HMRC PAYE Payroll Set Up: A Step-by-Step Guide for Drivers

An HMRC PAYE payroll set up means registering as an employer, choosing payroll software and reporting every payment to HMRC on or before payday. If you run your own limited company and pay yourself a salary, or you take on a second driver, you must do this before the first payday. This guide walks through each step in plain English, from the employment status test to year-end P60s.

Many drivers start as sole traders and never think about payroll. The moment you become an employer, even of yourself as a company director, a fresh set of rules applies. Getting the set up right in the first month saves penalties, letters from HMRC and a lot of stress later.

Key takeaways

• You must register as an employer before the first payday, but no more than two months before you start paying people.
• Every payday needs a Full Payment Submission (FPS) sent to HMRC on or before that day, through payroll software.
• Employment Allowance can cut employer National Insurance by up to £10,500 in 2026/27, but a company with one director who is the only employee does not qualify.
• A director with no other staff usually has no automatic enrolment duties, but hiring a driver changes that.
• Missed deadlines cost real money, so build the monthly routine before you pay anyone.

What is HMRC PAYE payroll set up?

HMRC PAYE payroll set up is the process of registering as an employer, choosing payroll software and reporting each payment of wages to HMRC. PAYE stands for Pay As You Earn. Through it you deduct Income Tax and National Insurance from pay and send both to HMRC.

Do I need to run payroll if I am a limited company director?

Not always, but usually yes. A company only needs payroll once it pays someone through PAYE, and paying a director a salary counts. GOV.UK says you must register as an employer even if you are only employing yourself as a company director, so most owner-drivers with a company set up payroll.

Some directors take no salary and draw only dividends, which needs no PAYE. That choice affects your State Pension record and your tax bill, so weigh it up before you skip payroll. Our guide on sole trader versus limited company for Uber drivers explains the wider trade-offs.

Should I treat a second driver as an employee or self-employed?

Employment status decides whether you run PAYE for a driver. Someone is likely an employee if they work set hours, follow your instructions, cannot send a substitute and use your vehicle. Someone is likely self-employed if they invoice you, use their own vehicle and take the financial risk. Courts have the final say.

According to GOV.UK's guidance on employment status, you should check the specific facts of each working relationship rather than rely on a label. Calling a driver self-employed in a contract does not make it so. If most of the employee signs apply, you should treat the driver as an employee and run them through PAYE.

Practical signs that a driver is an employee

• You set the shifts and expect a minimum number of hours.
• The driver uses a car you own or lease and pay for.
• The driver cannot send someone else to do the shift.
• You decide the routes, customers and how work is done.
• The driver gets paid holiday or sick pay.

Practical signs that a driver is self-employed

• The driver sends you invoices for the work done.
• The driver uses their own licensed vehicle and pays their own costs.
• The driver can turn work down or send a substitute.
• The driver looks after their own tax and National Insurance.

If you are unsure, ask your accountant before the first shift. Fixing a wrong status after the event can mean back-payments of tax and National Insurance.

How do I register as an employer with HMRC?

Register online on GOV.UK before your first payday, and no earlier than two months before you start paying staff. Most limited companies with one to nine directors can use the online service. HMRC then posts your employer PAYE reference in a letter, so start well before the payday you need.

According to HMRC's guidance on registering as an employer, you cannot register more than two months before you start paying people. If you must pay before your reference arrives, GOV.UK says you can run payroll, store the submission and send a late FPS afterwards. Do not rely on this as a habit.

What you will have after registering

You receive an Employer PAYE reference, which identifies your payroll with HMRC. You also receive an Accounts Office reference, which you quote when paying HMRC what you owe. Keep both safe, because payroll software and payment portals ask for them. Registration itself is free.

What are the steps to set up payroll for the first time?

Follow six steps: register as an employer, choose payroll software, collect employee details, tell HMRC about the employee, run the first payroll by payday and pay HMRC what you owe. GOV.UK sets out the same core sequence for new employers. The steps below add the detail drivers need.

1. Confirm who is an employee. List yourself as a director and any driver who passes the status checks above.
2. Register as an employer on GOV.UK and wait for your PAYE and Accounts Office references.
3. Choose payroll software that files RTI submissions, or hire a payroll provider. You stay legally responsible either way.
4. Collect details for each employee: full name, address, date of birth, National Insurance number and start date. Get a P45 or a starter checklist to work out their tax code.
5. Set your pay schedule, such as monthly on the 28th, and enter each person into the software.
6. Run the payroll, produce payslips and send the FPS to HMRC on or before payday.
7. Send an Employer Payment Summary (EPS) if you need it, then pay HMRC by the 22nd of the following tax month.
8. Check pension duties, then keep records and prepare the year-end tasks.

