PAYE and National Insurance explained for employers

2 min read

PAYETax at source

RTIReport on or before payday

22ndMonthly payment deadline

What PAYE does

Pay As You Earn (PAYE) is how HMRC collects income tax and National Insurance from employees' pay as it is earned. As employer you deduct the right amounts using each person's tax code, pay them the net, and hand the deductions to HMRC. You are collecting the tax, not paying it — it is the employee's, held briefly by you.

The two sides of National Insurance

Employees pay employee's NI, deducted from their pay. Separately, the company pays employer's National Insurance on top of the wage — a genuine cost of employing people that many first-time employers underestimate. The Employment Allowance can reduce it.

Real Time Information reporting

Under Real Time Information (RTI) you must report pay and deductions to HMRC on or before each payday, usually via a Full Payment Submission from your payroll software. Late or missing RTI submissions attract penalties, so payroll discipline matters every single pay run.

Paying HMRC on time

PAYE and NI are due to HMRC monthly (or quarterly for very small payrolls), typically by the 22nd if paying electronically. Because the money is not really yours, spending it before the deadline is a classic route into arrears. Ring-fence it like VAT.

Bridging a payroll month

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See covering payroll gaps.

Frequently asked questions

What is the difference between PAYE and National Insurance?

PAYE is the system for collecting income tax (and NI) from pay as it is earned. National Insurance is a separate contribution — employees pay their share via PAYE, and the company additionally pays employer's NI on top of wages as a cost of employment.

When do I pay PAYE to HMRC?

Usually monthly, by the 22nd of the following month if paying electronically (the 19th by post), or quarterly for small payrolls. Report through RTI on or before each payday and pay the deductions across by the deadline.

Is employer's National Insurance my cost or the employee's?

Yours. Employer's NI is an additional cost the company pays on top of the wage, separate from the employee's own NI deducted from their pay. Budget for it as part of the true cost of each hire.