Running payroll correctly is one of the most important legal obligations of any UK employer. Understanding the rules protects your business, your employees, and your relationship with HMRC.
KEY TAKEAWAYS
- Every UK employer must run payroll before paying wages including paying yourself through a limited company.
- PAYE (Pay As You Earn), National Insurance, student loan and pension deductions must be calculated correctly every pay period.
- A Full Payment Submission (FPS) must be sent to HMRC on or before each pay date not after.
- HMRC’s Real Time Information (RTI) system means mistakes are flagged immediately accuracy is essential.
- Payroll software approved by HMRC automates the most complex calculations and reduces error risk dramatically.
- Using a qualified accountant for payroll adds an expert layer of oversight and opens up tax optimisation opportunities.
What is Payroll?
The word ‘payroll’ means a list of a company’s employees and the amounts they are to be paid. But in practice, running payroll means far more than simply listing salaries. It is the monthly (or weekly) procedure that calculates and deducts each employee’s Income Tax under Pay As You Earn (PAYE), their National Insurance contributions, pension deductions, and any other statutory or voluntary deductions — before the net pay reaches the employee’s bank account.
If these deductions are not made correctly, or if HMRC is not paid on time, it is the employer who bears responsibility. The penalties for errors range from fixed fines to interest charges, and in cases of persistent non-compliance, HMRC can take more serious enforcement action.
Everything You Need to Know About Payroll (2026/27 UK Guide)
Running payroll manually is not only time-consuming but can also expose your business to significant compliance risks. Employers must comply with HMRC regulations covering PAYE, National Insurance, workplace pensions, Real Time Information (RTI) reporting and statutory payments. Errors can result in penalties, interest charges and unnecessary administrative burdens.
Below is an overview of the key payroll responsibilities every UK employer should understand.
Your Core Payroll Obligations
- Deduct PAYE Income Tax
Apply each employee’s tax code to calculate the correct amount of Income Tax to deduct from their gross pay under the Pay As You Earn (PAYE) system.
- Deduct National Insurance Contributions
Calculate employee and employer National Insurance contributions using the current HMRC rates and thresholds.
For the 2026/27 tax year:
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- Employee National Insurance is generally charged at 8% on qualifying earnings.
- Employer National Insurance is generally charged at 15% above the applicable secondary threshold.
Both employee and employer contributions must be reported and paid to HMRC.
- Student Loan Repayments
If instructed by HMRC, deduct student loan repayments through payroll.
Repayments may apply under:
-
- Plan 1
- Plan 2
- Plan 4
- Plan 5
- Postgraduate Loan
The applicable repayment plan must be recorded correctly within payroll records and reflected on the employee’s payslip.
- Pension Contributions (Auto-Enrolment)
Eligible employees must be automatically enrolled into a qualifying workplace pension scheme.
Under current auto-enrolment rules:
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- Minimum total contributions are generally 8% of qualifying earnings.
- Employers must contribute at least 3%.
Employers are responsible for assessing employee eligibility, maintaining records and making contributions on time.
- Issue Payslips
Every employee must receive an itemised payslip on or before their pay date.
If employees are paid weekly, payslips must be issued weekly. Failure to provide payslips can result in employment law disputes and compliance issues.
- Submit Full Payment Submission (FPS)
An FPS must be submitted to HMRC through Real Time Information (RTI) on or before each employee’s payday.
The FPS reports:
-
- Gross pay
- PAYE tax deductions
- National Insurance contributions
- Student loan deductions
- Statutory payments
- Pension information where applicable
- Submit Employer Payment Summary (EPS) When Required
An Employer Payment Summary (EPS) should be submitted where applicable, including situations where:
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- No employees were paid during a tax month
- Statutory payments are being reclaimed
- Employment Allowance is being claimed
An EPS is normally submitted by the 19th following the end of the relevant tax month.
- Pay PAYE and National Insurance to HMRC
Employers must pay PAYE Income Tax and National Insurance liabilities to HMRC by:
-
- 22nd of the following month (electronic payment)
- 19th of the following month (postal payment)
Late payments may result in penalties and interest charges.
- Maintain Payroll Records
Payroll records must be retained for at least three years after the end of the relevant tax year.
Records should include:
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- Employee details
- Payslips
- RTI submissions
- Tax and National Insurance calculations
- Pension records
- Statutory payment records
- Complete End-of-Year Payroll Obligations
At the end of each tax year, employers must:
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- Finalise payroll records
- Issue P60 forms to employees
- Submit P11D and P11D(b) forms where required
- Pay any Class 1A National Insurance on benefits-in-kind
Key deadlines include:
| Deadline | Requirement |
|---|---|
| 5 April | End of UK tax year |
| 31 May | Issue P60s to employees |
| 6 July | Submit P11D and P11D(b) forms |
| 22 July | Pay Class 1A National Insurance electronically |
Need Help Managing Payroll?
