Start with the Practical Bits Before You Register

Taking on your first employee is a milestone, and it comes with a short list of jobs that are much easier if you do them in the right order. Before you think about tax codes and software, sort the basics. Check that your new hire has the right to work in the UK, agree a start date, a rate of pay and the hours they will work, and put it all in writing as a written statement of particulars on or before day one.

You will also need some information from them. Ask for their full name, home address, date of birth and National Insurance number, plus a P45 from their previous job if they have one. If they do not have a P45, they can complete a starter checklist instead. Keep all of this somewhere you can find it again, because your payroll software will need it in a few weeks' time.

Registering as an Employer with HMRC

You must register with HMRC as an employer before your first payday. You cannot register more than two months before that date, and the process can take up to 15 working days to complete, so aim to register three or four weeks ahead rather than the night before payday.

Registration is done online through your business tax account. Once it is processed, HMRC will send you a PAYE reference and an Accounts Office reference. Store both safely, as you will need them for every payment and every submission you make. If you already run a limited company or a sole trader business, you may be able to add the PAYE scheme to your existing account rather than starting from scratch.

One useful detail: if you are taking on a carer or support worker for yourself, there is a separate route for that, so check which scheme applies before you start the form.

Tax Codes: What They Are and How to Get Them Right

A tax code is simply an instruction to your payroll software telling it how much tax-free pay your employee is entitled to. The most common code is 1257L, which reflects the standard personal allowance. If your new employee hands you a P45, use the code printed on it. If they do not have one, the answers on the starter checklist decide what you use:

• Statement A — this is their only job, so use the standard cumulative code, 1257L.
• Statement B — they have another job or a pension, so use BR, which taxes everything at the basic rate.
• Statement C — they have another job but that one is not using their allowance, so use 0T on a week 1 or month 1 basis.

Codes change during the year, usually because HMRC has adjusted someone's allowance. With cloud software, a new code arrives electronically and is applied automatically, which removes a job that used to be fiddly and error-prone.

Choosing Cloud Payroll Software

HMRC requires payroll submissions to be made through recognised software, and cloud tools have made this genuinely simple for small businesses. When you are comparing options, look for a few specific things: automatic RTI filing, tax code updates straight from HMRC, pension assessment built in, payslips your employee can access online, and integration with your bookkeeping so wages appear in the right place without double entry.

Pricing is usually either per month or per employee per month, so a one-person payroll should be inexpensive. The real benefit of cloud payroll is not the software itself but the routine it creates. Calculations happen automatically, records are backed up away from your laptop, and year-end becomes a confirmation rather than a project.

Your First Payroll Run, Step by Step

• Confirm gross pay for the period, including any overtime, bonus or holiday pay.
• Check the tax code and that the employee's details are correct.
• Let the software calculate PAYE, National Insurance and any pension contributions.
• Approve the payroll and submit a Full Payment Submission to HMRC on or before payday.
• Issue payslips on or before payday, showing gross pay, deductions and net pay.
• Pay your employee and set aside the PAYE and National Insurance you have deducted.
• Pay HMRC by the 22nd of the following month, or the 19th if you pay by post.

If your average monthly PAYE bill is under £1,500 you can usually pay quarterly instead, which eases cash flow in the early months.

Pensions, Payslips and Staying on Track

Auto-enrolment duties begin on your first employee's first day. You will need to assess them, enrol them into a suitable pension scheme if they are eligible, contribute at least 3% of qualifying earnings as the employer, and complete a declaration of compliance with The Pensions Regulator within five months of your duties start date. It sounds heavier than it is, and most cloud payroll tools handle the assessment and letters for you.

Two more things worth knowing. First, the Employment Allowance can reduce your employer National Insurance bill by up to £10,500, and many small employers end up paying little or nothing — make sure you claim it. Second, keep your payroll records for at least three years after the end of the tax year, and give payslips on or before payday, always itemised. Get the first three months right and the rest becomes routine.