Running payroll in house gives you tighter control over costs, timing and employee data. It also puts every HMRC obligation directly on your shoulders. The stage where most small UK employers slip up is the very first one: adding a new starter to the system.

Get the onboarding process right and the rest of payroll usually runs smoothly. Get it wrong and you can end up with incorrect tax codes, late filing penalties, missed pension duties and frustrated staff chasing refunds for months.

This guide walks you through exactly how to set up a new employee on your UK payroll in 2026, what HMRC expects you to collect, and the common mistakes worth avoiding.

Know What PAYE Actually Requires of You

The moment you take on your first employee, you become a PAYE employer. That role covers four core duties:

1. Calculating Income Tax and National Insurance on every payment
2. Reporting pay and deductions to HMRC under Real Time Information (RTI)
3. Paying the correct amounts to HMRC by the monthly or quarterly deadline
4. Keeping accurate payroll records for at least three years after the tax year ends

These obligations apply whether you employ one person or fifty. Missing a single RTI submission can trigger an automatic penalty, so the system you choose needs to be reliable from day one.

Collect the Correct Starter Information

Before the first pay run, gather everything you need to set the employee up properly. At a minimum, this should include:

• Full legal name and home address
• Date of birth
• National Insurance number (where the employee has one)
• Start date with your business
• Job title and contracted hours
• Gross pay rate and pay frequency (weekly, fortnightly or monthly)
• Bank account details for BACS payment

Alongside payroll data, you also need to confirm and record the employee’s right to work in the UK. This is a separate legal duty, but most employers handle it during the same onboarding stage to keep paperwork in one place.

Use a P45 Where the Employee Has One

If your new starter has worked elsewhere in the current tax year, they should hand you a P45 from their previous employer. The P45 tells you their year to date pay, tax already deducted and the tax code that was being used.

When you enter P45 details into your payroll software, double check every figure. A single mistyped digit on the previous pay or tax field can throw off cumulative calculations for the rest of the year and create a refund or underpayment situation that takes months to resolve through HMRC.

Only use a P45 if it relates to the current tax year. A P45 from a previous tax year should not be used to set the tax code, and you should treat the employee as needing a starter declaration instead.

Use the HMRC Starter Checklist When There Is No P45

If the employee cannot produce a valid P45, ask them to complete the HMRC starter checklist (formerly called a P46). Most modern payroll software builds this directly into the new starter setup screen.

The checklist asks the employee to confirm one of three statements:

• Statement A: This is their first job since 6 April and they have no other source of taxable income
• Statement B: This is now their only job, but they have had another job since 6 April or have received taxable benefits
• Statement C: They have another job or receive a pension

Their answer determines which tax code you apply on a temporary basis until HMRC issues a definitive code through the RTI system.

Apply the Correct Tax Code From the First Pay Run

The tax code controls how much of the employee’s pay is tax free and how much Income Tax is deducted at source. The standard code for the 2026/27 tax year is 1257L, which reflects the £12,570 personal allowance, frozen again for this year.

If you apply an emergency or basic rate code when the employee should be on a cumulative code, they will overpay tax and have to claim it back later. The opposite mistake leaves them with an unexpected bill at year end.

Once you submit your first Full Payment Submission (FPS), HMRC may send a tax code notice (P6 or P9) through your software. Update the code in payroll as soon as you receive it and apply it from the next pay period, not retrospectively.

Submit Real Time Information on or Before Payday

Every UK employer must report pay and deductions to HMRC each time they pay staff, using a Full Payment Submission. The FPS must reach HMRC on or before the date the employee is paid, not after.

Late filing penalties start at £100 per month for employers with up to nine employees and rise from there. If you have nothing to report in a particular month, you still need to send an Employer Payment Summary (EPS) to keep HMRC informed.

Build a fixed payroll routine: process pay, review the figures, submit the FPS and only then release payment to staff. That order protects you from missed submissions during busy weeks.

Confirm the Right National Insurance Category

National Insurance is not a one size fits all deduction. The category letter you assign to each employee changes the percentage of NI deducted and what you pay as employer NI.

