UK PAYE + RTI new employer guide: 2026/27
UK PAYE + RTI for New Employers (2026/27): Complete Setup Guide
Complete guide for setting up UK payroll for the first time in 2026/27. Register as employer with HMRC, choose payroll software (BrightPay / Moneysoft / Xero / Sage / HMRC Basic), auto-enrolment pension scheme setup (NEST + qualifying earnings £6,240-£50,270, min 8% contribution split 3%+5%), Full Payment Submission (FPS) on/before payday, Employer Payment Summary (EPS) monthly, tax codes 1257L/BR/0T/K/M1/W1, Employment Allowance £10,500, Apprenticeship Levy at £3m+ pay bill, P60/P11D annual deadlines, common pitfalls. Statute: Income Tax (PAYE) Regulations 2003.
7-step new-employer setup process
| Step | Timing | Detail |
|---|---|---|
| 1. Register as employer | Before first payday | gov.uk/register-employer. 5-10 working days for HMRC to issue PAYE reference (e.g. 123/AB12345) + Accounts Office reference (e.g. 123PA12345678). |
| 2. Choose payroll software | Within 1 week | BrightPay (£200/year, popular SME), Moneysoft Payroll Manager (£150-300/year), Xero Payroll (~£15/mo plus per-employee), QuickBooks Payroll (~£14/mo), Sage Payroll, HMRC Basic PAYE Tools (free, max 10 employees). |
| 3. Set up auto-enrolment pension | Before first eligible payday | NEST (free, public scheme), The Peoples Pension, Aviva, Smart Pension, Now Pensions. Most providers accept new schemes within 1-2 weeks. Register with The Pensions Regulator (TPR). |
| 4. Collect new starter information | Before first payday | Employee provides P45 from previous employer OR completes Starter Checklist (Statements A/B/C). Determines tax code to use. Right to Work check (Section 15 Immigration Act 2014). |
| 5. First payroll run + FPS | On or before payday | Run payroll in software, submit Full Payment Submission (FPS) to HMRC. Deadline: ON OR BEFORE payday. Late = £100 penalty for next month if pattern continues. |
| 6. Make payments to HMRC | 22nd of month following payday | Income Tax + employee NI + employer NI + student loan + apprenticeship levy. Pay by 22nd of month for previous month's payroll. Direct Debit via HMRC Online or BACS. |
| 7. Make pension contributions | By 22nd of month | Pension provider deducts directly from your account. Employer min 3% on qualifying earnings + employee 5% (8% total) - depending on scheme rules. |
Real Time Information (RTI) - the heart of UK payroll
Mandatory since April 2014, RTI requires online submission of every payroll event to HMRC in real-time rather than the old annual P35/P14 returns. Two main submissions:
FPS - Full Payment Submission
Filed on or before each payday. Reports each employee's: pay amount, tax deducted, employee NI, employer NI, student loan deductions, statutory pay (SSP/SMP/etc.), pension contributions, tax code, NI category.
EPS - Employer Payment Summary
Filed by 19th of month after tax month. Reports: Employment Allowance claim, statutory pay reclaim (only SMP/SPP/SAP/SPL - SSP no longer reclaimable since 2014), CIS deductions suffered, "no payment due" notification for months with no FPS.
Late FPS triggers a £100/month penalty if pattern of lateness emerges (the first late filing in a tax year is exempt). Most payroll software automatically handles RTI submissions - you confirm the FPS in the software and it transmits to HMRC.
Common UK tax codes you'll see
| Code | Meaning | When to apply |
|---|---|---|
| 1257L | Standard cumulative | Default for employees with single source of UK income. £12,570 PA over the year. |
| 1257L M1 / W1 / X | Emergency / non-cumulative | New starters with no P45 + completed Starter Checklist Statement A. PA split equally per month / week. |
| BR | Basic Rate | No PA - all income taxed at 20%. Used for second jobs or pensions in addition to main income. |
| D0 | Higher Rate | No PA - all income taxed at 40%. Used for additional income above £50,270. |
| D1 | Additional Rate | No PA - all income taxed at 45%. Used for additional income above £125,140. |
| 0T | No PA, normal bands | PA exhausted (e.g. starter without details). 20/40/45 bands apply, no tax-free portion. |
| NT | No Tax | No tax to deduct (rare - exempt employee, non-UK resident with treaty position). |
| K500 / K850 / K1000 | Negative PA | BIK exceeds PA. The code value is added to taxable income. K500 = +£5,000 to taxable. |
| C / S / W prefix | Country code | Cymru (Welsh) / Scotland / Wales-specific. SBR / SD0 / SD1 etc. with country prefix. |
Auto-Enrolment pension obligations
Pensions Act 2008 obligates ALL employers to enrol eligible workers into a qualifying pension scheme.
