1. Register as an Employer with HMRC

Employer Reference Number (ERN):  You need to register with HM Revenue and Customs (HMRC) to get an ERN. This can be done online.

PAYE Scheme: Register for the Pay As You Earn (PAYE) scheme. This is HMRC’s system for collecting Income Tax and National Insurance from employment.

2. Choose Payroll Software

Software Options: You can choose payroll software to automate calculations and reporting. There are various options available, both free and paid.

Manual Option: This is no longer available due to changes in legislation.

3. Collect Employee Information

Forms: Have employees fill out forms like the P45 (for previous employment details) and P46

 (if they don’t have a P45).

Bank Details: Collect bank details for direct deposit payments.

4. Determine Pay Period

Frequency: Decide how often you will pay your employees (weekly, bi-weekly, monthly, etc.).

5. Calculate Payroll

Gross Pay: Calculate total earnings (wages, bonuses, etc.).

Deductions: Include Income Tax, National Insurance, and any other deductions (e.g., pension contributions, student loan repayments).

Net Pay: Subtract deductions from gross pay to get net pay.

6. Pay Employees

Payment Methods: Distribute payments via direct deposit, checks, or other agreed methods.

7. File and Pay Taxes

Monthly Reporting: Submit Full Payment Submissions (FPS) to HMRC on or before each payday.

Tax Payments: Pay HMRC the tax and National Insurance you owe, usually by the 22nd of the following month.

Annual Reports: Submit an Employment Payment Summary (EPS) at the end of the tax year (5 April).

8. Keep Records

Record-Keeping: Maintain detailed payroll records for at least three years as required by law.

9. Stay Updated, Compliance: Keep up with changes in tax laws and regulations to ensure ongoing compliance.