Common categories include:

• A — standard category for most employees aged 21 or over
• H — apprentices under 25
• M — employees under 21
• C — employees over State Pension age
• B — married women or widows with a valid reduced rate election

Getting the category wrong is one of the most expensive payroll mistakes, because it can mean either underpaying HMRC (you make up the difference plus interest) or over deducting from your employee’s wages.

Assess Workplace Pension Duties

Auto enrolment applies to almost every UK employer. From the employee’s start date, you need to assess whether they are an eligible jobholder based on age and earnings.

For 2026/27, the assessment thresholds remain:

• Lower earnings threshold: £6,240
• Earnings trigger for auto enrolment: £10,000
• Upper earnings threshold: £50,270

If the employee is eligible, you must enrol them in a qualifying pension scheme, deduct contributions from the first relevant pay run and provide them with statutory information explaining their rights, contribution rates and how to opt out.

Even employees who fall below the eligibility threshold have the right to opt in or join, and you still need to keep records of the assessment for six years.

Keep Clean, Audit Ready Payroll Records

HMRC can ask to see payroll records during a compliance check, sometimes years after the event. Keep digital and, where appropriate, paper records of:

• Each FPS and EPS submission
• P45s received and starter checklists completed
• Tax code notices from HMRC
• Pension assessment results and opt in or opt out forms
• Pay slips, payslip totals and deduction breakdowns
• Right to work documentation

Records must be kept for at least three tax years after the year they relate to, but six years is a safer default and matches your wider company record keeping rules.

Common New Starter Payroll Mistakes to Avoid

Most new starter problems trace back to the same handful of errors:

• Using the wrong start date, which throws off NI and tax thresholds
• Entering P45 figures incorrectly or using a P45 from a previous tax year
• Skipping the starter checklist when no P45 is available
• Forgetting to submit the FPS before the first payday
• Missing the auto enrolment assessment for the new employee
• Failing to update the tax code when HMRC issues a P6 or P9 notice
• Storing starter paperwork inconsistently across different folders or systems

A simple new starter checklist, used every single time you onboard someone, removes most of these risks.

When to Hand Payroll to a Specialist

Running your own payroll is realistic for many small UK businesses, especially with the cloud payroll software now available. The point at which it stops being efficient is usually one of these:

• You take on more than five or six employees
• You start dealing with statutory payments such as SSP, SMP or SPP
• You have employees on different pay frequencies or contract types
• You are spending more than two hours a month on payroll admin
• You have already had an HMRC penalty or compliance query

At that stage, outsourcing to a payroll specialist or accountant typically costs less than the time and risk involved in keeping it in house.

Key Takeaways

• New starters are the highest risk point in any UK payroll system
• Always collect a P45 where available, and use the HMRC starter checklist where it is not
• The standard 2026/27 tax code is 1257L; update codes promptly when HMRC issues a notice
• Submit RTI on or before payday, every payday
• Assess auto enrolment from day one and keep clear records
• A consistent onboarding checklist prevents almost all common payroll mistakes

If you are about to take on your first employee, or your in house payroll has started feeling heavier than it should, professional advice can save you money long before it costs you any. Talk to a UK payroll specialist about a setup review or full payroll outsourcing to keep your business compliant and your team paid correctly.

Frequently Asked Questions

Do I need to register as an employer before paying anyone?

Yes. You must register with HMRC as an employer before the first payday, and registration can take up to five working days, so do not leave it to the last minute.

What happens if a new starter has no National Insurance number?

You can still run payroll. Use their date of birth and gender to assign the correct NI category, and ask them to apply for an NI number through GOV.UK. Update payroll once the number arrives.

Can I run payroll on a spreadsheet?

Technically yes for very small employers, but you still need HMRC recognised software to submit RTI returns. In practice, cloud payroll software is almost always cheaper and safer than a manual approach.

How often do I need to pay HMRC?

Most employers pay PAYE and NI to HMRC monthly, by the 22nd of the following month if paying electronically. Smaller employers (average monthly liability under £1,500) can usually pay quarterly.

What is the difference between a P45 and a starter checklist?

A P45 comes from a previous employer and shows year to date figures. A starter checklist is completed by the employee themselves when no P45 is available, and it tells you which temporary tax code to use.