Min total contribution
8%
Of qualifying earnings band
Employer min
3%
Minimum mandatory
Employee min
5%
Includes basic-rate tax relief
Qualifying earnings band: £6,240-£50,270 (annual). Eligibility: 22+ years old + earning £10,000+. Provider options: NEST (free, public scheme), Smart Pension, Aviva, Now Pensions, The People's Pension. Register with The Pensions Regulator within 5 months of first eligible worker. Penalties for non-compliance: up to £500/day. See workplace pension auto-enrolment guide.
Annual PAYE deadlines
| Deadline | What's due | Penalty for late |
|---|---|---|
| On/before each payday | FPS to HMRC | £100/mo if late pattern |
| 19th of month (post) | EPS + tax payment by post | 1-3% + interest |
| 22nd of month (electronic) | Tax + NI payment electronic | 1-3% + interest |
| 19 April | Final FPS year-end indicator | £100/mo penalty |
| 31 May | P60 to each employee | £300 + £60/day after 3 months |
| 6 July | P11D (BIK) + P11D(b) to HMRC + employees | £100/50 employees/month |
| 19 July (post) / 22 July (electronic) | Class 1A NI on BIK payment | 1-3% + interest |
Frequently asked questions
When do I need to register as an employer?
Before you make the first payment of £125+/week to a worker (or any worker over State Pension Age, or any pension recipient over the Lower Earnings Limit). Register at gov.uk/register-employer. HMRC issues PAYE Reference (e.g. 123/AB12345) and Accounts Office Reference (e.g. 123PA12345678) within 5-10 working days. Don't make first payment before registration completes - missing the first FPS can trigger penalties + complicated catch-up. Plan 2-3 weeks lead time before first payday. What triggers PAYE: paying ANY employee £125/week or more (the LEL); paying a director ANY amount (director-only schemes register too); providing benefits-in-kind even if no cash pay (P11D obligation). Personal Tax Account: register your business government gateway login for HMRC online services. The PAYE reference is needed for all subsequent payroll filings + tax-related letters.
What is RTI (Real Time Information)?
Real Time Information is HMRC's online payroll reporting framework, mandatory since April 2014 (Income Tax (Pay As You Earn) Regulations 2003 as amended). Two main submissions: Full Payment Submission (FPS): filed ON OR BEFORE EACH PAYDAY. Reports each employee's pay, tax deducted, NI, student loan, statutory pay (SSP/SMP/etc.), workplace pension contributions. Employer Payment Summary (EPS): filed monthly (by the 19th of the month after the relevant tax month - tax months run 6th to 5th). Reports: Employment Allowance claim, statutory pay reclaim, CIS deductions suffered, "no payment due" notification. Late FPS: £100/month penalty if pattern of lateness. RTI replaced the old annual P35/P14 forms with monthly reporting. Most payroll software handles RTI automatically - you click "submit" and the FPS/EPS is sent to HMRC.
What payroll software should I use?
Depends on company size + complexity. 1-3 employees: HMRC's free Basic PAYE Tools (max 10 employees, basic features), BrightPay (£199/year for up to 25 employees, popular UK choice), Moneysoft Payroll Manager (£150-300/year). 4-20 employees: BrightPay scales well, Xero Payroll (~£15/mo plus per-employee), QuickBooks Payroll (~£14/mo plus per-employee), Sage Payroll Essentials. 20+ employees: Sage Payroll Professional, MHR iTrent, Ceridian, Bond Payroll. Critical features: RTI filing built-in, auto-enrolment integration, statutory pay calculations (SSP/SMP), payslip generation, year-end P60 + P11D, real-time integration with HMRC Government Gateway. Free tools (HMRC BPT) work but lack auto-enrolment automation; small fee for cloud software typically pays for itself in time saved + error reduction.
What is Auto-Enrolment and what are employer obligations?
Pension auto-enrolment (Pensions Act 2008) requires employers to: enrol eligible workers into a qualifying pension scheme; make minimum employer contributions of 3% of qualifying earnings; deduct minimum employee 5% (total 8% minimum). Eligibility: workers aged 22+ AND earning £10,000+/year. Lower-paid workers (£6,240-£10,000) can OPT IN voluntarily with employer matching. Workers under £6,240 not eligible for AE. Qualifying earnings band: contributions calculated on earnings £6,240-£50,270 annually (or pro-rated per pay period). Setup steps: choose qualifying pension scheme (NEST free, or commercial like Smart Pension, Aviva), register with The Pensions Regulator within 5 months of first paying a worker, send AE communications to employees before their auto-enrolment date. Re-enrolment: every 3 years employers must automatically re-enrol workers who previously opted out (to give them another chance). The "opt-out window" is 1 month from enrolment - workers get full refund of contributions if they opt out in this window. After 1 month: contributions stay in pension.
