Income Tax (PAYE) Regulations 2003
What this means for your business
- Enforced by
- HMRC
- Applies to
- United Kingdom
- On this page
- 121 compliance obligations, 28 practical guides across 5 topics
What you must do
121 compliance obligations under this legislation.
Management duties 10
Adjust employee tax codes if PAYE differs from self‑assessment
If an employee’s self‑assessment shows a shortfall (or surplus) of tax that’s less than £3,000 compared to what you’ve deducted through PAYE, HMRC can change that employee’s tax code for the next tax year. You need to make sure the codes you use on payroll are correct and that you have records to show why they were set, so any adjustment can be applied smoothly.
Apply HMRC‑determined PAYE code for high‑income child benefit charge
If HMRC decides on a tax code for an employee because they are liable for the high‑income child benefit charge, you must make sure that code is used in your payroll. This ensures the correct tax is taken from the employee’s pay and any over‑paid tax is repaid in the same tax year.
Comply with HMRC direction to recover tax from employee
If HMRC tells you you are not liable for a particular amount of tax because it should be recovered from the employee, you must not pay that amount to HMRC. You also need to send a separate notice to the employee (unless you cannot find their address) setting out the details of the direction. Keep copies of all notices as evidence of compliance.
Do not repay tax deducted from holiday pay
When you pay an employee holiday pay and deduct tax, you must keep that tax with the fund and must not give it back to the employee. If the employee asks for a refund, only HMRC can decide when (and whether) to repay it during the tax year.
Ensure correct PAYE deductions and cooperate with HMRC if tax is under‑deducted
You must take reasonable care to deduct the right amount of income tax from each employee’s pay. If HMRC discovers you have under‑deducted tax, you may need to show it was a good‑faith error and you could be required to issue a notice to the employee and adjust the tax treatment as directed.
Ensure PAYE duties are fulfilled after an employer’s death
Unlimited fineIf the owner of your business dies, the people handling the estate (your personal representatives) must take over every PAYE task the employer would normally have done – filing returns, paying deducted tax, keeping payroll records, etc. Where the deceased was paying tax on behalf of another person, that ‘principal’ must continue those specific PAYE duties.
Handle late presentation of employee Form P45 correctly
If a new employee hands you Parts 2 and 3 of a P45 after they have started work, you must treat the tax code shown as if it were issued on that day, send the required information to HMRC, deduct the correct tax (using the cumulative basis for previous‑year codes) and then destroy the P45 as instructed. Failing to do this can lead to a criminal offence.
Limit employee debt recovery under PAYE codes
If HMRC issues a PAYE deduction code to recover an employee’s tax or other debt, the amount you can take from that employee’s pay is capped by the table in the regulations. The cap is based on the employee’s expected PAYE earnings for the tax year, so you must calculate the limit and ensure deductions do not exceed it.
Recalculate taxable benefit when employment ends but benefit continues
If an employee leaves your company during a tax year but you keep giving them a benefit (for example a fuel or voucher benefit), you must adjust the tax calculations for that benefit. Before the employment ends you need to work out how many benefit payments are still left, recalculate the cash equivalent if the cost has changed, and then spread the remaining taxable amount over the remaining payments.
Update employee PAYE codes for the next tax year
If HMRC finds that an employee is owed a tax refund, it may change that person’s PAYE code for the following tax year. As an employer, you must use the new code on all payroll runs unless the employee has formally objected. This keeps the correct amount of tax deducted and avoids future disputes.
Notifications 6
Notify employees of amended PAYE tax codes
If HMRC changes an employee’s PAYE tax code because the circumstances have changed, you must give the employee a notice of the new code by the date HMRC sends the notice to you. The only time you can skip the notice is if the change is purely due to a tax law update or the employee’s PAYE income is not taxable.
Notify employees of their PAYE tax code
For every tax year, you must let your employees know the tax code HMRC has set for them. The notice should be given if the code has changed or if an employee is newly taxed. This keeps payroll accurate and avoids over‑ or under‑withholding.
Notify HMRC of tax rate for any lump‑sum payment
When you make a lump‑sum payment to an employee you must tell HMRC which tax rate should apply – either no tax, 20% or 40%. Use the form and send the notice within the time‑frame that HMRC sets for you.
Notify service provider of relevant electronic payments and generate references
If your business runs payroll through Real Time Information and you pay employees using an approved electronic method, you must create a unique reference for each payment, include it in your payroll return, and tell the payment service provider that the payment is a relevant one, together with a sub‑reference. The service provider must then pass the necessary details on to HMRC.
Serve PAYE transfer notices on time
If your PAYE responsibility changes – for example when an employee moves to a new employer, a new assessment is issued, or HMRC finishes an inspection – you must send a transfer notice to HMRC within the time limits set in the regulation. The standard period is 12 months from the event that triggers the notice, but for certain employee transfers it is only 3 months. Failing to do so can trigger enforcement action.
Submit a tax deduction appeal to the tribunal
If you question whether basic‑rate tax should be deducted from an employee’s reserve pay, you can appeal to the PAYE tribunal. The tribunal will decide whether the deduction is correct, and you must follow that decision. You must also notify the tribunal when you lodge your appeal.
Other requirements 2
Appeal personal liability notice within 30 days
If HMRC serves you with a personal liability notice for your company's PAYE debt, you can contest it, but you must write to HMRC within 30 days of receiving the notice and set out the reason you think it is wrong. The appeal must name a valid ground – either the amount is not PAYE debt of the company or you were not a director on the relevant date. Failing to appeal on time means the notice will be upheld.
Give HMRC consent to receive electronic information
HMRC can send you tax‑related documents by email or another approved digital method, but only if you have agreed to receive them that way. If you want to receive electronic notifications, you must let HMRC know that you consent and keep that consent in place until you choose to withdraw it.
