As an employer in the UK, one of your legal duties is registering with HMRC and obtaining a PAYE reference number.
But what exactly is a PAYE reference number and why is it so important? This guide will explain everything you need to know.
What is a PAYE Reference Number?
A PAYE (Pay As You Earn) reference number is a unique identifier that HMRC assigns to every employer. It’s an 8 digit number in the format of 3 digits, a slash, and 4 digits (e.g. 123/ABCD).
Your PAYE reference number is a crucial part of reporting your payroll information to HMRC. It links your business to its PAYE scheme and is required for carrying out Real Time Information reporting. Think of it as your employer payroll ID number.
Who Needs a PAYE Reference Number?
If you employ anyone in the UK, you legally must register for PAYE and obtain a reference number. This includes:
- Sole traders
- Limited companies
- Contractors and freelancers who hire other workers
- Charities, clubs, and associations with employees
Even if you only have one part-time employee, you still require a PAYE reference number to become an official employer.
How to Get Your PAYE Reference Number
Applying for a new PAYE reference number is straightforward:
- Register as an employer with HMRC. You can do this up to 4 weeks before your first payday.
- Provide details about your business and payroll. This includes your company address, nature of business, pay frequency, number of employees etc.
- HMRC will send you an activation code by post within a few days.
- Activate your online PAYE account using this code.
- HMRC will then provide your PAYE reference number. This will also be sent by post for your records.
Once you have your PAYE reference number, you can officially start running payroll!
Understanding Your PAYE Reference Number
PAYE reference numbers follow a specific format that tells you more about the employer it’s assigned to:
PAYE Reference Number Components
The first 3 digits are unique to your employer PAYE scheme. The letters indicate which HMRC office handles your PAYE. For example, AB = Aberdeen, BX = Birmingham, LD = Liverpool.
This helps HMRC identify not just the employer, but also where records are stored. The last digit is a check digit that validates the number.
Example of PAYE Reference number on P45 (Image Credit: Claim My Tax Back)
PAYE Reference Numbers and Real Time Information
As an employer, you must report your payroll in real time to HMRC. This is known as Real Time Information (RTI) reporting.
To submit RTI reports, you need both your PAYE reference number and Accounts Office reference number. This links the payroll data directly to your business.
RTI reporting is normally done each time you run payroll using payroll software. The process is:
- Enter payroll details (hours, pay, tax etc.) into software
- Generate RTI report
- Software submits report to HMRC using your reference numbers
This satisfies your legal obligations for PAYE record keeping and payments.
Frequently Asked Questions
1 – Do I need a new PAYE reference for each pay period?
No, your PAYE reference number stays the same indefinitely. You only need to apply once.
2 – I have multiple small businesses. Can I use one PAYE number for all?
No, you must obtain a separate PAYE reference number for each separate legal entity that employs workers.
3 – What happens if I lose my PAYE reference number?
You can find your PAYE number by logging into your HMRC online account. You can also recover it by contacting HMRC.
4 – Can I change my PAYE reference number?
No, HMRC will not allow you to change an existing PAYE number. The only way to get a new one is to set up a completely new PAYE scheme.
5 – What if I get the number wrong on payroll submissions?
Any RTI submissions with the wrong PAYE reference number will get rejected. You must resubmit using the correct reference number.
Where We Come In
Once you have set up your PAYE, another consideration is your payroll system as there are many on the market each with its own pros and cons.
Ultimately whatever system you choose it will need to be able to grow with your business, be able to interpret your pay related rules and pay against these correctly, submit your Real Time Information and other compliance related requirements.
If you are looking for advice on implementing a new payroll or HR system then get in touch. With our experience in helping both business owners and payroll teams, we can help you and your team take a step back and generate a detailed and pragmatic review on how they collect, pass and manage all elements of pay information.