Common Mistakes to Avoid During PAYE Registration: Expert Tips for Small Business Owners

If you are a small business with employees, PAYE registration is one of those must-do tasks that can’t be ignored. Getting it right means compliance with tax laws and avoiding penalties. Yet many entrepreneurs trip up during the process, prompting headaches down the line and even an HMRC investigation.

We have tapped into expert advice to break down the biggest mistakes and how to sidestep them. This guide will help you stay compliant (and stress-free).

1. Registering Too Late (or Too Early)

One of the biggest mistakes business owners make is mistiming their Register for PAYE as employee. Register too late and you risk getting slapped with fines from HMRC. Register too early, before you’ve actually hired an employee, and you risk drowning in unnecessary paperwork.

Expert Tip – You must register as an employer with HMRC before the first payday. Ideally, do this as soon as you hire someone, even if they haven’t started work yet.

2. Mixing Up Self-Assessment and PAYE

Sole traders repeatedly assume that their self-assessment tax return covers PAYE obligations, but this isn’t the case. If you employ staff, PAYE registration is mandatory, regardless of your business structure.

Expert Tip – Even if you’re a freelancer with just one part-time employee, you still need to operate PAYE. Don’t assume self-assessment is enough.

3. Incorrectly Classifying Workers

Misclassifying employees as self-employed (or vice versa) is a costly error. HMRC has strict rules on employment status and getting it wrong can mean back taxes, penalties and legal trouble.

Expert Tip – Use HMRC’s CEST tool (Check Employment Status for Tax) to determine if someone should be on payroll. When in doubt, consult an accountant.

4. Skipping PAYE Registration Because of Low Wages

Some employers think they can skip PAYE registration if they’re only paying a small salary or wages below the tax threshold. But even if an employee earns less than £123 a week (the current Lower Earnings Limit), you still need to register.

Expert Tip – PAYE registration is required for all employees, regardless of how much they earn. The only exception is if they’re paid less than £123 weekly and have another job.

5. Not Keeping Up with PAYE Changes

Tax rules evolve, and missing updates can lead to errors. For example, recent changes to National Insurance rates and reporting requirements mean businesses should stay informed.

Expert Tip – Subscribe to HMRC’s employer bulletins or work with a payroll specialist to keep up with changes.

6. Poor Record-Keeping

PAYE registration is just the beginning: you also need to maintain accurate payroll records. Failing to keep payslips, tax codes and payment details organised can cause problems during HMRC audits.

Expert Tip – Use payroll software (like QuickBooks, Xero or HMRC’s own tools) to automate record-keeping and minimise errors.

7. Missing Deadlines for PAYE Submissions

Late submissions of Full Payment Submissions (FPS) or Employer Payment Summaries (EPS) can invite fines. Some business owners forget to file these on time, more so if they don’t run payroll frequently.

Expert Tip – Set calendar reminders for payroll deadlines or use payroll software that auto-files reports.

Bottom Line

PAYE registration doesn’t have to be daunting. But avoiding those common mistakes will save you money and stress. By registering on time, classifying workers correctly and staying on top of compliance, you’ll keep HMRC happy and your payroll running smoothly.

If you’re unsure about any step in the process, don’t wing it. Consult an accountant or payroll expert to confirm your PAYE registration is done right. After all, getting payroll wrong is one headache no small business owner needs with the help of VAT Calculator.