Many businesses choose to outsource payroll to ensure compliance, reduce administrative burden and avoid costly HMRC penalties. Professional payroll support can help ensure employees are paid accurately and on time while keeping your business compliant with changing legislation.
The Payroll process step by step
Understanding the complete payroll cycle is essential for any employer. The infographic below illustrates every step in the correct sequence from calculating gross pay to paying HMRC.
IMPORTANT: FPS Must Be Submitted On or Before Pay DateHMRC’s Real Time Information (RTI) system requires that your Full Payment Submission reaches HMRC on or before the date you pay your employees. Submitting late even by one day can trigger an automatic late filing notice and potential penalties. Configure your payroll software to submit the FPS as part of the payroll run, not as a separate step.
Everything you need to forget about Payroll
Since the beginning of the digital revolution, there have been companies dedicated to making payroll easier. Payroll is so involved and intricate that many providers dedicate their entire offering to this service alone.
The UK government maintains an official list of HMRC-recognised payroll software at gov.uk/payroll-software. Only software on this list has been properly validated for use in the UK using unaccredited tools introduces compliance risk.
Leading Payroll Software options
Modern payroll software handles the most complex calculations automatically — including tax code changes, NI thresholds, and RTI submissions. The most widely used options in the UK include:
- Xero Payroll: fully integrated with Xero’s accounting platform, ideal for businesses already using Xero for bookkeeping.
- QuickBooks Payroll: integrates payroll directly into the QuickBooks accounting ecosystem with automated RTI submissions.
- FreeAgent: designed specifically for freelancers and small businesses, with simple payroll built in.
- BrightPay: dedicated payroll-only software used by thousands of accountancy practices across the UK, integrating with Xero, QuickBooks, and FreeAgent.
- Sage Payroll: a long-established solution for businesses of all sizes, including complex multi-site payrolls.
Software Does Not Replace Human Oversight
Even the best payroll software will calculate incorrectly if it is given incorrect information. Employee tax codes change, new starters join mid-year, and statutory payments (SSP, SMP, SPP) require specific handling. Software automates the mathematics — a qualified person still needs to verify the inputs and review the outputs before submission.
Critical Payroll Deadlines
Missing payroll deadlines with HMRC is one of the most common and costly mistakes UK employers make. The infographic below summarises every key deadline in the payroll calendar.
Late Payment Penalties
HMRC charges automatic penalties for late PAYE payments. For employers with 1 to 9 employees, a single late payment in a tax year results in a 1% penalty on the amount owed. The percentage increases progressively for repeat offences — reaching 4% for four or more late payments in a year. Interest is charged on top of any penalty.
Hiring an Accountant to Run Your Payroll
Hiring an accountant to manage payroll makes sense even if you are a sole trader paying yourself a small director’s salary. The need is greater still for limited companies with employees, where the complexity of payroll increases with every person added to the team.
Even where payroll software handles the calculations automatically, having a qualified accountant oversee the process delivers significant additional value:
- Tax optimisation: a knowledgeable accountant will identify the most tax-efficient salary and dividend split for director-shareholders, minimising both Income Tax and National Insurance legitimately.
- Employer NI planning: structuring salaries to sit within optimal NI thresholds can produce meaningful savings for employers with multiple staff members.
- Error detection: a human reviewer catches input errors, stale tax codes, and incorrect classifications before they become FPS submissions to HMRC.
- Statutory payment handling: Statutory Sick Pay, Statutory Maternity Pay, Paternity Pay, and Shared Parental Pay all have specific calculation rules; accountants ensure these are handled correctly and claimed back from HMRC where applicable.
- Compliance reassurance: employment law and payroll legislation change regularly; a professional accountant keeps your payroll current with every legislative update.
Pearl Accountants Payroll Services
Pearl Accountants provides comprehensive managed payroll services for limited companies, sole traders, and businesses of all sizes across the UK. Our payroll team handles everything from FPS submissions and pension auto-enrolment to P60s and P11D benefits reporting giving you complete peace of mind that your payroll is accurate, on time, and fully compliant. Contact us on 020 8582 0076 to discuss a payroll package.
So, What Do You Need to Know About Running Payroll?
The most important thing you need to know about running payroll is that it is best handled using a combination of proper software and qualified human oversight. Neither alone is sufficient for most businesses.
Payroll software eliminates the most time-consuming and error-prone parts of the calculation process. But software does not understand your business, your employees’ individual circumstances, or the tax planning opportunities available to you. For those, you need a person — whether an in-house payroll manager or an external accountant.
The Ideal Payroll Strategy
The ideal approach for most UK businesses especially limited companies is a three-layer model:
- HMRC-accredited payroll software to automate calculations, RTI submissions, and payslip generation.
- A qualified accountant or payroll specialist to review outputs, handle exceptions, and ensure compliance.
- A clear payroll calendar so every deadline (FPS, PAYE payment, pension contribution, P60, P11D) is never missed.
This combination gives you the efficiency of automation, the assurance of professional oversight, and the protection of a documented compliance process.
