What Is a PAYE Scheme? A Plain-English Guide

Pay As You Earn is the system through which UK employers collect income tax and National Insurance contributions from employee wages before those wages are paid out. Every UK employer operating the system holds a PAYE scheme: a registered arrangement with HMRC that gives the business two unique reference numbers and places it inside the Real Time Information reporting framework [1]. As of April 2026, that framework connects 30.2 million payrolled employees to HMRC through Full Payment Submissions sent on or before every payday [2].

Understanding what a PAYE scheme is, what it contains, and how it operates month to month is the starting point for any employer taking on staff or moving payroll in-house for the first time. Employers looking for UK payroll software that manages the scheme automatically will find the product pages useful context alongside this explainer.

Key takeaways

• A PAYE scheme is the registered relationship between an employer and HMRC through which income tax and National Insurance are collected, calculated and reported.
• Every scheme carries two reference numbers: the Employer PAYE Reference and the Accounts Office Reference.
• Employers must file a Full Payment Submission on or before every payday under Real Time Information.
• The PAYE tax month runs from the 6th of one month to the 5th of the next; HMRC payment is due by the 22nd.
• A single employer may hold more than one PAYE scheme if the business operates separate payrolls.

What a PAYE scheme contains

At its core, a PAYE scheme is the formal record HMRC maintains for each employer in the Pay As You Earn system. It stores the employer's registered details, the reference numbers that identify the scheme, a log of every Full Payment Submission and Employer Payment Summary received, and a running balance of PAYE liabilities against payments made [1].

The scheme does not hold money. It is an accounting record. HMRC uses it to calculate what the employer owes each tax month, to match FPS submissions against payments received, and to flag discrepancies for review. The employer runs payroll software, which interacts with the scheme through RTI submissions; the PAYE scheme is HMRC's side of that conversation [3].

The two reference numbers

Every PAYE scheme is identified by two reference numbers, both issued by HMRC when the employer registers [4].

The Employer PAYE Reference consists of a three-digit tax office code, a forward slash, and a tax office employer reference [4]. The Accounts Office Reference is always 13 characters: three digits, the letters PA, and eight further digits [5]. Both are included in the confirmation letter HMRC sends after registration and must be entered into payroll software before the first FPS is filed.

How a PAYE scheme operates month to month

The PAYE tax month runs from the 6th of one calendar month to the 5th of the next [3]. Every obligation within the scheme flows from this cycle.

The FPS is the core RTI document [6]. A detailed breakdown of when and how to file the FPS, EPS and year-end returns is set out in the guide to running PAYE payroll. The FPS reports every employee paid in the period: gross pay, income tax deducted, employee and employer National Insurance contributions, student loan deductions, and any statutory payments made. The Employer Payment Summary is a supplementary return submitted to claim reductions on the liability: statutory pay recoveries, Employment Allowance, CIS deductions for limited companies, and Apprenticeship Levy declarations [7].

An employer who pays no employees in a given tax month must still submit a nil EPS to tell HMRC that no FPS is due for that period. Without that submission, HMRC may issue a late-filing notice and estimate the PAYE owed [7].

What the PAYE scheme covers

A single PAYE scheme covers all the deductions an employer must calculate and remit on behalf of their workers. In the 2026-27 tax year, those deductions include the following.

Sources: HMRC NI Guidance for Software Developers 2026-27 [8]; HMRC PAYE Tax Table Routines Version 24.0 [9]; HMRC Student Loans guidance 2026-27 [10]; HMRC Apprenticeship Levy guidance [11].

The scheme does not directly cover statutory pay such as Statutory Maternity Pay or Statutory Sick Pay. Those are paid out by the employer and then recovered, wholly or partially, through the EPS.

Who manages the PAYE scheme

The legal obligation to operate a PAYE scheme sits with the employer, regardless of who handles the day-to-day payroll administration. Many businesses delegate payroll running to a bureau or accountant. When a bureau acts on the employer's behalf, it uses the employer's two reference numbers, submits FPS and EPS returns under agent credentials, and makes HMRC payments on a schedule agreed with the employer [1].