Payments and fees 37
Adjust employee fuel benefit payments when they fail to pay
Unlimited fineIf an employee hasn’t paid the amount they owe for private car or van fuel by 1 June after the tax year the fuel was provided, you as the employer must recalculate the taxable benefit for that year and add the outstanding amount to the first fuel‑related payment you make in the next tax year. If you keep providing the fuel benefit, you also need to make an in‑year adjustment for the current year.
Adjust final benefit payment if employee hasn’t fully paid the making‑good amount
If an employee hasn’t paid all of the ‘making‑good’ amount for a taxable benefit (for example fuel benefit) before you make the final main relevant payment for the tax year, you must work out the shortfall and add it to that final payment. You then treat the total exactly as you would any other main relevant payment and you cannot count the making‑good payment again in the next tax year.
Adjust PAYE when tax is withheld during a strike
If a trade dispute means you cannot pass on the tax that should be deducted from employees' wages, you must reduce the PAYE you send to HMRC for that period by the amount you could not pay. You then carry that same amount forward, increasing or decreasing future PAYE payments until the dispute ends, using the formulas in the regulation.
Calculate and deduct tax on employee benefits via PAYE
Unlimited fineIf your business provides a specified benefit (for example a company car or other non‑cash perk) to an employee, you must work out the cash value of that benefit, split it across the number of pay‑runs in the tax year, add the resulting amount to each pay‑packet and deduct the correct income‑tax using the employee’s tax code. You need to repeat this for every subsequent payment of that benefit throughout the year.
Calculate and pay apprenticeship levy for the first month of the tax year
At the start of each tax year you must work out how much apprenticeship levy your business owes for April. Use your total monthly pay bill, apply the 0.5% rate, subtract the first‑month levy allowance and, if the result is greater than zero, pay that amount to HMRC. If the calculation is zero or negative, you owe nothing for that month.
Calculate and pay the apprenticeship levy each month
For every month after the first month of the tax year you must work out how much apprenticeship levy you owe using the steps set out in the regulations, then pay any amount that is due (or record any credit). This is a continuing monthly task for any employer with a PAYE scheme.
Calculate PAYE tax on later payments using aggregate totals
If you pay an employee more than once in the same PAYE period (or tax week) and you’re using the non‑cumulative tax code, you must work out the tax for each later payment by adding together all the payments made in that period, adjusting for any tax that was not taken earlier because of the overriding limit, and subtracting the tax you already deducted on the previous payment. This ensures the correct amount of tax is deducted each time you pay.
Deduct and repay tax on a cumulative basis
As an employer you must calculate PAYE tax using the cumulative method, adding together each employee’s earnings and allowances for the whole tax year up to the current pay period. This means you deduct tax each time you run payroll and, if you have over‑deducted, you must repay the excess to HMRC.
Deduct basic‑rate tax from reserve pay
When you pay a reservist’s reserve pay, you must withhold income tax at the basic rate at the moment you make the payment. You only skip the deduction if HMRC has sent you a formal notice saying tax should not be taken and that notice has not been changed.
Deduct income tax from lump‑sum payments at the correct rate
Whenever your business makes a lump‑sum payment to a person, you must withhold income tax at the appropriate rate. Use the rate the recipient has notified you of; if they haven’t given a rate, deduct tax at the default 20% rate. This keeps your PAYE obligations up to date.
Deduct or repay tax on pension payments using the HMRC‑issued code
When you pay a UK‑resident pensioner and HMRC has sent you a tax code for that person, you must use that code to work out how much tax to deduct (or to repay if you have taken too much). Any totals that HMRC has previously notified you about must be treated as if they were pension payments and tax you already deducted.
Deduct or repay tax using employee’s PAYE code
Whenever you pay an employee, you must withhold (or give back) tax based on the employee’s PAYE tax code that you hold for them. You must do this even if the employee has objected to or appealed the code – you cannot wait for the dispute to be resolved.
Deduct PAYE tax from irregular employee payments on the correct reference date
If you pay an employee on an irregular schedule (for example, not weekly or monthly), or you make more than one payment in the same tax week, you must work out the PAYE tax as if the payment were made on the date prescribed by the Regulations and deduct that amount. This ensures the right tax is taken even when your pay runs do not follow the normal pattern.
Deduct PAYE tax on each relevant payment using non‑cumulative rates
Whenever you pay an employee, you must withhold income tax using the tax tables as if the payment were made on the first day of the tax year, based on the employee’s tax code. This rule applies to every PAYE‑eligible payment and must be carried out at the time you make the payment.
Deduct PAYE tax using HMRC‑issued code after employee’s code is issued
When you pay an employee – for example a salary, bonus or pension – after HMRC has sent you a tax code for that employee (and you don’t have a Form P45), you must work out the PAYE tax due using that code and deduct it (or repay any tax owed). Treat any cumulative totals HMRC has told you about as if they were your own payments when you do the calculation.
Deduct tax at basic/emergency rate when no P45 and tax code unknown
If you hire an employee who does not give you a P45 and you have not yet received a tax code for them (including the specific expatriate cases), you must set up a payroll working sheet and deduct income tax on a cumulative basis using the basic rate. For seconded expatriates you must use the emergency code instead, and keep doing this for each payment until the correct tax code is issued.
Deduct tax at higher rate for employees with higher rate code
Unlimited fineWhen one of your employees has a higher‑rate PAYE tax code, you must withhold income tax at the higher rate from their wages. The usual cumulative or non‑cumulative calculation rules do not apply, so you must calculate the deduction each payday using the higher rate.
Deduct tax at the additional rate for employees with that code
Unlimited fineIf one of your staff has the ‘additional rate’ tax code, you must withhold tax at the higher (additional) rate when you run payroll. The normal cumulative or non‑cumulative PAYE rules (regulations 22 and 26) do not apply to these employees, so you need to calculate the deduction using the extra rate each pay period.
