How to register as an Employer

Question, “I have just started my own limited company and I am also about to take on my first employee. Can you let me know what I need to do to be able to run a payroll for myself and my employee?”

Register as an Employer

Answer, December 2016

Register as an Employer with HMRC

To run a payroll in the first instance you will need to register as an employer with HMRC. This is a simple process that can be completed online as long as you already have an online account with HMRC, if not you will need to set that up first.

To begin the process see here:

Payroll system

Once set up as an employer with HMRC you should select a system to run your payroll from.

There are many on the market including HMRC’s own free tool, Basic PAYE Tools.

Other commercial payroll solutions you may wish to consider include Moneysoft and Brightpay.

Alternatively some of the modern online book-keeping products have their own payroll function included, our favourite being FreeAgent.

These systems, once set up, will calculate deductions of tax and NI for you and tell you how much to pay your employee and HMRC.

The chosen system will need to be set up with all the relevant information for both the employer and its employees.

To add an employee you will ideally have a P45 from the previous employees employment (if they have worked during the tax year) showing year to date gross pay and tax deducted.

If one is not available, at a minimum you will need the employee’s full name, address, date of birth and national insurance number.

Additional information such as other jobs (i.e second jobs) and student loan status will help the employee to be given the correct tax code (and hence pay the correct tax).

HMRC have a useful employer starter checklist.

Once your employer and employee data has been entered, you can enter the gross salary (pre tax) information for employees.

Your chosen system will calculate the income tax, national insurance and any other deductions such as student loan repayments. It is then your duty to provide payslips and pay the employees on the chosen payday.

For details on how and when to pay HMRC see here.

RTI (real time information)

As an employer you have an obligation to provide RTI (real time information) to HMRC.

A RTI return is a detailed submission of the payroll details for the period, showing who has been paid, how much and details of the deductions. It also informs HMRC of new employees and leavers.

This sounds daunting but once your payroll system is set up a submission can be made through your system directly to HMRC using your accounts office reference and your PAYE reference (which will be provided by HMRC when you register for PAYE).

If you don’t file your RTI payroll information on time there are potential late filing penalties.

Optimum salary and dividend levels for the owner

As the owner of a limited company you can plan your salary along with dividends to ensure optimal tax efficiency, see our detailed guidance on optimum salary and dividends for 2016/17.

Automatic enrolment (workplace pensions)

Something else to consider when taking on your first employee is your automatic enrolment pension duties.

Every employer in the UK must put certain staff into a pension scheme and contribute to it.

We would recommend that you visit The Pensions Regulator for more information.