The employer retains legal liability for late or incorrect submissions even when a bureau is engaged. If a bureau misses the 19th EPS deadline, it is the employer who receives the penalty notice. Payroll bureau software built for multi-client environments handles this through an agent-level architecture that maintains each employer's scheme data separately and flags upcoming deadlines per scheme.

When one employer holds more than one PAYE scheme

Some businesses find it practical to operate more than one PAYE scheme. Common reasons include running separate weekly and monthly payrolls, or acquiring another business that already holds its own PAYE references. HMRC permits multiple schemes per employer, and each scheme is managed independently within the RTI framework, with its own FPS schedule, its own EPS cycle and its own HMRC payment deadline [3].

For enterprise payroll operations managing several schemes across multiple legal entities, a payroll engine accessed via API can maintain scheme separation at the data level while producing consolidated reporting across all schemes from a single integration.

HMRC recognition and payroll software

Any payroll software interacting with a PAYE scheme must hold HMRC recognition [6]. Recognition confirms that the software can produce FPS and EPS submissions in the format HMRC's RTI gateway accepts, apply the correct rates and thresholds for the current tax year, and handle edge cases such as directors' annual NI calculations, Week 53 pay periods and emergency tax codes. HMRC recognition is the baseline criterion for any payroll product in the UK, not a differentiator between them.

For platforms embedding payroll into a wider product, the HMRC-recognised payroll API from Moonworkers exposes every PAYE scheme operation, from FPS transmission to statutory pay calculation, through a REST interface. The API is designed so that HR systems, ERP platforms and accounting tools can embed full UK payroll compliance without their users ever leaving the host product.

Conclusion

A PAYE scheme is the structural backbone of UK employment taxation. It is the record through which an employer reports every payment to every employee, collects the income tax and National Insurance those employees owe, and remits them to HMRC on a fixed monthly schedule. The scheme itself is simple to open and straightforward to maintain when the supporting software handles RTI submissions automatically. The discipline it imposes is non-negotiable under Real Time Information, and HMRC has near-immediate visibility of every gap. For any employer, bureau or platform working inside the UK payroll system, the PAYE scheme is where every transaction begins.

Frequently asked questions

What is the difference between a PAYE scheme and a payroll?

A payroll is the process of calculating and paying employee wages and deductions. A PAYE scheme is the registered relationship with HMRC that authorises the employer to report those payments through Real Time Information and that gives the employer the reference numbers to do so [1]. Every employer that runs a payroll with earnings at or above the Lower Earnings Limit of £129 per week is required to operate that payroll through a registered PAYE scheme [8]. The step-by-step process for opening a scheme is covered in the guide to PAYE registration for employers.

Can an accountant or payroll bureau manage a PAYE scheme on behalf of an employer?

Yes. An accountant or payroll bureau can be authorised to file FPS and EPS returns and to manage PAYE payments on the employer's behalf. The employer retains legal responsibility for the scheme; the bureau acts as agent [1]. The employer's two reference numbers remain attached to the employer rather than to the bureau. If the employer switches bureau, the same PAYE references carry over to the new provider or back to the employer.

How many PAYE schemes can one employer hold?

An employer can hold more than one PAYE scheme if the business runs separate payrolls or has acquired another business with its own scheme references. Each scheme is managed independently with its own Employer PAYE Reference, its own Accounts Office Reference, its own FPS submissions and its own HMRC payment schedule [3].

What happens to a PAYE scheme when the last employee leaves?

When the last employee leaves, the employer should file a final EPS marked as the last return for the tax year and notify HMRC that the scheme is no longer active. Until that notification is received, HMRC will continue to expect monthly FPS or nil EPS submissions. An open scheme with no submissions received for 120 days may be closed by HMRC automatically, which can create complications if the employer later takes on new staff and attempts to file under the same references [6].