Which payroll software or provider should I choose?

Choose software that files Real Time Information (RTI) returns to HMRC, or pay a bureau or accountant to run it for you. HMRC says you remain legally responsible for every PAYE task even if someone else does the work. Pick a tool that matches how many people you pay.

Whichever route you choose, check that it produces payslips, calculates employer National Insurance, holds pension data and lets you file an EPS. Ask whether it handles Scottish income tax if you or your driver live in Scotland, because those rates differ from the rest of the UK. Our payroll team covers all of this for a fixed fee.

What is RTI and when do I send an FPS?

Real Time Information means reporting pay and deductions to HMRC each time you pay someone. You send a Full Payment Submission (FPS) on or before payday, even if you pay HMRC quarterly. Your payroll software normally sends it at the click of a button.

According to HMRC's guidance on reporting to HMRC, you report the usual payday date even if the money leaves early or late because of a weekend or bank holiday. After the FPS, HMRC shows what you owe in your online account from the 10th of the next tax month. You then have until the 19th to send an EPS and until the 22nd to pay.

FPS and EPS in plain English

• FPS: what you paid each person and what you deducted. Sent every payday.
• EPS: adjustments such as Employment Allowance claims or statutory pay recovery. Sent by the 19th when needed.
• Corrections: if you spot a mistake, send a corrected FPS as soon as possible.

What are the current National Insurance and pay figures?

For 2026/27, GOV.UK lists the employer secondary threshold at £5,000 a year and the employer rate at 15% above it. The employee primary threshold is £12,570 a year, with an 8% rate above it up to £50,270. The National Living Wage for those aged 21 and over is £12.71 an hour.

The figures come from HMRC's rates and thresholds for employers 2026 to 2027. Rates and thresholds change, so check the page before each new tax year begins on 6 April. Use our tax calculator to test how a salary affects your personal position.

What is a sensible salary for a director-driver?

There is no single right answer, because it depends on your other income and goals. Many owner-drivers pick a salary around the personal allowance so they pay no Income Tax and no employee National Insurance. That still builds State Pension credit if pay reaches the lower earnings limit. Ask an accountant to model your figures.

A salary above £5,000 triggers employer National Insurance at 15% on the excess, unless Employment Allowance applies. That cost is a company expense, so it lowers corporation tax as well. Car costs are a separate topic, and our guide on mileage allowance for limited company drivers explains how to reclaim them properly.

Who qualifies for Employment Allowance?

Most small employers can claim Employment Allowance, worth up to £10,500 off employer Class 1 National Insurance in 2026/27. One rule catches owner-drivers out. If your company has only one director, that director must not be the only employee liable for secondary Class 1 National Insurance.

According to HMRC's Employment Allowance eligibility rules, the allowance also excludes workers caught by the off-payroll (IR35) rules and most domestic employees. Only one company in a connected group can claim it. Hiring a second driver on payroll can make a one-director company eligible, because the director is no longer the only employee.

You claim through your payroll software, normally with an EPS. Check the eligibility page each year, since conditions can change.

Do I have to enrol staff in a workplace pension?

If you employ a driver, probably yes. You must enrol staff aged between 22 and State Pension age who earn at least £10,000 a year and normally work in the UK. You must also tell them in writing. A director with no other staff usually has no duties.

The Pensions Regulator explains in its guidance on directors and automatic enrolment that a company with one director who holds an employment contract and no other staff is not an employer for these purposes. If circumstances change, for example you hire someone, you must tell the Regulator as soon as possible. GOV.UK currently shows the minimum total contribution as 8%, of which the employer pays at least 3%, on earnings between £6,240 and £50,270.

What documents must I give employees?

Give every employee a payslip on or before payday, a P45 when they leave and a P60 by 31 May after each tax year. Payslips can be on paper or electronic. They must show gross pay, net pay and variable deductions such as tax.

• Payslip: each payday, showing gross and net pay and deductions.
• P45: when someone leaves, showing pay and tax to date and their tax code.
• P60: by 31 May, for everyone on the payroll on 5 April, summarising the year.
• Starter details: collected at the start so the tax code is right.

