A professional, non-advisor blueprint for understanding PAYE, registering for payroll, avoiding compliance errors, and calculating the true cost of hire in 2026/27.
Payroll is the administrative subsystem your business uses to declare employee wages, calculate mandatory retentions, pay your staff, and report financial summaries directly to Her Majesty's Revenue and Customs (HMRC).
In the United Kingdom, payroll operates predominantly through the Pay As You Earn (PAYE) system. Under PAYE, employers act as tax collection agents for HMRC. Rather than employees receiving their gross nominal wages and settling taxes at the year-end, the employer extracts deductions directly from the paycheck.
The base salary, hourly pay, overtime, and bonuses before any tax, National Insurance, or pension retentions are assessed.
The physical cash paid into the employee's bank account after all deductions have been subtracted.
Class 1 National Insurance paid directly by you as the employer. Under current 2026/27 rules, this is 15% of earnings above £5,000 annually.
The mandatory workplace pension scheme. Employers must contribute at least 3% of qualifying earnings (£6,240 to £50,270) for eligible staff.
You must register for PAYE with HMRC before you run your first payroll execution. Registration is mandatory if any of your staff (including yourself as a company director) meet the following criteria:
Registration is executed entirely online via the official GOV.UK portal. Limited companies require their UTR (Unique Taxpayer Reference) and company registration number.
HMRC typically takes up to 15 working days to issue your Employer PAYE Reference number and Accounts Office Reference number. You cannot register more than 2 months in advance of paydays.
You must run the calculations and submit an RTS (Real-Time Information) report on or before the very first day you physically transfer funds to employees.
UK business owners utilize five main operational configurations to execute their PAYE duties:
Maintaining payroll compliance demands adherence to two major reporting types submitted through authorized Software:
Full Payment Submission (FPS): Sent on or before every single pay event. Details basic employee identities, gross pay, tax deductions, qualifying auto-enrolment details, and year-to-date figures.
Employer Payment Summary (EPS): Submitted by the 19th of the following tax month. Best utilized if you have no employees to report on a given period, reclaim statutory maternity/paternity pay, or claim the £10,500 Employment Allowance.
Generated immediately when an employee terminates contract. Confirms details of current-year pay, tax deductions, and tax code to their subsequent employer.
Must be issued to all active employees by May 31st following the tax year-end. Establishes final gross pay, tax code, and exact tax paid of that year.
Required if you provide staff with non-cash perks (company cars, private medical coverage, custom interest-free loans). Due to HMRC by July 6th.
Use our premium, fully-fledged **Employer Payroll Modeller** to mock up total expenditures, apply the Employment Allowance, simulate multiple pension contribution rates, and manage NI categories for unlimited team members.
Launch Team Modeller →This layout is strictly informative and is for estimation purposes only. It is not financial or accounting advice.
Calculate your true, total business expense (base salary + employer NI + employer pension) in real-time.
Secondary threshold: £5,000
Banded limits: £6,240 to £50,270
Base Pay
Employer NI
Pension