PAYE

Also called Pay As You Earn, Payroll

The system for deducting income tax and National Insurance from wages before they are paid.

What it means

PAYE is how employers deduct income tax and employee National Insurance from pay and send it to HMRC, along with the employer's own National Insurance contribution and pension contributions.

Every payday you report to HMRC in real time — a Full Payment Submission — before or on the day you pay people.

Why it matters

The moment you employ anyone, including yourself as a director on a salary, this becomes a legal obligation with monthly deadlines and automatic penalties.

Employer's National Insurance is a genuine additional cost of employment that owners routinely leave out of their hiring calculations, along with the pension contribution under auto-enrolment.

What it looks like in practice

Register as an employer before the first payday. Use payroll software or a payroll bureau — this is not a job to do by hand.

The real cost of a hire is salary, plus employer's NI, plus the pension contribution, plus equipment, plus software. Budget on the total, not the headline.

What to watch out for

Paying someone as "sole-trader" who is really an employee. That is a determination made on the facts, not by agreement, and the liability falls on you — see employment status and IR35.

Late payment. PAYE penalties are automatic and escalate.

Where to get proper advice

GOV.UK's employer guidance is thorough. A payroll bureau is inexpensive and removes an entire category of risk.