Deduct tax from holiday pay
Whenever you pay an employee their holiday (vacation) pay, you must withhold income tax at the basic rate that is in force at that moment. The tax you deduct must be sent to HMRC just like any other PAYE payment. This means holiday pay cannot be paid out gross – you need to calculate and subtract the appropriate tax before the employee receives the money.
Deduct tax using emergency code when employee has no P45
Unlimited fineIf you start paying a new employee who has not given you a P45, you must work out their tax on a cumulative basis using the emergency tax code. Do this from the first payment that reaches at least the lower earnings limit or the secondary threshold (whichever is lower) and keep using the emergency code until HMRC sends a proper tax code.
Do not deduct PAYE tax from reserve pay unless HMRC says it is due
If you pay reserve pay to a military reservist, you must not withhold PAYE tax from that pay unless HMRC has issued a determination that the tax is payable. When HMRC tells you the tax is not due, you should remove any PAYE deduction from that reserve pay. Keep records of the HMRC notice and your payroll adjustments.
Pay aggregate PAYE Settlement Agreement amount to HMRC
You must pay the total amount you owe under any PAYE Settlement Agreement (PSA) for the previous tax year to HMRC by 19 October after that tax year ends. This single payment covers all your employees’ PSA liabilities. If you miss the deadline, HMRC can start recovery proceedings against your business.
Pay and recover PAYE tax when succeeding a business with an ongoing trade dispute
If you take over another business while a trade dispute is still active, the former employer must still make any PAYE payments to HMRC and send an extra tax return as if the normal 42‑day deadline had already passed. The new employer must then repay any tax that was withheld in that tax year and can claim a refund from HMRC for that repayment.
Pay and report apprenticeship levy for UKCS certificate holders
If your business holds a UK continental shelf workers certificate, you must calculate, pay and submit the apprenticeship levy to HMRC. The levy and its return must be filed in line with regulations 147C and 147D each year.
Pay any deemed employer PAYE debt (and interest) within 30 days
If HMRC tells you that you owe PAYE tax as a deemed employer, you must send the full amount to HMRC within 30 days of that notice. Any interest that builds up after the 30‑day period is also your responsibility to pay.
Pay apprenticeship levy by the correct deadline
If your business owes apprenticeship levy, you must send the payment within 17 days after the tax month ends when you use an approved electronic method, or within 14 days otherwise. The levy must be paid at the same time as your PAYE tax and any earnings‑related contributions.
Pay interest on any PAYE tax that is paid late
If your business does not pay the PAYE tax it owes by the legal due date, HMRC will charge interest from that date until you pay. The interest is calculated at the prescribed rate and any changes to that rate apply automatically. You must pay the interest just like you would pay the original tax.
Pay or recover PAYE adjustment after RTI amendment
If you submit a Real‑Time Information (RTI) amendment that changes your PAYE liability, you must pay any increase to HMRC for the final tax period of that tax year. If the amendment reduces the amount, you can either offset it against other PAYE liabilities or claim a refund, and you must treat the reduction as having been paid within the statutory time‑limit.
Pay or recover tax differences for each PAYE period
If your business does not use Real‑Time Information for PAYE, you must work out the tax you owed (A) and any repayment due (B) for each tax period. When the amount you owe is higher you must pay the excess to HMRC. When the repayment amount is higher you can either offset it against a later PAYE liability in the same tax year or claim a refund from HMRC.
Pay outstanding PAYE tax if you’re a director
If your company fails to deduct, account for, or pay the PAYE tax it owes, HMRC can send you a personal liability notice. The notice tells you exactly how much tax (plus interest) you must pay, and you have 30 days from the date it’s served to pay it. If more than one director gets a notice, all of them are jointly and severally responsible for the whole amount.
Pay PAYE tax owed if employer fails to deduct
Unlimited fineIf tax that should have been taken from your wages isn’t paid to HMRC within 30 days and you were paid knowing the employer deliberately didn’t deduct it (or the tax relates to a notional payment), HMRC can make you personally liable. You must then pay the tax, plus interest, as set out in a direction notice.
Pay the specified amount to HMRC within 30 days
If HMRC serves you with a transfer notice, you must send the amount they specify to the address they give, and you must do it within 30 days of the notice being served. If you fall into certain categories listed in the Regulations, interest will accrue on the amount until you pay.
Provide security as specified by HMRC notice
If HMRC sends you a notice saying you must give security – a deposit or guarantee – you must do so. The notice will tell you how much, how it should be paid or posted, when it is due and how long the security must be kept. Your company must comply and keep evidence of the notice and your payment.
Repay tax to employees on unpaid leave and record nil payments
If an employee is on unpaid leave, receives no pay on a normal pay day, and personally asks you to do so, you must work out any tax that would have been due under the cumulative method, pay that amount back to the employee, and fill out the PAYE deductions worksheet as if a zero‑payment had been made. This keeps your PAYE records correct during periods of unpaid leave.
Set off or reclaim excess PAYE tax after certification
If you end up overpaying PAYE because of a tax certification you issued, you’re allowed to either cancel the extra amount against tax you owe later on, or get that cash back from HMRC. It’s a way to keep your payroll balances tidy without overpaying the government.
Set off overpaid apprenticeship levy before claiming a refund
If your business has paid more apprenticeship levy than required in a tax year, you must first use that overpayment to reduce any other PAYE‑related taxes you owe. Only after you have offset the overpayment can you apply to HMRC for a refund.
Use emergency tax code for new employees and deduct tax non‑cumulatively
When you hire someone and you don’t have a P45, you must treat the emergency tax code as if HMRC gave it to you. Record that code on your deductions worksheet and, for every payment you make to the employee, deduct tax using the emergency code on a non‑cumulative basis.