What are the most common tax codes?
1257L: standard cumulative tax code for employees with one source of UK income, £12,570 Personal Allowance spread across the year. 1257L M1 / W1 / X: non-cumulative (emergency) - PA split equally per month / week. Used for new starters who didn't provide P45 + completed Starter Checklist Statement A. BR: Basic Rate - no PA, all income at 20%. Used for second jobs / additional pension. D0 / D1: Higher / Additional Rate - all income at 40% / 45%. 0T: no PA but normal bands apply. K codes (K500, K850, K1000): BIK / underpayments exceed PA. The code value gets ADDED to taxable income (K500 = +£5,000 added to wages for tax calc). NT: no tax - rare, non-UK-resident treaty position. S prefix: Scottish rate (e.g. S1257L). C prefix: Welsh rate. Tax codes are issued by HMRC + change throughout the year as circumstances update. Worker can check via Personal Tax Account at gov.uk/personal-tax-account.
What are PAYE filing deadlines + penalties?
FPS (Full Payment Submission): on or before each payday. Late filing triggers £100 per month if late filings cross 3+ in a quarter (the "first late" exemption applies to the first late filing). EPS (Employer Payment Summary): by 19th of month following the tax month (tax months run 6th-5th). PAYE payment: 22nd of month following the relevant payday (electronic) or 19th if by post/cheque. Late payment penalties: 1-3% of late amount + interest. P60: by 31 May for the previous tax year - to each employee employed at 5 April. P11D (BIK): by 6 July for the previous tax year - to HMRC + each employee. £100 per 50 employees per month penalty for late P11D. P11D(b): by 6 July - Class 1A NI on benefits. Annual reconciliation: final FPS marked "Year End indicator" by 19 April. Real Time Information schedule means there's no separate "annual return" anymore - the year-end is just the final tax-month FPS marked appropriately.
What is the Employment Allowance?
£10,500 per company per tax year (raised from £5,000 to £10,500 in April 2025) - reduces the employer NI bill. Available to most employers with previous-year employer Class 1 NI liability under £100k. NOT available to sole-director companies where the only person on payroll above the Secondary Threshold is a single director (excluded since April 2016 to prevent PSC abuse). Hiring a second person paid above the Secondary Threshold (£5,000 from April 2025) makes the company eligible. Claiming: tick the EA claim box in your first EPS of the tax year. EA is automatically applied against your employer NI bill until consumed. Worked example: 2-person business with £6,000 employer NI for the year. EA covers the entire £6k - zero employer NI cost. £15,000 employer NI: EA covers first £10,500, remaining £4,500 payable. From April 2025 the £10,500 EA combined with the £5,000 Secondary Threshold (down from £9,100) made EA essential for most small employers to manage the increased employer NI burden.
How does the Apprenticeship Levy work?
0.5% levy on employer pay bills above £3,000,000 annually (Finance Act 2016). Employers below £3m threshold are exempt. £15,000 "allowance" deducted from the levy calculation. Worked example: £4,000,000 pay bill: levy = (£4m - £3m) × 0.5% = £5,000 - £15,000 allowance reduces to zero. £5,000,000 pay bill: (£5m - £3m) × 0.5% = £10,000 - £15,000 = zero. £8,000,000 pay bill: (£8m - £3m) × 0.5% = £25,000 - £15,000 = £10,000 levy due. Levy paid through PAYE monthly. Funds collected go to Department for Education for apprenticeship funding. Levy-paying employers can spend their levy contributions on apprenticeship training within 24 months (use it or lose it). Smaller employers (below £3m) can access apprenticeship funding via the Apprenticeship Service at 95% co-funding. Most SME employers never hit the threshold - levy mainly affects large employers + Big 4 / corporate professional services. The Apprenticeship Levy is separate from PAYE/RTI but reported through the same EPS submission monthly.
How do I handle new starters?