GOV.UK also expects you to keep payroll records for three years from the end of the tax year they relate to. If your records are inadequate, HMRC may estimate what you owe and charge a penalty of up to £3,000. Good habits from our guide to mileage logs and bookkeeping records apply here too.

What are the deadlines and penalties for late payroll?

Send the FPS on or before payday and pay HMRC by the 22nd of the following tax month, or the 19th if paying by post. HMRC can charge penalties for late filing and late payment. Interest also builds daily on overdue payments, so late payment gets expensive quickly.

According to HMRC's compliance handbook on RTI penalties, the late filing charge is £100 a month for employers with one to nine employees. HMRC does not charge for the first tax month in a tax year in which you file late, and new employers get a 30-day grace period. A further penalty can apply if returns stay outstanding for three months.

Keep a calendar of each date, alongside the wider deadlines in our list of key tax dates for Uber drivers.

How much does payroll cost for a director and a driver?

Illustrative example. A limited company owner-driver, Driver A, pays herself £12,570 a year and hires a second driver on £27,000 a year for 40 hours a week. The figures below use 2026/27 rates from GOV.UK and ignore income tax, which depends on tax codes and your region.

• Director salary £12,570: employee National Insurance £0, because pay equals the £12,570 primary threshold. Employer National Insurance is (£12,570 minus £5,000) at 15%, which is £1,135.50.
• Second driver £27,000: employee National Insurance is (£27,000 minus £12,570) at 8%, which is £1,154.40. Employer National Insurance is (£27,000 minus £5,000) at 15%, which is £3,300.
• Employer National Insurance before allowance: £1,135.50 plus £3,300, which is £4,435.50 in total.
• Employment Allowance: with two employees, the company may qualify, so the £4,435.50 could fall to £0 if all the conditions are met.
• Pension for the second driver: 3% employer on earnings between £6,240 and £50,270, which is £20,760 at 3%, or £622.80. The driver contributes 5%, or £1,038.
• Minimum wage check: £27,000 across 2,080 hours (40 hours for 52 weeks) is about £12.98 an hour, above the £12.71 rate for those aged 21 and over.

These numbers are invented to show the method. Your own salary, hours, tax codes and eligibility will differ, so run your real figures before you commit to hiring.

What are the common payroll mistakes and the penalty each triggers?

The most common mistakes are missing the FPS, registering too late, misclassifying a driver and skipping pension duties. Each one carries a cost, from late filing charges to back-payments of tax and National Insurance. Most are cheap to avoid if you set up a routine early.

• Filing the FPS late: HMRC late filing penalty, starting at £100 a month for one to nine employees after the first-month exemption.
• Paying HMRC late: late payment penalties plus daily interest on the balance.
• Poor payroll records: HMRC may estimate what you owe and charge up to £3,000.
• Treating an employee as self-employed: back-dated tax and National Insurance, and possible penalties. Check the position on GOV.UK.
• Ignoring pension duties: The Pensions Regulator can issue fines. Check current penalty levels on its website.
• Claiming Employment Allowance when you are not eligible: HMRC can withdraw the claim and charge the National Insurance back.

Key terms

• PAYE: Pay As You Earn, the system for deducting Income Tax and National Insurance from pay.
• RTI: Real Time Information, the requirement to report pay to HMRC each payday.
• FPS: Full Payment Submission, the report of what you paid and deducted.
• EPS: Employer Payment Summary, used for adjustments and allowances.
• NIC: National Insurance contributions.
• IR35: the off-payroll working rules for contractors.
• Employment Allowance: a reduction in employer Class 1 National Insurance.

How Uber Driver Accountant helps

We work only with drivers and charge fixed fees from £20 a month, and we are independent of Uber and Bolt. Our payroll service registers you as an employer, runs each pay cycle, files the FPS and produces payslips and P60s.

If you are moving to a company, see our limited company service. If you manage several vehicles or drivers, our fleet accounts service fits better. You can compare prices on our pricing page.

Conclusion

Setting up PAYE properly comes down to a short routine: register before the first payday, choose software, report on or before every payday and pay HMRC by the 22nd. Add pension duties the moment a second driver joins. If you want it handled for you, contact us for a fixed-fee quote.

Last reviewed 21 September 2026 by the Uber Driver Accountant tax team.

This article is general information and is not personal tax advice. Speak to a qualified accountant about your own situation. If HMRC raises a dispute or a penalty, professional representation is recommended.