Record keeping 16
Create and retain a signed written PAYE Settlement Agreement
When you use a PAYE Settlement Agreement (PSA) you must put it in writing – paper or electronic – and have both you and HMRC sign and date it. The PSA must clearly set out the earnings covered, how the tax is calculated and the date the tax is due. Keep the signed PSA as proof of compliance.
Deduct PAYE tax on post‑termination payments and keep records
If you make a payment to a former employee after they have left, and that payment becomes a PAYE‑eligible amount that wasn’t shown on their P45, you must treat it like any other PAYE payment. Deduct tax at the correct rate from any other payment you make to them, record the details for that tax year, and inform the employee of the deduction without unreasonable delay.
Keep non‑PAYE records for three years
If your business acts as a specified employment intermediary, you must retain all non‑PAYE records (those not sent to HMRC) for at least three years after the end of the tax year they relate to. You can store them in any format or medium, as long as they are preserved.
Keep PAYE Settlement Agreement records for 3 years
If you run a payroll and use a PAYE Settlement Agreement (PSA), you must retain every record that relates to the PSA – the earnings covered, how you calculated the amounts, and the payments you made to HMRC – for at least three years after the end of the tax year they relate to. You need a filing system (paper or electronic) that lets you produce these documents if HMRC asks for them.
Keep records and report PAYE for offshore continental shelf workers
If your business holds a UKCS continental shelf workers certificate and supplies staff to offshore installations, you must operate PAYE as you would for any employee. This means making the correct tax deductions, keeping detailed written records of the workers, the oil field licencee, the installation and the dates worked, and keeping those records for six years. You also have to notify HMRC before your first supply and provide the records to HMRC within 30 days if they ask.
Maintain a deductions working sheet for each relevant payment
When an employee receives any PAYE‑related payment, they must record the amount, the date it was received and the running total of all such payments in a deductions working sheet. At the end of each tax quarter they also need to note the cumulative free (or additional) pay and tax totals – using the quarter‑end date if no payment was received that quarter.
Prepare and keep deductions working sheets for employee payments
Whenever you pay an employee who has a tax code, you must create a deductions working sheet that records the employee’s details, the payment date and amount, any tax deducted and, for cumulative codes, the running totals of pay and tax. Keep these sheets so you can show them to HMRC if asked.
Process new employee’s Form P45 and send Part 3 to HMRC
When a new starter hands you their P45 (Parts 2 and 3), you must copy the employee’s details onto a deductions worksheet, fill in Part 3 of the form with your own reference and employment start date, and forward that part to HMRC. The exact follow‑up steps depend on when the previous job ended, but the core duty is to record the information correctly and report it promptly.
Record actual payment dates and apply non‑cumulative PAYE rules
If you pay an employee on a regular schedule that is longer than a week but not monthly, you must calculate their PAYE tax as if each payment were made at the end of that payment period (starting 6 April) and, for very long intervals, treat it as a 5 April payment. You also have to keep a record of the exact date each payment was made in your PAYE deductions worksheet.
Record councillor allowance payments and tax details
If you run a local council that pays councillors allowances and has opted for the basic rate tax deduction, you must keep a worksheet that lists every allowance payment. The record should include the councillor’s name, national insurance number (if known), date of payment, allowance amount, net amount after tax and the tax deducted. This ensures you can demonstrate to HMRC that you have complied with PAYE requirements.
Record details of each holiday pay payment
Whenever you pay holiday pay to an employee (or any recipient), you must keep a record of the payment in a PAYE deductions working sheet. The record must show the employee’s name, NI number (if you have it), the tax year, the payment date, the amount paid and any tax you deducted. This helps HMRC check that the correct tax has been taken.
Record employee tax code from P45 and apply correct PAYE deductions
When you hire someone who started work on or before 24 May and they give you a P45 for a previous tax year, you must copy the tax code shown on Parts 2 and 3 of the P45 into your payroll records and use that code to work out their tax on a cumulative basis. This ensures the right amount of tax is deducted or repaid from the employee’s pay.
Record employee tax details from Form P45 and apply correct tax code
When you hire someone who gives you a Form P45, you must copy the tax code and any cumulative figures shown on Parts 2 and 3 into your payroll records. Keep the extra details (free pay, taxable pay, tax to date, etc.) and use them to work out the right amount of PAYE tax on any future payments to that employee.
Record interest on overpaid PAYE tax
If your company gets a PAYE tax repayment after the due date, HMRC will add interest to that repayment. You should treat the interest as taxable income, include it in your accounts, and pay any tax due on that interest. No extra payment is required from you; the interest comes automatically with the repayment.
Retain apprenticeship levy records for three years
If you’re an employer who pays the apprenticeship levy, you must keep all documents that show how you worked out the levy amount. Hold onto these records for at least three years after the tax year they relate to, and you can store them in any format (paper, electronic, etc.).
Update or create deduction working sheets for retrospective payments
If a payment that was made during a tax year later qualifies as retrospective employment income after that year has closed, you must adjust the employee’s deduction working sheet to show the payment and tax, or create a new sheet if none existed. The sheet must include the employee’s details, tax code, tax year, payment date, amount and tax due, treating the income as if it were paid in the final period of that year.
Registration and licensing 2
Apply for a UKCS continental shelf workers certificate
If your business supplies, or plans to supply, workers on a UK continental shelf oil field and you act as the oil field licence holder’s agent, you must ask HMRC for a specific certificate. You need to send a written application that includes your PAYE details, a UK contact for service, confirmation you’ll meet ongoing obligations, and details of any related companies. Without the certificate you cannot legally employ those workers on the offshore field.
Obtain and maintain a UKCS oil field licence certificate
If your business supplies workers to a UK Continental Shelf oil field, you must have a UKCS oil field licence certificate issued by HMRC before the workers start. While the certificate is in force you do not have to operate PAYE deductions for those workers. If the certificate is cancelled you must resume normal PAYE obligations.
