If you run your payroll yourself you’ll need to report your workers’ payments, and the deductions for income tax and National Insurance, to HMRC on or before each payday. If you use a payroll provider, they’ll do this for you.
What is PAYE?
Pay As You Earn (PAYE) is HM Revenue & Customs (HMRC)’s system for collecting income tax and National Insurance contributions.
To use PAYE you must be registered as an employer with HM Revenue & Customs (HMRC). When you register, HMRC will give you an employer PAYE reference number.
Running your payroll
You can run the payroll yourself using your payroll software or employ a payroll provider to do it for you, depending on the size of your business and the resources you have.
Whichever method you choose, you’ll need to collect and keep details of all your workers.
now:pensions is a net pay scheme. This means pension contributions come out of workers’ pay before the income tax comes out. You’ll need to make sure you’ve set up your system to work out pension contributions on your workers’ gross (before tax) pay.
This means taxpayers automatically get full tax relief – they don’t pay any income tax on their pension contributions.
If you don’t set up the tax relief correctly, your workers’ contributions won’t be worked out on the correct tax basis. If your workers have a shortfall in their pension savings as a result, you will have to pay this.
Paying HMRC
You need to pay the tax and deductions you’ve reported in your FPS (minus any deductions from your EPS) each month.
If the amount you normally pay is less than £1,500 a month, you may be able to pay quarterly rather than monthly. Contact HMRC to find out more.
The deadlines for sending your payments to HMRC are:
- the 22nd of the month following your FPS if you pay monthly, or the 19th if you pay by post
- the 22nd of the month after the end of the quarter, if you pay quarterly.
You may have to pay a penalty if you miss the deadline. The table below shows how long different payment methods take.
| Payment speed | Method |
| Same or next day | Faster Payment through online or telephone banking
CHAPS payment |
| Three working days | Direct debit if already set up
BACs transfer Debit or credit card online Cash or cheque at a bank or building society (will need payment booklet from HMRC) Cheque through the post |
| Five working days | Direct debit if setting one up for the first time |
| What are BACS, CHAPS and Faster Payments? | |
| BACS (Bankers’ Automated Clearing Services) | Bank-to-bank transfers that take three days to clear. The most widely used system by UK businesses for direct debits and other payments. Usually free of charge. |
| CHAPS (Clearing House Automated System) | Bank-to-bank transfers guaranteed to arrive on the same working day as long as payment is arranged by 3pm. Usually used for payments over £10,000 due to cost to payer of £25-£35 per payment. |
| Faster Payments | Made online or by telephone banking between two organisations that both use Faster Payments. Normally arrive within two hours. Free of charge. |
Keeping records
You need to keep records of:
- payments to workers
- reports and payments to HMRC
- workers’ leave and sickness absence
- tax code notices
- any taxable benefits you give your workers, or expenses you reimburse (such as travel expenses)
- if any of your workers use the Payroll Giving Scheme, the agency contract and employee authorisation forms.
You need to keep the records for at least three years from the end of the tax year they relate to. HMRC may check your records to make sure the tax payments you’re making are correct.
Frequently asked questions
See all support for employersFirst, log in to now:u. Follow the steps in our guide for a step-by-step explainer of the process.
now:pensions is a net pay pension scheme. You, the workplace, take pension contributions out of workers’ gross pay and pay them into now:pensions before income tax is deducted.
You’ll need to:
- work out pension contributions on gross (before tax) pay, and
- calculate and deduct your workers’ income tax after you’ve taken their pension contributions.
As a result, your workers who are taxpayers won’t pay any income tax on their pension contributions. They automatically get full tax relief.
Workers who don’t earn enough to pay tax don’t normally get tax relief. The government has set up a scheme to pay a tax top-up to these workers, so they don’t miss out. HM Revenue & Customs (HMRC) will contact workers who aren’t taxpayers directly about this. Payments are expected to begin in 2026 for the 2024/25 tax year.
Self-employed workers will need to claim tax relief through their annual self-assessment tax return.
What other types of tax relief are there?
There’s another type of tax relief arrangement called relief at source. In this kind of arrangement the workplace takes workers’ pension contributions from their pay, after income tax has been taken off.
The pension scheme then claims the tax relief from HMRC each month, adding the basic tax rate of 20% to workers’ contributions.
Higher or additional-rate taxpayers can claim back the rest of their tax relief from HMRC through their annual Self-Assessment tax return.
Make sure you set up your tax relief correctly
For now:pensions, you must set up your workplace pension for tax relief on the net pay basis. Otherwise, your workers’ contributions won’t be worked out correctly and you could end up having to compensate for any losses they may incur. If you’re not sure how to do this, please ask us for help using webchat.
If you run your payroll weekly, fortnightly or four-weekly, some years will have extra pay periods.
When this happens you’ll need to create extra pay periods to finish your PAYE tax year.
How to create extra pay periods
Log in to now:u and go to your Payroll page, where you’ll see your active payrolls. When your next pay period is 1, you’ll be able to edit this pay period and its start dates to match your extra pay period.
Once you’ve uploaded your pension data files for this pay period, the next expected pay period will be 1. You’ll be able to edit this again to re-set your pay periods for the start of the new payroll year.
What do extra pay periods mean for workers?
HM Revenue & Customs (HMRC) says you must give your workers an extra amount of tax-free pay – even if their tax-free pay for the year has been allocated. This helps to protect workers’ take-home pay and makes sure the tax for that period doesn’t vary too much from the usual amount.
Once the tax year ends, HMRC will recover the underpaid tax given by the extra personal allowance by sending out a P800 calculation.