need to register for PAYE. However, if your salary exceeds this threshold or you have other employees, you must register.
What is the threshold for running payroll?
You don't need to run payroll if all employees (including directors) earn below the PAYE threshold — currently £242 per week or £1,048 per month (2024/25 tax year). However, once any employee earns above this amount, you must operate PAYE and report to HMRC in real time.
When should I register as an employer with HMRC?
You should register as an employer before your first employee's payday. HMRC recommends registering at least two weeks before you need to run your first payroll, as it can take up to 10 working days to receive your PAYE reference.