Reporting and filing 48
Calculate annual PAYE Settlement Agreement tax
If your business has a PAYE Settlement Agreement (PSA) with HMRC, you must work out each tax year how much income tax is due under that agreement. The calculation has to use the prescribed factors – estimated earnings and benefits, number of employees, the relevant tax rates, and any other agreed matters – and must include both the tax on those amounts and an estimate of the tax benefit to your staff.
Deduct tax and file Form P46(Pen) for former‑employer pensions
If you were an employee’s employer right up to their retirement and no P45 was issued, you must treat any pension they receive from you as PAYE income. This means you deduct tax on a non‑cumulative basis for the rest of the tax year and, within 14 days of their retirement, complete a Form P46(Pen) and send it to HMRC while also giving a copy to the retiree.
Deduct tax at 0T and report pension payments to HMRC
If a former employee who is now a pensioner starts receiving pension payments while you are still paying them through PAYE, you must treat the pension as non‑cumulative, apply the 0T tax code and send HMRC a Form P46(Pen) containing the required personal and payroll details. This ensures the correct amount of tax is taken and HMRC is kept informed.
Elect and notify levy allowance split across PAYE references
If your business (as a member of a company or charities unit) has more than one PAYE reference and an apprenticeship levy allowance, you must decide how to divide that allowance between your PAYE references at the start of the tax year. You then have to tell HMRC about this split when you submit your first apprenticeship levy return for the year.
File an employee appeal against a PAYE direction notice
If your employer issues a PAYE direction notice that you believe is incorrect, you, as an employee, have the right to appeal. You must notify HMRC in writing within 30 days, stating the reason your notice is wrong or that the employer didn’t act fairly or carefully. HMRC will review and can cancel or change the notice.
File annual PAYE return to HMRC
If you pay employees (or provide a support allowance) you must send HMRC an annual return for each award covering that employment. The return has to be lodged by 1 June after the tax year ends and must include the required details and any tax that is still unpaid. Failing to file on time can lead to enforcement action.
Give a tax certificate for holiday pay
Whenever you pay an employee holiday pay, you must hand them a certificate that shows their name, NI number (if you have it), the tax year, payment date, amount paid and the tax you deducted. This lets the employee see how much tax was taken and helps them with their records.
Give employees a P60 by 1 June each year
You must send a P60 (end‑of‑tax‑year payslip) to every staff member who was still employed on the last day of the tax year and from whom you deducted PAYE at any point during that year. The form has to be issued before 1 June following the tax year and must contain the employee’s pay, tax deducted and other key details. If an employee started part‑way through the year, you also need to add any extra amounts that count as taxable pay under the regulations.
Include correct deductions and adjustments in annual other earnings return
If you have to report ‘other earnings’ under PAYE regulations 85‑87, you must work out any deductions or adjustments that the tax rules allow or require. You must use the information you have to make sure those amounts are correctly reflected in the annual return you send to HMRC.
Notify HMRC of employee death and handle PAYE on post‑death payments
When a staff member (who is not a pensioner) dies, you must complete a Form P45 showing that the employee has died and send it to HMRC as soon as you learn of the death. Any payments you make after the death – but before the P45 is filed – must still have PAYE tax deducted (or repaid) exactly as if the employee were still employed.
Notify HMRC of pensioner death using Form P45
When a pensioner you pay a pension for dies, you must immediately complete a P45 form stating that the person has died and send it to HMRC. If you continue to make pension payments after the death, you must still deduct tax as if the pensioner were alive. This ensures the correct tax is recorded and avoids penalties.
Provide a tax deducted certificate to recipients of lump sum payments
If you pay a lump sum that has tax deducted, you must give the recipient a certificate showing the payee’s name, National Insurance number (if known), the payment date, the amount paid and the tax deducted. This proof helps the recipient keep accurate tax records and claim back any tax that has been paid too much.
Provide benefit statements to specified employees
If you give any ‘specified benefits’ (e.g., a company car, private medical insurance) to an employee during a tax year, you must send that employee a written statement showing each benefit and its cash equivalent. The statement must be sent before 1 June after the tax year ends.
Provide certificates of tax deducted for reserve pay
When you pay a reservist, you must give HMRC the certificates of tax deducted that show how much tax you withheld from the reserve pay. This lets HMRC decide if the reservist is entitled to a tax repayment. Keep your payroll records and submit the certificates as part of your normal PAYE reporting.
Provide employee’s Form P45 (Parts 2 & 3) to HMRC on request
When a former employee claims Employment and Support Allowance they must give HMRC their P45 Parts 2 and 3. If they say they did not receive those pages, HMRC can ask the employer to send them directly. Your business therefore needs to be ready to supply the P45 to HMRC if asked.
Provide employee’s Form P45 parts to HMRC when requested
If a former employee applies for taxable jobseeker’s allowance and says they have not received Parts 2 and 3 of their P45, HMRC can ask you to send those parts to them. You must then deliver the P45 parts to the HMRC office specified in the request.
Provide employees with details of non‑cash earnings and benefits
You must give each employee clear information about any non‑cash earnings they receive – such as vouchers, credit‑tokens, living accommodation, removal benefits, or other taxable benefits – showing the amount that HMRC treats as earnings. For any business‑entertainment benefits, you also need to tell HMRC whether the amount is allowed as a tax deduction.
Provide employees with termination award information
If you have to send details of a termination award (or any change to it) to HMRC, you must also give the same information to the employee. The copy must reach the employee’s usual or last known address by 7 July after the tax year ends.
Provide HMRC with details of large termination awards
If you give a former employee a termination payment (or benefits) that, together with any related payments, is expected to be more than £30,000, you must send HMRC certain information about that award. The data must include the total amount, cash paid in the tax year, non‑cash benefits, and estimates of any future payments, and it must be filed by 7 July after the tax year ends.
