When to Register for PAYE as a Small Business

Introduction:

As your small business grows, hiring employees is often an exciting next step. But with that growth comes added responsibility — including managing payroll correctly. One of the key questions many business owners ask is: When do I need to register for PAYE (Pay As You Earn)?

In this guide, we’ll break down what PAYE is, when registration is legally required for the 2025/26 tax year, and what steps you need to take to stay compliant with HMRC.

What Is PAYE?

PAYE (Pay As You Earn) is the UK system for collecting Income Tax and National Insurance from employees’ wages. If you pay employees (or even yourself as a director) through a salary, and their earnings reach a certain threshold, you’re required to register as an employer with HMRC and operate PAYE.

PAYE is not optional once you cross certain thresholds — failing to register on time can result in penalties and backdated tax liabilities.

When Do You Need To Register for PAYE?

You need to register for PAYE if any of these apply:

• You pay an employee (or director) £125 or more per week (2025/26 threshold).
• You provide employee benefits that HMRC considers taxable (think company cars, private medical insurance, etc.).
• You deduct Income Tax or National Insurance from anyone’s pay.
• Your employee has another job and receives pension.

Even if you only have one employee — or you’re the only director of a limited company taking a salary — you may still need to register for PAYE.

Common Scenarios That Trigger PAYE Registration

You’re Paying Yourself as a Director

If you operate a limited company and pay yourself a salary above the Lower Earnings Limit (£125/week), you must register for PAYE, even if you’re the only employee.

You’re Hiring Staff for the first time

Bringing on part-time or full-time help? Once you start paying them above the weekly limit or deduct tax/NI, PAYE becomes a requirement.

You’re Offering Benefits or Bonuses

Even if base pay is below the threshold, offering taxable benefits can trigger the need for PAYE reporting.

When Should You Register?

You should register before the first payday. HMRC recommends doing this at least 2 weeks in advance, as it can take up to 10 working days to receive your PAYE reference numbers.

Important: You can’t register more than 2 months before you start paying employees.

How to Register for PAYE

The process is done online through HMRC:

• Go to Register as an employer – GOV.UK
• Provide your business details, including trading name and payroll start date.
• Wait to receive your PAYE reference number and Accounts Office reference.

Once registered, you can start running payroll using software like Xero or QuickBooks — or work with an accountant to handle it all for you.

Do Sole Traders Need to Register for PAYE?

If you’re a sole trader with no employees, and you’re not paying yourself a salary through a payroll system, you don’t need to register for PAYE. However, as soon as you hire someone or begin providing taxable benefits, PAYE registration becomes necessary.

Penalties for Not Registering

Failure to register for PAYE when required can lead to:

• Backdated tax and National Insurance payments
• Penalties for late filing
• Interest on overdue payments
• Investigations by HMRC

To avoid issues, it’s always better to register sooner rather than later if you’re unsure.

Conclusion:

Setting up PAYE correctly from the beginning saves time, money, and stress. At Sagay Accounting, we help small businesses across the UK with full payroll support — from PAYE registration to monthly processing and year-end filings.

Get in touch today to book a free consultation and make sure your payroll is fully compliant and stress-free. Please feel free to check out our other blogs.