How to Set Up Payroll Correctly: Bedford Accountants Reveal the Mistakes to Avoid

When I take on new clients, payroll is almost always one of the first areas I review. I have seen everything from directors using the wrong tax code to staff being paid outside of RTI, to businesses running payroll manually with no submissions at all. The problem is that payroll looks simple on the surface but is full of rules that must be followed precisely.

If payroll is set up wrong from day one it can affect everything: your tax, your PAYE account, your year end, your pension records and sometimes your mortgage applications. It is far easier to get payroll right from the start than it is to fix it later.

Below I explain how to set payroll up correctly and the mistakes you absolutely must avoid.

How to Set Up Payroll Correctly

1. Register as an employer

Before you pay yourself or staff, you must register as an employer with HMRC. Once registered HMRC will give you:

• A PAYE reference
• An Accounts Office reference

These two codes are essential. Without them you cannot submit payroll correctly. Many businesses delay registration and end up submitting late payroll, which triggers penalties instantly.

2. Choose the right payroll software

Payroll must be submitted via Real Time Information (RTI). This means you cannot simply pay someone and “sort it later”. You need payroll software such as:

• Xero Payroll
• QuickBooks
• BrightPay
• MoneySoft

This software calculates PAYE, NI, student loans, workplace pensions and sends the required submissions to HMRC. Using the wrong software or none at all is one of the biggest causes of payroll errors in Bedford.

3. Add your employees correctly

Employees must be added with:

• Full name
• Date of birth
• NI number
• Start date
• Correct tax code
• Salary or hourly rate

One of the most common mistakes I see is directors being added with the wrong tax code, usually the emergency code. This automatically takes too much tax and causes chaos later.

4. Set the correct pay schedule

Payroll must be consistent. HMRC expects:

• Weekly
• Monthly
• Four-weekly

You cannot randomly switch between these without telling HMRC. Choose a frequency and stick to it.

5. Submit payroll on or before payday

RTI submissions must be filed on or before the date you pay anyone. If you pay staff on the 28th, the submission must be made on the 28th or earlier.

If you pay someone and file later, HMRC records it as late and will issue penalties.

I have seen clients repeatedly pay themselves on one day then file payroll a week later, not realising they were causing recurring late submissions.

6. Enrol staff into a pension scheme

If you employ staff (not directors only), you must comply with auto enrolment rules. This includes:

• Setting up a qualifying pension
• Assessing staff every payroll
• Sending pension letters
• Making employer contributions
• Submitting pension data monthly

Many Bedford businesses skip this step without realising it is a legal requirement.

7. Pay PAYE and NI to HMRC on time

HMRC expects PAYE payments by:

• The 22nd of the following month (if paying electronically)
• The 19th if paying by cheque

Late payments lead to:

• Penalties
• Interest
• Escalating HMRC attention

I have seen businesses leave PAYE unpaid for months because they assumed it worked like corporation tax. It doesn’t.

8. Keep payroll records for 3 years

HMRC can request historical payroll data at any time. You must keep:

• Payslips
• RTI submissions
• Employee details
• Pension records
• PAYE calculations

Poor record-keeping is a major cause of HMRC disputes.

Common Payroll Mistakes Bedford Accountants See Every Year

After reviewing hundreds of payroll setups, these are the mistakes I see repeatedly.

Mistake 1: Putting directors on the wrong tax code

Many directors are added using the wrong tax code, often “BR” or “0T”. This deducts too much tax and messes up the year-end position.

Mistake 2: Not running payroll at all

Some directors pay themselves manually from the business bank account with no RTI submissions. This is non-compliant and causes massive problems later.

Mistake 3: Paying dividends instead of salary without understanding tax

I often see directors avoiding salary entirely and taking only dividends. This can cause:

• Loss of NI credits
• Higher personal tax
• Incorrect accounts
• Issues with mortgages and lenders

Salary and dividends must be balanced properly.

Mistake 4: Missing monthly RTI submissions

Even if you do not pay yourself in a month, you must still submit a “Nil EPS” to HMRC. Forgetting this causes penalties.

Mistake 5: No auto enrolment setup

Some Bedford businesses assume pensions do not apply to them. If you have eligible staff this is not optional.

Mistake 6: Paying PAYE late

Leaving PAYE unpaid for several months causes interest and penalties to stack up.

Mistake 7: DIY payroll with no understanding of HMRC rules

DIY payroll looks easy until something goes wrong. Then it becomes expensive to fix.

Why Setting Payroll Up Properly Matters So Much

Correct payroll affects:

• Your accounts
• Your corporation tax
• Your Director’s Loan Account
• Your NI contribution record
• Your mortgage applications
• Your HMRC compliance score
• Your staff morale

Payroll is not just numbers. It is a legal onboarding system that must be correct every month.

How Towerstone Helps Bedford Businesses Avoid Payroll Issues

At Towerstone we handle full payroll for many Bedford clients. Although we do not offer weekend or in person evening appointments, we do speak with clients in the early evenings where needed.

When we manage your payroll we:

• Set everything up correctly
• Register you with HMRC
• Choose the right software
• Add employees properly
• Run payroll and submit RTI
• Manage pensions
• Handle starter and leaver forms
• File year-end submissions
• Keep everything compliant

Clients often tell us they wish they had let us run payroll sooner because the admin and stress disappear overnight.

The Bottom Line for Bedford Employers

Setting up payroll correctly is not optional. It protects your business, keeps you compliant and prevents expensive mistakes. With the right accountant handling payroll from the start, you get peace of mind, smoother operations and a system that runs reliably every single month.