Running payroll seems simple — until you factor in PAYE, National Insurance, auto-enrolment pensions, Real Time Information submissions and holiday pay calculations. This guide covers everything you need to know to stay compliant.
What Is PAYE?
Pay As You Earn (PAYE) is HMRC’s system for collecting income tax and National Insurance from employees’ wages. As an employer, you deduct tax and NI from gross pay and pay it to HMRC, typically monthly.
💡 Key takeaway
Running payroll even one day late without RTI submission is a PAYE compliance failure — HMRC’s systems flag late returns automatically.
Real Time Information (RTI)
Since 2013, UK employers must report payroll information to HMRC on or before each payday using RTI-compatible software. This includes a Full Payment Submission (FPS) showing pay and deductions for each employee.
Auto-Enrolment Pension
Most UK employers must automatically enrol eligible employees into a workplace pension scheme. Eligible employees are aged 22–66 earning over £10,000 per year. The minimum contribution is 8% of qualifying earnings — at least 3% from the employer.
Common Payroll Mistakes
Late RTI submissions, incorrect National Insurance calculations, failure to auto-enrol eligible employees and not providing payslips are among the most common mistakes — all of which attract HMRC penalties. Using payroll software or a professional payroll service eliminates these risks.
Outsourcing Your Payroll
Many small business owners find that outsourcing payroll to a bookkeeper is more cost-effective than managing it in-house. Your bookkeeper handles all RTI submissions, pension management, payslips and PAYE payments — leaving you free to run your business.
Frequently Asked Questions
When do I need to register as an employer?
You must register with HMRC before the first payday. Registration can be done online and takes up to 2 weeks to process.
Do I need payroll software?
Yes — HMRC requires RTI submissions via approved payroll software. Popular options include Xero Payroll, QuickBooks Payroll and BrightPay.
How much does outsourced payroll cost?
For a small business with a small team, outsourced payroll can remove a lot of admin pressure and reduce the risk of handling payroll incorrectly.
