When Employees Operate PAYE on Their Own Income

Introduction

In certain unusual circumstances, employees need to set up their own PAYE scheme to deduct tax and National Insurance from their employment income. This happens when there's either no Income Tax liability or no employer's National Insurance liability. Separately, employers can sometimes operate PAYE on only a proportion of an employee's earnings when that employee has income both inside and outside the UK.

When employees must run their own PAYE

There are specific situations where an employee becomes responsible for operating PAYE themselves. This occurs when Class 1 National Insurance contributions are payable but there is either no PAYE Income Tax liability or no secondary (employer's share) National Insurance liability.

Types of employee PAYE schemes

There are three types of schemes an employee can set up:

Direct Collection (employee only NICs) - Used when only primary Class 1 National Insurance is due, with no Income Tax liability.

Direct Collection (Income Tax only) - Used when only Income Tax deduction is due, with no National Insurance liability.

Direct Payment (Income Tax and NICs) - Used when both primary National Insurance and PAYE Income Tax are due through direct payment.

How to register as an employee

If you need to operate PAYE on your own employment income, you must register by phone or post. Contact HMRC's employer enquiries line, and they will arrange for someone to call you back to help you register.

Reporting requirements

When you send a Full Payment Submission (FPS) where earnings are subject to NICs only, you must:

• Report the 'Gross earnings for NICs in this period' and all appropriate NICs data
• Enter zeros in the 'Taxable pay' and associated tax fields
• Enter code NT in the 'Tax code' field (this is mandatory even though no tax is being deducted)

If you make a mistake and include details in the taxable pay and tax fields, you should correct the error by entering zeros in these fields on your next FPS.

Operating PAYE on a proportion of an employee's income

Employers can notify HMRC that they will only operate PAYE on the proportion of an employee's income earned within the UK. This notification was previously known as a 'section 690'.

Who is eligible

You can send a notification for an employee who during the current tax year (2025/26) is, or is likely to be:

• A non-UK resident
• A UK resident and eligible for split year treatment, with overseas earnings in the overseas part of the split year
• Treated as a non-resident in the UK for the purposes of applying a Double Taxation Agreement
• A UK resident eligible for Overseas Workday Relief

Overseas Workday Relief explained

Overseas Workday Relief (OWR) is a special tax relief for certain employees coming to work in the UK. An employee is eligible for OWR in a tax year if they are a qualifying new resident in that tax year.

An employee is a qualifying new resident if all of the following apply:

• They're UK resident in the tax year
• They've been non-UK resident for a continuous period of at least 10 tax years immediately prior to that tax year
• They're not disqualified for the tax year

An employee who is a qualifying new resident can remain so for up to 4 tax years (the first year plus the following 3-year period in which they remain UK resident).

When to send notifications

New notification each tax year - You must send a notification for each tax year the employee is eligible. For example, if an employee is eligible for tax year 2027/28, you must send a new notification on or after 6 April 2027.

Further notifications during the same year - If you've already sent a notification for the current tax year, you must send a further notification if the employee's circumstances change. This includes situations where the proportion specified is no longer correct or their residence position changes.

If you send a notification during the current tax year, the adjustment can be applied to all the employee's earnings within that tax year.

What information you'll need

To complete the notification about the employee, you'll need:

• Name
• National Insurance number (if they have one)
• Date of birth
• Address
• Residence status
• PAYE payroll ID (employee works number, if they've been added to payroll)

You must include a reasonable estimate of the proportion of the employee's earnings that is not likely to be PAYE income. For qualifying new residents claiming Overseas Workday Relief, this estimate is limited to 30%.

You'll also need:

• The employer's PAYE reference number
• The date the employer will make the first Full Payment Submission (if the employee hasn't been added to payroll)
• Confirmation if the employee is seconded to work in the UK
• Confirmation if any previous notifications have been made in the tax year for this employee
• For employees expected to claim Overseas Workday Relief, how many previous years the employer has operated PAYE on a proportion of earnings, if any

How to send a notification

You need a Government Gateway user ID and password to submit the notification online. If you don't have one, you can create it when you first register.

If you're an unauthorised agent, you'll need to upload proof that you're authorised to complete the form on behalf of the employer. This means uploading a 64-8 form or a letter of authority from the employer.

What happens after you submit

Once you complete the online form, HMRC will confirm receipt of your notification. This confirmation allows you to operate PAYE on a proportion of the employee's income immediately.

You'll receive a confirmation email with a reference number for the notification, and you can save your completed form as a PDF file.

The employee will need to complete a Self Assessment tax return at the end of the tax year to finalise their tax position.

Sources

• Tell HMRC that you'll operate PAYE on a proportion of an employee's income
• When and how an employee operates PAYE on their employment income

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.