PAYE and National Insurance for UK employers

What PAYE covers

PAYE is HMRC’s system for collecting income tax and National Insurance from employment. As an employer you register with HMRC, work out the deductions every time you pay someone, report them in real time, and pay the total to HMRC.

Before you pay anyone you need a PAYE scheme. HMRC gives you an employer PAYE reference and an Accounts Office reference, which go on every submission and payment.

Tax codes

Each employee has a tax code that tells you how much of their pay is tax-free. The most common is 1257L, which reflects the standard Personal Allowance of £12,570 a year. HMRC sends you code changes, and you apply them from the next payday.

Income tax is charged in bands above the allowance. Employees who live in Scotland have an S code and pay Scottish rates, and employees in Wales have a C code. Payroll software applies the right bands from the code.

• Basic rate: 20% on income above the allowance
• Higher rate: 40% once income passes the basic-rate limit
• Additional rate: 45% on the highest incomes

Class 1 National Insurance

Employees pay Class 1 National Insurance on earnings above the Primary Threshold, at the main rate up to the Upper Earnings Limit and a lower rate above it. You also pay employer National Insurance on earnings above the Secondary Threshold. Both are worked out on each pay period, not annually (company directors are the exception).

Eligible employers can claim the Employment Allowance, which reduces the employer National Insurance bill each year. You claim it through your Employer Payment Summary.

Paying HMRC

Deductions for each tax month (the 6th to the 5th) are usually due by the 22nd of the following month when you pay electronically. Small employers whose average monthly payments are below HMRC’s limit can pay quarterly instead.

Nobicel works out PAYE and National Insurance for every employee on each run, shows the split on the payslip, and totals what you owe HMRC for the month.