Nine essential steps for setting up a UK payroll

Welcome to our comprehensive Doing Business in the UK article series, designed specifically for international businesses and investors looking to establish or expand their operations in the United Kingdom. This series aims to provide you with essential insights and practical guidance on navigating the UK business landscape.

Throughout this series, we will cover the initial setup of your business, understanding business taxes, and the process of registering a UK business. We will also delve into workforce setup, payroll, employment costs and international hiring considerations for businesses employing people in the UK. Finally, we also explore accountancy processes, compliance and management reporting requirements, and discuss the ins and outs of importing goods and services into the UK.

For businesses looking to employ staff in the UK, a UK payroll will need to be set up so that you can meet your employer payroll reporting obligations and operate the UK’s mandatory wage tax withholding system (known as PAYE or Pay As You Earn).
 

There are nine essential steps to follow when setting up a UK payroll for the first time — the steps are as follows

1. Register as an employer: Sign up with HMRC online before paying employees.
2. Get your PAYE reference: HMRC will issue a PAYE reference number—vital for tax and National Insurance processing.
3. Choose payroll software: Select HMRC-compatible software to calculate pay, deductions, and generate payslips.
4. Collect employee details: Gather key information like National Insurance numbers and tax codes for accurate payroll.
5. Submit PAYE data: Use your software to report earnings and deductions to HMRC.
6. Make timely payments: Pay tax and National Insurance contributions by HMRC deadlines.
7. Issue payslips: Every employee must receive a payslip for each pay period.
8. Year-end reporting: You must prepare and submit annual wage tax returns after the end of the tax year.
9. Keep records: Retain payroll data for at least seven years to meet HMRC requirements.

Many overseas businesses choose to use a trusted and reputable in-country payroll provider to support with setting up and operating the UK payroll to ensure full compliance.
 

Workplace Pension Compliance

Under the Pensions Act 2008, every employer in the UK must put certain staff into a workplace pension scheme and contribute towards it. This is called 'automatic enrolment'. Your workplace pension legal duties begin on the day your first member of staff starts work. An overview has been provided below:

• Contributions
  • Employers: Minimum 3% of qualifying earnings
  • Employees: Minimum 5%
  • Total: 8% of qualifying earnings (salary, overtime, bonuses, commission)
• Auto-enrolment: Eligible employees must be automatically enrolled.
• Opt-out Rights: Employees can opt out, but employers must explain the process and cannot oblige employees to opt out.
• Re-enrol Every Three Years: Employees who opted out must be re-enrolled periodically, providing them another chance to join the pension scheme. 
• Provide Clear Information: Explain how the scheme works and its benefits.
• Stay Compliant: The Pensions Regulator enforces these rules—non-compliance can lead to fines.

Through our partnerships, we can support your business with a complete auto-enrolment solution — from selecting a pension scheme to planning, communication, and meeting compliance obligations.