Expanding into the UK and taking on your first employee is an important step, but it also brings new tax, payroll and pension responsibilities.
Once your business has registered as an employer with HMRC, you will need to ensure that the correct deductions are made from your employee’s pay and that your own liabilities as an employer are dealt with correctly.
With UK employment costs and tax rules subject to change, understanding these obligations before your first payday can help you avoid unexpected costs and compliance issues.
How does Income Tax work when employing someone in the UK?
Employers are responsible for deducting Income Tax from an employee’s pay through the Pay As You Earn (PAYE) system.
After registering as an employer with HMRC, your business will receive a PAYE reference and an Accounts Office reference.
These are important for identifying your PAYE scheme, reporting payroll information and making the appropriate payments to HMRC.
Payroll information must usually be reported to HMRC on or before the date that employees are paid using Real Time Information (RTI).
For most employers, this means submitting a Full Payment Submission (FPS) containing details of payments made to employees and the deductions taken from their pay.
Getting this right from the outset is important, as accurate payroll reporting helps ensure that your employees’ Income Tax and National Insurance records are kept up to date while allowing your business to meet its UK reporting obligations.
What National Insurance costs should employers consider?
When employing staff in the UK, international businesses need to account for both employee and employer National Insurance Contributions (NICs).
Primary Class 1 NICs are paid by the employee and deducted directly from their gross pay through payroll.
How much is deducted will depend on factors including the employee’s earnings and National Insurance category.
Secondary Class 1 NICs are the responsibility of the employer and represent an additional employment cost for the business rather than a deduction from the employee’s salary.
Both need to be calculated and reported correctly through payroll, with the amounts owed to HMRC generally paid alongside the business’s other PAYE liabilities.
Understanding these additional costs is particularly important when budgeting for a new UK employee, as the salary offered does not represent the full cost of employing them.
Do I need to provide my UK employees with a workplace pension?
If you employ someone in the UK, you may also have workplace pension responsibilities from the moment they join your business.
Employees aged between 22 and State Pension age who earn more than £10,000 a year will generally need to be automatically enrolled into a qualifying workplace pension scheme.
The minimum total contribution is normally eight per cent of qualifying earnings, of which the employer must generally contribute at least three per cent.
Employers also need to assess their staff to determine whether they are eligible for automatic enrolment and maintain the required pension records.
An employee can choose to opt out after being automatically enrolled, but the decision must be their own and employers must not encourage workers to leave or avoid joining the scheme.
Setting up a workplace pension should therefore form part of your preparations for recruiting in the UK rather than being addressed once your first employee has already started.
Getting your UK payroll right from the start
Hiring your first UK employee brings with it obligations that may be unfamiliar if your business is based overseas.
Failing to budget for employer NICs, overlooking pension responsibilities or submitting incorrect payroll information can leave your business facing additional costs and potential compliance issues.
Putting the appropriate payroll processes in place before recruitment can make the transition considerably easier and give you a clearer understanding of the true cost of employing staff in the UK.
Our payroll team can support you with your UK employment obligations, helping you manage payroll, tax and National Insurance correctly as your presence in the UK grows.
