Do we need to register a UK PAYE scheme for a non-UK company?

What Is a UK PAYE Scheme

PAYE, Pay As You Earn, is HMRC’s system for collecting income tax and National Insurance from employees as they’re paid, rather than at year end. Registering a PAYE scheme means setting up an employer account with HMRC, which then issues you an Employer PAYE Reference and an Accounts Office Reference, the two identifiers you’ll use for every payroll submission after that.

For a UK company, this is straightforward. For an overseas company hiring UK staff, it raises a preliminary question that has to be answered first: does your business have what HMRC calls a “tax presence” in the UK. Without one, HMRC may not permit your company to operate a PAYE scheme directly, and a different arrangement may be needed instead.

PAYE Scheme vs Direct Collection

The default route is a standard PAYE scheme, where your company registers as the employer and takes on the responsibility for deducting and paying over tax and National Insurance on the employee’s behalf. This is the option most overseas companies use once they’ve established some form of UK presence, whether that’s a branch, a subsidiary, or another structure with a UK address HMRC can associate with the employment.

Where a company genuinely has no UK tax presence, HMRC offers an alternative called direct collection, where the employee operates PAYE on their own salary. In practice, this shifts a meaningful administrative and compliance burden onto the employee, and it isn’t enforceable by HMRC in the same way an employer PAYE scheme is. Many employees in this position choose instead to register under Self Assessment and manage their own tax that way.

Because of this complexity, most overseas employers choose to set up a UK payroll and PAYE scheme even in situations where they might not be strictly obligated to, simply to avoid pushing tax administration onto the employee. This is one of the practical reasons that deciding your UK structure, whether a branch or a subsidiary  https://www.paulbeare.com/branch-office-vs-branch-registration-uk/, early on makes the payroll side of hiring considerably easier.

Why It Matters for Overseas Companies

Getting this wrong doesn’t just create an administrative headache, it can leave an employee managing their own tax compliance without realising what that involves, which creates real risk for both sides of the employment relationship. It can also delay a hire if the registration route hasn’t been worked out before an offer is made.

There’s a timing pressure too. PAYE registration has to happen before the first payday, and HMRC’s processing time for issuing your references can run to two weeks in some cases. If you’re planning a start date for a new UK hire, PAYE registration needs to begin well before that date, not after the person has already started.

How It Works in the UK

Registration is done online through HMRC’s employer registration service. You’ll need a Government Gateway account, details of your business, and information about the employee, including their first payday and how many staff you expect to employ in the tax year.

You must register as an employer if any employee earns above the secondary National Insurance threshold, currently £96 a week, though many overseas employers register regardless of this threshold to keep things straightforward. Once submitted, HMRC typically takes up to 5 working days to process the registration, though it can take up to 2 weeks for your Employer PAYE Reference and Accounts Office Reference to arrive by post, so early registration matters.

If you’re incorporating a new UK company at the same time as you need PAYE, Companies House and HMRC offer a joint registration service that lets you set both up together, which can save a step for a fresh UK entity.

Key Compliance Requirements

PAYE registration is only one part of what’s needed before you can legally employ someone in the UK. Employer’s liability insurance is a separate legal requirement for any business employing one or more people in the UK, covering compensation costs if an employee is injured or becomes ill because of their work. This needs to be in place before the employment starts, not arranged retrospectively.

Right-to-work checks are also mandatory. Before employing anyone in the UK, you must verify they have the legal right to work here. If you want to employ someone who needs a work permit, your business will need a relevant sponsorship licence, which is a separate application process from PAYE registration entirely.

Once PAYE is up and running, ongoing compliance includes Real Time Information (RTI) reporting to HMRC each pay period, paying over the tax and National Insurance deducted by the relevant deadline, and issuing P45s to any leavers along with year-end P60s for continuing staff.

Common Mistakes International Businesses Make

The most common mistake is leaving PAYE registration until close to, or after, the first payday, without accounting for HMRC’s processing time. Because the reference numbers arrive by post and can take up to two weeks, a late start on registration can genuinely delay the ability to pay an employee correctly.

Another frequent issue is assuming PAYE registration is the only requirement, and overlooking employer’s liability insurance or right-to-work checks until much later in the process. All three need to be sorted before employment starts, not handled in sequence after someone has already joined.

Businesses without a clear UK tax presence sometimes also assume they can simply register a standard PAYE scheme regardless, without working through whether HMRC would actually permit that, or whether direct collection or a different structure is the more appropriate route.

How Paul Beare Helps With This

Our payroll services  https://www.paulbeare.com/payroll-services-uk/ cover the full process for overseas companies hiring UK staff, from applying to HMRC for your PAYE scheme through to weekly or monthly payroll processing, calculating PAYE, National Insurance, and student loan repayments, and handling statutory leave calculations for sick pay, maternity, and paternity leave.

We also manage RTI reporting to HMRC, process starters and leavers, and act as a point of contact for HMRC on your behalf, so payroll queries don’t land back on your desk. If you’re still working out how to structure your UK employment more broadly, our HR and employment services  https://www.paulbeare.com/hr-employment-services/ team can also help with employment contracts and workplace pension setup.