Hiring employees is an important step for many growing businesses, but it also creates additional financial and reporting responsibilities. UK employers need to operate payroll correctly so that employees are paid accurately and the appropriate information is reported to HM Revenue & Customs.
PAYE, or Pay As You Earn, is the system employers normally use to deduct Income Tax and National Insurance from employee wages. Payroll software generally calculates the appropriate deductions using information such as the employee’s earnings and tax code.
Before paying employees, businesses normally need to ensure they are correctly registered as an employer with HMRC and have suitable payroll software in place.
Payroll records typically contain information about employees’ gross pay, Income Tax, National Insurance contributions, pension contributions, student loan deductions and other relevant payments or deductions.
Whenever employees are paid, employers generally need to report the payroll information to HMRC using a Full Payment Submission, commonly known as an FPS. HMRC requires the FPS to be submitted on or before the employee’s payday.
Employers may also need to submit an Employer Payment Summary, or EPS, in certain circumstances. This may be used when claiming specific reductions, reporting periods in which no employees were paid or dealing with other qualifying payroll adjustments.
Payroll also includes responsibility for paying amounts owed to HMRC. Employers normally pay PAYE and National Insurance electronically by the 22nd of the following tax month, while different timing applies to payments made by post.
Businesses should also make sure employees receive appropriate payslips showing their pay and relevant deductions. Payroll records need to be maintained carefully because incorrect information can affect employees as well as the employer’s HMRC account.
For the 2026–27 tax year, the standard Personal Allowance remains £12,570, although an individual’s tax position depends on their tax code and circumstances.
Employers also need to consider National Insurance. Different National Insurance categories and thresholds can apply depending on the employee’s circumstances.
Workplace pension responsibilities should also be incorporated into the payroll process where applicable. Pension contributions may need to be calculated and deducted before being passed to the relevant pension provider.
Businesses should also monitor statutory payments, holidays and changes in employee circumstances. New starters, employees leaving the business, changes in salary and tax code updates can all affect payroll calculations.
One of the most common payroll problems for small businesses is leaving payroll administration until the last moment. Because HMRC reporting generally takes place on or before payday, payroll records should be reviewed before employees are paid.
Good payroll management also supports accurate business accounts. Salary costs, employer National Insurance and pension contributions can represent significant business expenses and should be correctly reflected in your bookkeeping.
Outsourcing payroll can be useful for businesses that do not want to manage changing tax codes, statutory payments, pension calculations and HMRC reporting internally.
At EasyFig, we help UK businesses manage payroll calculations, employee records and HMRC payroll reporting so business owners can focus on running their companies.
Need reliable payroll support? Book a free consultation with EasyFig today.