Provide P11D benefit statements to employees by 7 July
If you give any taxable benefits to staff, you must send each employee a P11D statement showing those benefits for the tax year that just ended. The statement has to be delivered by 7 July to current employees, and to former employees at their last known address or on request within the time limits. Failing to do so could breach tax rules.
Provide PAYE details of post‑termination payment to employee
If you make a payment to an employee after their employment has ended and that payment later becomes subject to PAYE (and wasn’t shown on their P45), you must tell the employee the date the payment was made, how much it was, and how much tax was deducted. This must be done as soon as reasonably possible.
Provide PAYE information for specified payments within 7 days
If you pay an employee for work that was done on the same day (or the day before) and you couldn’t work out the amount or give the required PAYE details before the payment, you still have to send that information to HMRC. You must do this within 7 days after the payment is made.
Provide required certificates when claiming tax repayment after leaving employment
If you have stopped working for an employer during a tax year and want a PAYE tax refund, you must send HMRC a certificate (A or B) confirming that you are unemployed and not claiming certain benefits, together with any other proof of unemployment they ask for. The type of certificate depends on whether you are currently a benefit claimant.
Provide required PAYE information using approved forms and methods
As an employer you must send all PAYE information that HMRC requires – such as P45s, P60s, P11Ds and annual returns – using the specific forms and formats that HMRC has approved. Where the regulation allows, you can send these details electronically, but you must follow the approved electronic channel and, for the annual return (forms P35/P14), authenticate the submission as prescribed by HMRC.
Provide required PAYE information within 7 days of payment
If you pay an employee for whom you do not have to keep a deductions working sheet, you don’t have to send the PAYE details at the moment of payment. However, you must send the information required by regulation 67B(1) to HMRC within seven days after the payment is made.
Provide required tax information using approved forms
Your employees must give HMRC the information they need on the specific PAYE forms (e.g., P46, P45, P14, P187) that the tax authority has approved. They have to use the exact document or format prescribed. As an employer you should make sure the correct forms are available and that staff know which one to use for each situation.
Provide statements to employees about unrelated payments or benefits
If your business makes a payment to, or provides a benefit for, someone who is employed by another company, you must give that employee a written statement with the required details. The statement must be given by 7 July after the tax year ends so the employee can include the information on their own tax return.
Record and report all lump‑sum PAYE payments
If you pay an employee or contractor a lump sum that is subject to PAYE, you must keep detailed records of the payment – name, NI number, amount, date, tax deducted, tax rate and any repayments. You also need to provide this information to HMRC as soon as the payment is made so the tax authority can track the deduction. Accurate record‑keeping and reporting are key to avoiding tax penalties.
Report any change to termination awards that exceed £30,000
If you gave an employee a termination payment that was reported as £30,000 or less (or only cash) and the award later changes – for example the total rises above £30,000 or it now includes non‑cash benefits – you must tell HMRC. The same applies if, after an initial return, there is a material change to the amount or type of the award. You have to send the required details by 7 July after the tax year when the change happened.
Report apprenticeship levy liability to HMRC
If your business’s payroll (pay bill) is over £3 million – either in the previous tax year or you expect it to be this year – you must work out the apprenticeship levy you owe (after any levy allowance) and send that information to HMRC each tax month. The return has to be filed electronically within 14 days of the end of the tax month and must include the levy amount, allowance used, tax month and other identifier details.
Report employee death via Form P45 to HMRC
If an employee dies while you are still deducting PAYE, you must complete a Form P45 showing the death and send it to HMRC. You also need to handle any payments made after the death so that taxes are calculated as if the employee were still alive. Failing to do this can lead to enforcement action.
Report notional payment information within 14 days
If you pay an employee a notional amount (for example, a retroactive tax adjustment) and you couldn’t give the required details before the payment, you must still send that information to HMRC as soon as you can, but no later than 14 days after the tax month ends.
Request PAYE direction and appeal a refusal
If your business failed to deduct the correct PAYE tax because of an error, you can ask HMRC to issue a direction to correct it. If HMRC refuses your request, you must lodge an appeal within 30 days, explaining why you took reasonable care and that the mistake was made in good faith.
Send additional PAYE return after unresolved trade dispute tax
If your business withholds tax during a strike and you do not repay that tax within 42 days after the strike ends, you must immediately send an extra PAYE return to HMRC. The return must show each employee affected, the amount of tax not repaid and a total for the tax year.
Send Form P46 and use emergency tax code for new employees
When you make your first PAYE payment to a new employee that meets the lower earnings limit (or secondary threshold) and you don’t have a tax code for them, you must immediately send HMRC a Form P46, record the total payments, and deduct tax using the emergency tax code. Keep doing this for any further payments until HMRC issues a correct tax code.
Send Form P46 and use emergency tax code for new employees
When you make your first payroll payment to a new employee who has filled in a Form P46 (Statement B or C), you must immediately send that P46 to HMRC, keep a deductions worksheet and apply the emergency tax code to calculate PAYE. Keep using the emergency code for any further payments until HMRC sends the employee’s correct tax code.
Send Form P46(Pen) to HMRC for non‑UK resident pensioners
If your business pays a pension to a person who lives outside the UK, and you have no tax code for them, you must complete and forward Form P46(Pen) to HMRC as soon as the first payment that is above the PAYE threshold is made. You need to provide full personal and payment details as listed in the regulation.
Send required PAYE notification to HMRC
If your business runs PAYE in real‑time, you must tell HMRC when you have either (a) a tax period with no relevant payments, or (b) you have submitted the final PAYE return and intend to stop the scheme. The notification must be sent electronically within 14 days of the end of the final tax period and include the details set out in the regulation.
