Pay your team in the United Kingdom
Despite the uncertainties and complications that persist in the aftermath of Brexit, the United Kingdom remains a popular hiring destination for international employers. However, having UK employees working for you also means having to deal with local payroll complexities. There are several ongoing compliance requirements with regard to filing and paying payroll taxes and fines for missed deadlines can be quite hefty.
Setting up payroll in the United Kingdom
There is no formal requirement to set up a local legal entity in order to hire someone in the UK. However, employers need to complete a registration for the national PAYE (Pay- As-You-Earn) system. This can usually be done via the HMRC (Her Majesty’s Revenue and Customs) website – that is if the employer has local partners in the UK which can provide the necessary reference numbers. Employers need to register before the first payday – possible up to 2 months before the intended first payment. Processing times can be up to 5 working days.
After the registration, the HMRC issues an employer PAYE reference number / tax code as well as an online access to the PAYE system for electronic filing purposes. It is also necessary to inform the HMRC about new hires – usually employees will have the P45 form from their previous employer which contains the necessary tax code and further payroll-related information. For new hires without previous employment, the HMRC provides a starter checklist.
Employers who intend to hire workers aged between 22 and state pension age who will earn more than GPB 833 per month (GBP 192 per week) further need to register with a pension scheme to which they must add eligible employees (“automatic enrollment”). Another legal requirement for employers is to take out an Employers Liability Insurance.
There is no legal requirement to set up a local bank account as any payroll-related payments can be issued from an overseas account.
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Income tax and social security in the United Kingdom
The UK’s National Insurance system is funded by contributions made by both employees and employers. In addition, certain employees need to be registered with a separate pension fund. The tax system is progressive with a 45% top rate.
| 2022 Tax Bands * | Corresponding Tax Rates |
|---|---|
| Up to GBP 12,570 | 0% |
| GBP 12,571 - GBP 50,270 | 20% |
| GBP 50,271 - GBP 150,000 | 40% |
| Above GBP 150,000 | 45% |
Setting up payroll in the United Kingdom
There is no formal requirement to set up a local legal entity in order to hire someone in the UK. However, employers need to complete a registration for the national PAYE (Pay- As-You-Earn) system. This can usually be done via the HMRC (Her Majesty’s Revenue and Customs) website – that is if the employer has local partners in the UK which can provide the necessary reference numbers. Employers need to register before the first payday – possible up to 2 months before the intended first payment. Processing times can be up to 5 working days.
After the registration, the HMRC issues an employer PAYE reference number / tax code as well as an online access to the PAYE system for electronic filing purposes. It is also necessary to inform the HMRC about new hires – usually employees will have the P45 form from their previous employer which contains the necessary tax code and further payroll-related information. For new hires without previous employment, the HMRC provides a starter checklist.
Employers who intend to hire workers aged between 22 and state pension age who will earn more than GPB 833 per month (GBP 192 per week) further need to register with a pension scheme to which they must add eligible employees (“automatic enrollment”). Another legal requirement for employers is to take out an Employers Liability Insurance.
There is no legal requirement to set up a local bank account as any payroll-related payments can be issued from an overseas account.
This country guide is for informational purposes only and should not be construed as legal advice. The content of this guide contains general information, and although we update this guide regularly, it may not reflect current legal developments. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this country guide.