PAYE stands for Pay as You Earn and refers to HMRC’s system of collection of income tax and national social security contribution from wages. Register for PAYE as employee operates through employers’ payroll systems. Employes are required to deduct appropriate amounts based on employees’ tax codes and earnings and remit these deductions to HMRC.
For the year 2025, specific thresholds and rates apply, like the standard personal allowance set at £12,570 annually, with the basic tax rate at 20% up to earnings of £37,700, a higher rate at 40% for earnings from £37,701 to £125,140 and an additional tax rate of 45% for earnings above £125,140.
How PAYE works in the UK- A Step-by-Step Guide
- Employer Registration: Business should register with HMRC as employers. Once registered, they receive a PAYE reference number, essential for payroll processes.
- Employee Information: Employers need to collect necessary information from employees, including their National Insurance number, tax code. This information will help in determining the correct tax rate and allowances.
- Payroll set up: Employers can either set up payroll systems in-house or outsource this function. The system will calculate PAYE tax and National Insurance contributions accurately.
- Tax codes and Allowances: Every employee has a tax code assigned by HMRC, determining their tax-free personal allowance.
- Running payroll: During each pay period, the payroll system calculates the PAYE tax and National Insurance contributions by considering the employee’s earnings, tax code and National Insurance contributions and pension contributions.
How to Register for PAY?
Most limited company can register for PAYE online and quite quickly.
- Check how to register: Visit HMRC’s Register as an employer webpage, select start now, the answer ‘yes’ or ‘no’ to the following questions:
- Does at least one company director have a UK National Insurance number?
- Is the company an offshore employer outside the European Economic Area that doesn’t pay UK national Insurance?
- Create or sign in to your Government Gateway account: If employer can register online, select ‘continue/ and sign in to the company’s Government Gateway account.
- Add the ‘PAYE for Employers’ service to the account: Indicate registration as a limited company, then provide the company’s Unique Taxpayer Reference (UTR). This is sometimes referred to as a Corporation Tax UTR.
- Complete the PAYE registration form: complete the PAYE registration form which includes Company name, Trading name of the business, type of business etc.
- Finalise your PAYE enrolment: Within 15 days of registering for PAYE as employees, a letter will be received containing the employer PAYE reference and Accounts Office reference.
With a basic grasp of formulas and a bit of spreadsheet know-how, you can create a reliable tool to estimate what you owe—and maybe even spot ways to save. Here’s a straightforward, step-by-step guide to help you build one from scratch. You can use Excel, Google Sheets, or any other spreadsheet tool you’re comfortable with.
If you’re running a limited company in the UK, understanding Corporation Tax is crucial. But manually working it out every year? That can be a headache. The good news is, you don’t need to be a tax wizard to build your own Corporation Tax calculator.
Step 1: Gather Your Financial Figures
Before you can calculate anything, you need your net profit before tax figure. This comes from your profit and loss (P&L) account.
If you don’t have formal accounts yet, start with:
- Revenue (total income)
- Cost of sales (if applicable)
- Overheads (salaries, rent, utilities, etc.)
Subtract your total expenses from your revenue to get net profit.
Cell A1: “Revenue” Cell A2: “Expenses” Cell A3: Formula → =A1-A2 (This gives you Net Profit)
Step 2: Adjust for Non-Allowable Expenses
Some expenses aren’t tax-deductible (e.g. client entertainment, fines, depreciation). Add these back to your profit to get closer to your taxable profit.
Cell A4: “Non-allowable expenses” Cell A5: Formula → =A3+A4 (Adjusted Profit)
Step 3: Subtract Capital Allowances
HMRC doesn’t allow depreciation, but you can claim capital allowances for assets like computers, machinery, or office equipment. If your company qualifies for Full Expensing or the Annual Investment Allowance, you can deduct the full cost of these assets.
Cell A6: “Capital allowances” Cell A7: Formula → =A5-A6 (Taxable Profit)
Now, you have the Taxable Profit. This is the figure you’ll actually pay tax on.
Step 4: Apply the Correct Corporation Tax Rate
As of 2025, the UK has a tiered system:
- 19% on profits up to £50,000
- 25% on profits over £250,000
- Marginal Relief for profits between £50,000 and £250,000
Let’s code that in.
Cell A8: “Corporation Tax Owed”
In Cell A8, you’ll add a formula that does the following:
- If profit ≤ £50,000 → Apply 19%
- If profit ≥ £250,000 → Apply 25%
- Else → Use Marginal Relief
Here’s a sample formula in Excel syntax:
=IF(A7<=50000,A7*0.19,IF(A7>=250000,A7*0.25,(A7*0.25)-( ( (250000-A7)*(0.06) )/200000 )))
- The 0.06 comes from the difference between the 25% main rate and 19% small profits rate
- 200,000 is the difference between £250,000 and £50,000 (the thresholds)
The part in the middle gives you Marginal Relief. This is the reduced rate for companies that fall in the middle bracket.
Step 5: Add Flexibility
You may want to:
- Add input fields for associated companies, as thresholds are divided between them
- Include a field for losses carried forward or back, which can reduce your tax
- Create a section for R&D tax relief or other deductions
Each of these can be built in with extra rows and IF logic. Keep your layout tidy so it’s easy to update year after year.
Step 6: Test
Run your calculator using sample numbers:
- Revenue: £200,000
- Expenses: £100,000
- Non-allowable expenses: £5,000
- Capital Allowances: £10,000
Taxable profit should be £95,000. Using the formula, it should apply marginal relief and give you the right tax owed. Compare this against an online Corporation Tax calculator to confirm your numbers match.