Submit accurate and complete electronic information to HMRC
When you send any required tax information to HMRC by email, web‑upload, or any other electronic method, it must be fully accurate and include all the details HMRC has asked for. If the data is incomplete or contains errors, HMRC will treat it as if you never sent it, which can trigger penalties later.
Submit amended PAYE return for past year if payments increase
If a new tax rule retroactively increases the amount you paid to employees for a closed tax year, you must send HMRC an amended PAYE return (Forms P14/P35(RL)) showing the revised totals. The return, together with supporting statements and a signed certificate, must be filed by 20 May after the tax year in which the retrospective rule was enacted.
Submit annual Form P38A for non‑taxable employee payments
Each tax year you must send HMRC a Form P38A by 20 May covering every ‘relevant employee’ – i.e. anyone who received payments that were not subject to PAYE and meets the threshold (payments over the PAYE limit, employed more than a week, or paid over £100). The form must list each employee’s name, address, NI number, job title, the tax year, dates employed and the total amount of those payments.
Submit annual PAYE return (Forms P35 & P14) to HMRC
Each year you must send HMRC a return (Forms P35 and P14) by 20 May after the tax year ends. The return must show the total payments you made to all employees, the tax you deducted, and detailed information for each employee, backed up by a signed declaration and certificate.
Submit Form P46 and apply basic‑rate tax deductions
When you make the first payment to a new employee who does not yet have a tax code (a Form P46 case), you must send a Form P46 to HMRC, keep a payroll worksheet showing zero totals before that payment, and deduct tax at the basic rate on a cumulative basis. Keep using the basic‑rate code for any further payments until HMRC issues a proper code (for seconded expatriates use the emergency code instead).
Submit Form P46 for new hires without a P45
If a new employee starts work and does not give you Parts 2 and 3 of their P45 and you have not been issued a tax code for them, you must collect their details on a Form P46, keep a copy, and send the completed form to HMRC. Failing to do this means you must operate the employee on a non‑cumulative 0T tax code.
Submit quarterly PAYE returns as a specified employment intermediary
If your business acts as a specified employment intermediary, you must send HMRC a quarterly electronic return with the information set out in regulation 84G. The return must be filed by the end of the tax month after the quarter ends, include a declaration that it is correct, and can be amended until the end of the following month. You must keep filing each quarter until you stop being an intermediary or the conditions for filing are not met for four consecutive quarters.
Submit real‑time payroll information to HMRC for each employee payment
If you run a PAYE payroll you must send HMRC the details of every wage or salary payment before you actually pay your staff (or by the end of the tax month if you’re a small employer with nine or fewer employees who meet the specified conditions). The data must be sent electronically, must include each employee’s information, and you need a separate return for each payroll you operate.
Submit required PAYE forms (P45, P46) on time
Fine up to £3,000You must send the correct P45 (Part 1 or Part 3) and P46 forms for your employees to HMRC each tax quarter for the tax years ending 5 April 2012 and 5 April 2013. Any missing items trigger a penalty, with the biggest fine being £3,000 for a quarter with 1,000 or more undispatched forms.
Submit termination award details to HMRC
If a former employee receives termination payments from more than one previous employer, the employer that paid the largest amount must send the required details about those payments to HMRC (and provide a copy to the employee). This ensures the correct tax is accounted for on the termination awards.
Penalties for non-compliance
8 penalties under this legislation. 7 carry an unlimited fine.
Ensure PAYE duties are fulfilled after an employer’s death
Unlimited fine
Adjust employee fuel benefit payments when they fail to pay
Unlimited fine
Calculate and deduct tax on employee benefits via PAYE
Unlimited fine
Deduct tax at higher rate for employees with higher rate code
Unlimited fine
Deduct tax at the additional rate for employees with that code
Unlimited fine
Deduct tax using emergency code when employee has no P45
Unlimited fine
Pay PAYE tax owed if employer fails to deduct
Unlimited fine
Submit required PAYE forms (P45, P46) on time
Fine up to £3,000
Practical guidance
Our guides explain how to comply with the requirements above.
Tax & Finance 20
Register as self-employed with HMRC
How to register for Self Assessment as a sole trader, get your Unique Taxpayer Reference (UTR), and understand …
Corporation Tax basics
Understanding and paying Corporation Tax.
Pay National Insurance when self-employed
How to pay Class 2 and Class 4 National Insurance contributions when you're self-employed. Covers current rates, thresholds, …
Understanding HMRC enquiries
What happens during an HMRC enquiry and how to respond. Covers types of enquiries, time limits, discovery assessments, …
Register for Self Assessment
When and how to register for Self Assessment tax.
Get your Unique Taxpayer Reference (UTR)
How to get a UTR number for Self Assessment. Covers registration for sole traders and partnerships, delivery timelines, …
Run payroll and submit RTI
How to run your payroll and submit Real Time Information to HMRC each pay period.
Pay PAYE to HMRC
How and when to pay your PAYE tax and National Insurance to HMRC.
PAYE year-end tasks
What employers must do at the end of the tax year for PAYE compliance.
Understanding PAYE tax codes
How to read and apply PAYE tax codes for your employees.
Handle a new starter without a P45
What to do when a new employee does not provide a P45 from their previous employer.
Recover statutory payments from HMRC
How to claim back statutory payments (SMP, SPP, SAP, ShPP) from HMRC.
Correct PAYE errors
How to fix mistakes in your payroll submissions and HMRC records.
Prepare for an HMRC PAYE compliance check
What to expect and how to prepare when HMRC reviews your PAYE records.
Report expenses and benefits (P11D)
How to report taxable benefits in kind to HMRC, including company cars, medical insurance, loans, and share schemes. …
Student loan deductions for employers
How to calculate and process student loan and postgraduate loan deductions from employee pay.
Workplace pensions: your auto-enrolment duties
Your legal duties to automatically enrol eligible employees into a workplace pension scheme and contribute to their pension. …
Register as an employer (PAYE)
How to register with HMRC as an employer before your first payday.
