Setting up a payroll system is an essential responsibility for any business that employs staff in the United Kingdom. One of the first steps in this process is to take help from Property SPV service of register for PAYE (Pay As You Earn) with HM Revenue and Customs (HMRC). While this may seem straightforward, many business owners—particularly new or small businesses—make avoidable errors during registration that can result in delays, penalties, or unnecessary complications.
This article outlines the most common mistakes made when registering for PAYE and offers guidance on how to prevent them, ensuring a smoother and more compliant payroll process.
- Registering Too Early or Too Late
Timing is crucial when applying to register for PAYE. Registering too early—more than two months before the first payday—can result in the application being rejected, and you may need to reapply. On the other hand, registering too late can delay your ability to pay employees legally and submit required reports to HMRC on time.
To avoid this, plan your employee start dates and register within the appropriate window. Ideally, registration should be done around four to six weeks before your first payday to allow enough time for processing without falling outside the permissible timeframe.
- Incorrect or Incomplete Business Information
One of the most frequent causes of rejection or delay is providing inaccurate or incomplete information during the registration process. HMRC requires correct details such as your business name, trading address, contact information, National Insurance number, and company registration number (if applicable).
If you are a sole trader, you must also provide your personal details accurately. For limited companies, ensure that director and company information match Companies House records. Any discrepancies can cause delays or trigger compliance checks.
Double-check all entries before submission and ensure your business has already been registered with Companies House if operating as a limited company.
- Using the Wrong Payroll Start Date
Your payroll start date must be aligned with the first actual payment to employees. Mistakes often happen when employers select arbitrary dates that do not match payroll runs, which can confuse HMRC systems and affect Real Time Information (RTI) submissions.
To avoid this, ensure your first payday is finalised and then use that date consistently throughout your PAYE setup and software. This will help to prevent any reporting mismatches and will keep your tax submissions in good order from the start.
- Failing to Account for Directors’ PAYE Requirements
If you are a director of a limited company and intend to take a salary—even below the National Insurance threshold—you still need to register for PAYE. Some company directors mistakenly assume that low or irregular payments mean PAYE is not needed.
However, HMRC considers directors differently from regular employees. Even if they receive a nominal wage, you must report their income and deductions using PAYE.
Directors should also be aware that their NICs are calculated cumulatively over the year, which differs from how employee NICs are calculated.
- Misclassifying Employees or Workers
Incorrectly categorising staff—such as treating employees as self-employed contractors—can lead to major payroll and tax errors. HMRC has strict criteria for determining employment status, and if someone is genuinely an employee, they must be paid through PAYE.
Misclassification can lead to backdated liabilities, fines, and reputational damage. Always use HMRC’s employment status tool if you are unsure, and seek advice where needed.
Conclusion
Registering for PAYE is an essential part of operating a compliant and professional business in the UK. While the process is manageable, errors in timing, information accuracy, or understanding responsibilities can create costly complications.
By being mindful of the common mistakes outlined above, businesses can set up their PAYE system correctly the first time, enabling them to run payroll smoothly, meet their legal obligations, and build a strong foundation for future growth.
If you are uncertain about your PAYE obligations or require support, consider consulting an accountant or payroll provider to help ensure your business remains compliant and efficient from day one.