P45 from previous employer: gives tax code + year-to-date pay + tax. Use the P45 tax code (typically 1257L cumulative) and YTD figures going forward. No P45 - Starter Checklist: gov.uk-provided form with three statements: Statement A: "This is my first job since 6 April + I don't get any other regular income". Apply 1257L cumulative. Statement B: "This is my only job but had another since 6 April". Apply 1257L W1/M1 emergency (non-cumulative). Statement C: "I have another job or pension". Apply BR (no PA, 20% on everything). Send the new starter's first FPS with their starter declaration. HMRC will issue a corrected tax code if needed via a "Coding Notice" (P9) - apply this from the effective date stated. Right to Work check: mandatory before first payment (Section 15 Immigration Act 2014). Verify identity documents + share code (for non-UK nationals). Failure to verify: £45,000 civil penalty per worker + criminal liability. P11D / BIK setup: if providing benefits, register for payrolling benefits in real-time via PAYE (best practice) or report annually via P11D.
What about leavers - P45 mechanics?
When an employee leaves, generate a P45 from your payroll software. The P45 has 4 parts: Part 1 sent electronically with the next FPS submission to HMRC; Parts 1A + 2 + 3 given to the leaving employee. Part 1A: their copy to keep. Parts 2 + 3: hand to the new employer (Part 2) and HMRC processes Part 3. Final FPS: marked with the "leaving date". Cumulative figures included to settle YTD position. Tax + NI deductions: continue normally for the final pay period. Any redundancy/PILON/holiday pay: subject to PAYE in the final period. P11D for leavers: still required by 6 July following the tax year for any BIK provided during their employment. Outstanding student loan: stops when employee leaves; new employer takes over from their P45 information. Pension scheme: notify pension provider of the leaver; pension stops contributing from the leaving date but the employee's accumulated pot stays with the provider. Retention: keep PAYE records for 3 years after the relevant tax year (Section 12B TMA 1970), but most accountants recommend 6 years.
What are common new-employer PAYE pitfalls?
(1) Missing registration deadline: paying first wages before HMRC registration completes. Result: scrambling to do retroactive RTI catchup + potential penalty. (2) Wrong tax code applied: defaulting to BR for new starters with no P45 instead of using the Starter Checklist properly. Result: employees over-pay tax + come back angry. (3) Missing auto-enrolment setup: not registering with TPR within 5 months of first eligible worker. Penalty up to £500/day. (4) Late FPS submissions: filing after payday rather than on/before. £100/month penalty if pattern. (5) Wrong Employment Allowance claim: sole-director PSCs incorrectly claiming EA. HMRC recovery + 30-100% penalty. (6) Missing P11D deadline: providing company car/private health/loans without P11D filing. £100 per 50 employees per month penalty + Class 1A NI underpayment. (7) Apprenticeship Levy oversight: company grows above £3m pay bill threshold; doesn't realise levy applies. (8) Director's loan + Section 455: directors taking cash drawings without dividend voted; year-end DLA overdrawn triggers 33.75% S455 charge. (9) Wrong NI category: applying category A to under-21s (should be M) or apprentices under 25 (should be H). HMRC underpayment + correction.
Should I use an accountant or do payroll myself?
Depends on complexity + time + risk tolerance. DIY (HMRC Basic PAYE Tools or cloud software): feasible for 1-5 employee simple businesses. Cost: £0-£300/year software. Time: 2-4 hours per month for payroll + filings. Risk: missed deadlines + technical errors trigger penalties. Cloud software + occasional accountant: most SMEs choose this. Run payroll yourself (£15-25/month software), pay an accountant quarterly review or annual year-end for £200-£500. Bookkeeper or payroll bureau: outsource the payroll function entirely. Bureau cost typically £20-50 per employee per month. Used by 5-20 employee firms wanting compliance certainty. Full-service accountant: bookkeeping + payroll + accounts + tax all bundled. £150-£300 per employee per year is typical for ongoing compliance. Best for 20+ employee firms or complex scenarios (directors, BIK, salary sacrifice, share options). Critical decision factor: how comfortable are you with HMRC compliance + employment law? If "not at all" + you have £1,500+/year budget, outsource. If "very comfortable" + you have time, DIY works fine for small operations.
Related calculators and guides
- Employer cost calculator - total cost of employment per worker.
- UK NI rates - employer NI 15% mechanics + Secondary Threshold £5k.
- Optimum director salary 2026/27 - £12,570 PA route + EA decision.
- Workplace pension auto-enrolment - 3% + 5% contribution mechanics.
- 1257L tax code meaning - standard cumulative tax code deep-dive.
- SMP comprehensive guide - statutory pay employer reclaim 92%/103%.
- SSP comprehensive guide - sick pay 0% reclaim since 2014.
- Apprenticeship Levy - 0.5% on £3m+ pay bills.
- NMW 2026/27 employer guide - £12.71/hr NLW + penalties.