Close your PAYE scheme
How to permanently close your PAYE scheme with HMRC, including final FPS submission, issuing P45s to all employees, …
Handle an HMRC Self Assessment enquiry
What happens when HMRC opens an enquiry into your Self Assessment return, what triggers one, your rights, how …
Employment & HR 4
Employment status: employee, worker, or self-employed
How to correctly determine whether someone is an employee, worker, or self-employed. Covers the key legal tests, IR35 …
Apprenticeship Levy for large employers
Mandatory 0.5% payroll levy for employers with £3 million+ annual pay bill, how to use levy funds for …
Mandatory hiring requirements
Every employer obligation from pre-hire through the first month of employment. Covers right to work checks, written statements …
Before you hire your first employee
Everything you need to do before employing your first staff member.
Business Structure 2
Sector-Specific 1
Sections and provisions
377 classified provisions from this legislation.
Duties 173
- s.13 Determination of code by Inland Revenue
- s.14 Matters relevant to determination of code tax repaid
- s.17 Notice to employee of code
- s.19 Amendment of code
- s.21 Deduction and repayment of tax by reference to employee’s code
- s.22 The cumulative basis
- s.27 Non-cumulative basis: general rule for deductions
- s.28 Non-cumulative basis: modification of general rule
- s.29 Non-cumulative basis: aggregation of payments
- s.30 Non-cumulative basis: employee not paid weekly or monthly
- s.32 Higher rate code: deductions
- s.38 Death of employee The employer
- s.39 Death of pensioner The pension payer
- s.42 Procedure if employer receives Form P45 number used
- s.43 Form P45 for current tax year relevant payment
- s.44 Form P45 for previous tax year: employment starting on or before 24th May
- s.45 Other Forms P45
- s.46 Form P46 where employer does not receive Form P45 and code not known
- s.47 Procedure in Form P46 cases: (a) seconded expatriate is national of EEA state or Commonwealth citizen, or (b) employee is not seconded expatriate and Statement A applies
- s.48 Procedure in Form P46 cases: (a) Statement B applies (not seconded expatriate), or (b) Statement B or C applies (seconded expatriate)
- ... and 153 more duties
Powers 15
- s.76 Certificate if tax in regulation 73 return is unpaid
- s.77 Return and certificate if tax may be unpaid : amounts due under regulation 68
- s.79 Certificate after inspection of PAYE records
- s.98 Multiple PAYE schemes
- s.105 HMRC and employer may make PSA
- s.110 Formal determination of tax payable by the employer
- s.113 Variation of PSA
- s.147 Direct collection: failure to pay
- Assessment of unpaid apprenticeship levy Assessment of unpaid apprenticeship levy
- Determination of code in respect of recovery of re Determination of code in respect of recovery of relevant debts
- Determination of code in respect of recovery of ta Determination of code in respect of recovery of tax credit debts
- Persons from whom security can be required Persons from whom security can be required
- Recovery of overpayment of apprenticeship levy by Recovery of overpayment of apprenticeship levy by HMRC
- Recovery of taxes Recovery of taxes
- Repayment to recipient during tax year Repayment to recipient during tax year
Definitions 50
- s.3 Net PAYE income Net PAYE income allowable donations to charity
- s.6 Relevant pension payments
- s.7 Meaning of “code” etc code K code S code
- s.15 Flat rate codes appropriate Scottish upper rate code
- s.23 Cumulative basis: deduction and repayment Previous total tax to date previous total tax to date
- s.64 Trade disputes benefit officer end of the employee’s strike action place of work
- s.87 Information employer must also provide for benefits code employees related third party
- s.97 Retention by employer of PAYE records PAYE records
- s.106 Qualifying general earnings
- s.118 Interpretation of Chapter 1 allowances councillor local council
- s.122 Interpretation of Chapter 2 the Ministry reserve forces reserve pay
- s.134 Interpretation of Chapter 3 fund holiday pay recipient
- s.144 Direct collection: payment the current total tax the previous total tax
- s.148 Interpretation of Chapters 1 and 2 award claim claimant
- s.150 Application of other regulations
- s.173 Interpretation of Chapter 3 award claim claimant
- s.174 Application of other regulations
- s.181 Interpretation of Chapter 4 award claim claimant
- s.185 Adjusting total net tax deducted for purposes of sections 59A(1), 59B(1) and 59BA(2) TMA direction tax relevant tax year tax treated as deducted
- s.188 Assessments other than self-assessments assessment direction direction tax
- ... and 30 more definitions
Exemptions 57
- s.10 Application to agencies and agency workers
- s.11 Application to pension payers and pensioners
- s.12 Application to other payers and payees
- s.24 Cumulative basis: employee not paid weekly or monthly
- s.25 Cumulative basis: subsidiary PAYE income of employee paid weekly or at greater intervals
- s.26 The non-cumulative basis
- s.31 Payments in short payment periods
- s.33 Nil tax code: no deductions or repayments
- s.36 Cessation of employment: Form P45
- s.37 PAYE income paid after employment ceased
- s.41 Scope of Chapter 2
- s.50 No Form P45: code treated as issued by HMRC
- s.58 Procedure if no Form P45 and code not known: UK pensioners
- s.59 UK resident pensioner’s code treated as issued by Inland Revenue
- s.62 Deductions in respect of notional payments
- s.69 Due date and receipts for payment of tax
- s.70 Quarterly tax periods
- s.78 Notice and certificate if tax may be unpaid : amounts due under regulation 68
- s.80 Determination of unpaid tax and appeal against determination
- s.85 Employers: annual return of other earnings ( form P11D )
- ... and 37 more exemptions
Official guidance
Authoritative sources from regulators explaining this legislation.
- Pay Apprenticeship Levy (GOV.UK) Detailed Guidance