Do I need to register for PAYE before hiring my first UK employee?

Yes. You must register as an employer with HMRC before your new hire's first pay day, or up to two months before if you know the date in advance. HMRC will then issue you a PAYE reference number to use on all submissions.

What is a tax code and why does it matter for PAYE?

A tax code tells you how much of an employee's income is tax-free in a given year. HMRC issues it; you apply it when calculating deductions. Using the wrong code means you may under-deduct or over-deduct tax, creating problems for you and the employee.

Are contractors covered by PAYE?

Not automatically. Genuine self-employed contractors invoice you and handle their own tax. However, if a contractor is caught by IR35 (the UK off-payroll rules), you may be required to deduct PAYE from their payments as if they were an employee. Getting this wrong carries significant penalties.

Can PAYE obligations be outsourced?

Yes. Many companies use a payroll bureau or, if hiring internationally, a global employment platform that acts as the registered employer. The platform operates PAYE, files submissions, and remits deductions. You remain responsible for ensuring the arrangement is compliant.

Glossary

Pay As You Earn (PAYE)

Pay As You Earn (PAYE) is the system used in the UK and Ireland where employers deduct income tax and social insurance from employees' wages before paying them, then remit those amounts directly to the tax authority.

Reviewed by Teamed's in-house employment-law team·Last updated 24 June 2026

What is Pay As You Earn (PAYE)?

Pay As You Earn (PAYE) is the mechanism by which employers collect income tax and social insurance contributions from employees at each pay run and pass them to the relevant tax authority: HM Revenue and Customs (HMRC) in the UK, or Revenue in Ireland.

Instead of employees receiving their full gross pay and settling a tax bill later, the employer calculates what is owed, deducts it at source, and pays net wages. In the UK, PAYE covers income tax and National Insurance contributions (NICs). In Ireland, it covers income tax, Pay Related Social Insurance (PRSI), and the Universal Social Charge (USC).

Each pay period, UK employers submit a Full Payment Submission (FPS) to HMRC reporting what was paid and what was deducted. Irish employers report similarly through Revenue's real-time PAYE system.

If you hire employees in either country directly or through a global employment platform, you are legally required to operate PAYE. Getting it wrong means penalties, interest, and potential personal liability for directors.

What does an employer actually have to do under PAYE?

You deduct the correct income tax and social contributions from each employee's gross pay every pay period. In the UK, you also submit a Full Payment Submission to HMRC on or before each pay date. You then pay HMRC or Revenue the amounts withheld, typically monthly.

How does PAYE work in Ireland compared to the UK?

Both systems share the same core principle: deduct at source, remit to the authority. Ireland's PAYE covers three separate charges: income tax (20% or 40%), PRSI, and USC. The UK system covers income tax (20%, 40%, or 45%) and National Insurance contributions. Each has its own filing deadlines and reporting formats.

What happens if you get PAYE wrong?

HMRC and Revenue can charge penalties for late filing, incorrect deductions, or late payment. In the UK, late FPS submissions attract fixed penalties that increase the longer you delay. Persistent non-compliance can trigger a formal PAYE audit. Directors can sometimes be held personally liable for unpaid PAYE debts.

Does using a global employment platform change your PAYE obligations?

When an employer of record or global employment platform employs your staff in the UK or Ireland, that entity becomes the registered employer for PAYE purposes. It runs payroll, makes the deductions, files the FPS or Irish equivalent, and remits what is owed. Your company receives an invoice rather than running payroll directly.

Key facts

UK personal allowance (2026-27): £12,570Income up to this threshold is free of income tax. Earnings above it are taxed at 20% (basic rate) up to £50,270, then 40% (higher rate).Source: HMRC: Rates and thresholds for employers 2026 to 2027· verified 2026-06-24
Ireland standard income tax rate (2026): 20% on income within the standard rate band; 40% on the balanceFor a single person, the standard rate band is €44,000. Income above that is taxed at 40%. PRSI and USC are charged separately on top.Source: Revenue.ie: Tax rates, bands and reliefs· verified 2026-06-24
UK PAYE reporting deadline: On or before each pay dateEmployers must submit a Full Payment Submission (FPS) to HMRC on or before the date employees are paid. Late submissions attract fixed penalties.Source: HMRC: PAYE and payroll for employers· verified 2026-06-24

Frequently asked questions

Do I need to register for PAYE before hiring my first UK employee?
Yes. You must register as an employer with HMRC before your new hire's first pay day, or up to two months before if you know the date in advance. HMRC will then issue you a PAYE reference number to use on all submissions.
What is a tax code and why does it matter for PAYE?
A tax code tells you how much of an employee's income is tax-free in a given year. HMRC issues it; you apply it when calculating deductions. Using the wrong code means you may under-deduct or over-deduct tax, creating problems for you and the employee.
Are contractors covered by PAYE?
Not automatically. Genuine self-employed contractors invoice you and handle their own tax. However, if a contractor is caught by IR35 (the UK off-payroll rules), you may be required to deduct PAYE from their payments as if they were an employee. Getting this wrong carries significant penalties.
Can PAYE obligations be outsourced?
Yes. Many companies use a payroll bureau or, if hiring internationally, a global employment platform that acts as the registered employer. The platform operates PAYE, files submissions, and remits deductions. You remain responsible for ensuring the arrangement is compliant.

Related terms

Note

This is general information, not legal advice. Statutory rules vary by country and change over time.

Glossary

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Last verified 2026-06-24