How to Do Payroll Yourself in the UK?

Running payroll means calculating employee pay, making the correct deductions, reporting information to HMRC and paying staff on time.

UK employers can manage payroll themselves, but they must use suitable payroll software and follow PAYE, National Insurance, workplace pension and employment law requirements.

For a small business with a limited number of employees, managing payroll internally can reduce accountancy costs.

However, the employer remains legally responsible for the accuracy of every calculation and submission, even when payroll software is used.

Can You Run Payroll Yourself in the UK?

Yes, company directors, sole traders and other employers can run their own payroll. An employer does not have to appoint an accountant or payroll bureau.

A sole trader can employ staff, provided the business meets its PAYE and employment responsibilities. Further information is available in this guide explaining whether sole traders can have employees.

Payroll may be manageable without professional help when the business has:

• A small number of employees
• Straightforward salaries or hourly wages
• One regular payday
• Limited overtime, bonuses or statutory payments
• Reliable payroll software

Professional assistance may be more suitable when employees have irregular working patterns, multiple pension arrangements, benefits in kind, attachment orders or complex statutory pay.

What Must Be Done Before Running Payroll?

Before the first payday, an employer needs to establish a compliant payroll system. Leaving registration until the last moment can delay PAYE references and prevent reports from being submitted correctly.

Register as an Employer

The business normally needs to register as an employer with HMRC before the first payday. This requirement can apply even when a limited company’s only employee is its director.

Once registration is completed, HMRC provides an employer PAYE reference and an Accounts Office reference. These details are needed to submit payroll information and allocate PAYE payments correctly.

Business owners who are uncertain about their wider registration responsibilities can review when a business needs to register with HMRC.

Choose Payroll Software

Payroll should be managed using software capable of reporting through HMRC’s Real Time Information system. The software should calculate deductions, generate payslips, maintain year-to-date records and submit Full Payment Submissions.

When comparing software, an employer should check whether it supports:

• PAYE and National Insurance calculations
• Workplace pension assessment
• Student and postgraduate loan deductions
• Statutory payments
• FPS and EPS submissions
• P45, P60 and payroll reporting

Some small employers may be able to use HMRC’s Basic PAYE Tools, while growing businesses may need commercial software that integrates with bookkeeping or pension systems. Options can be compared alongside free accounting software for small businesses.

What Employee Information Is Needed?

Accurate employee information is essential because it determines the tax code, National Insurance category and deductions applied through payroll.

A new employee should normally provide a P45 from their previous employment. If no P45 is available, the employer should obtain the information needed for a starter declaration.

The payroll record should include the employee’s:

• Full legal name, address and date of birth
• Gender as recorded for payroll purposes
• National Insurance number
• Employment start date
• Tax code and starter declaration
• National Insurance category
• Pay rate and contracted hours
• Student loan or postgraduate loan status
• Pension information
• Bank details for salary payments

Names and National Insurance numbers should be entered carefully. Incorrect information can create duplicate employment records or affect an employee’s tax and benefit history.

How Do You Process Payroll Step by Step?

A consistent payroll routine reduces errors and makes it easier to meet HMRC deadlines. The same checks should be completed during every weekly, fortnightly or monthly pay cycle.

1. Confirm the Pay Period

The employer should establish a fixed payroll schedule covering the pay period, cut-off date and payday. For example, a monthly payroll might include work completed from the first to the final day of the month, with payment made on the final working day.

A cut-off date gives the employer enough time to collect overtime, commission, absence and expense information before processing begins.

2. Calculate Gross Pay

Gross pay is the employee’s earnings before deductions. Depending on the employment agreement, it may include basic salary, hourly wages, overtime, commission, bonuses, holiday pay and other taxable payments.

For hourly employees, the basic calculation is:

Gross pay = Hours worked × Hourly rate

Pay must not fall below the applicable National Minimum Wage after deductions that count for minimum-wage purposes. From April 2026, the main hourly rates are £12.71 for workers aged 21 and over, £10.85 for those aged 18 to 20, and £8.00 for workers under 18 and eligible apprentices.

3. Enter Payroll Changes

Before calculating deductions, the employer should record any changes affecting the employee’s pay. These may include overtime, unpaid leave, sick leave, maternity leave, bonuses, salary increases, pension changes or a new tax code.

Changes received after the payroll cut-off may need to be included in the following pay period unless employment terms or statutory rules require an earlier adjustment.

4. Calculate PAYE and National Insurance

Payroll software uses the employee’s taxable pay and tax code to calculate Income Tax. It also applies the appropriate National Insurance category and thresholds.

For the 2026/27 tax year, the standard Personal Allowance remains £12,570. Standard employee National Insurance is generally charged at 8% on earnings between the primary threshold and upper earnings limit, followed by 2% above the upper limit.

Employers generally pay Class 1 secondary National Insurance at 15% on relevant earnings above the £5,000 annual secondary threshold. Different treatment may apply to certain employees, including workers under 21, qualifying apprentices and eligible veterans.

Employers should allow the software to perform these calculations instead of attempting to calculate deductions manually.

Which Other Deductions Must Be Included?

Income Tax and National Insurance are not the only amounts that may need to be deducted. Payroll software should be updated whenever the business receives a valid notice or an employee’s circumstances change.

Other deductions can include:

• Workplace pension contributions
• Student or postgraduate loan repayments
• Attachment of earnings orders
• Child maintenance deductions
• Salary sacrifice arrangements
• Authorised repayments or deductions

A deduction should not be taken simply because an employer believes money is owed. It must be permitted by law, required by a court or government notice, or authorised by the employee’s contract or written agreement.

What Are the Main Payroll Figures for 2026/27?

The following figures provide a general reference for payrolls covering 6 April 2026 to 5 April 2027:

Payroll Item	2026/27 Figure
Standard Personal Allowance	£12,570 a year
Employee NI primary threshold	£12,570 a year
Employee NI upper earnings limit	£50,270 a year
Standard employee NI rate	8%, then 2%
Employer NI secondary threshold	£5,000 a year
Standard employer NI rate	15%
Employment Allowance	Up to £10,500
Pension automatic-enrolment trigger	£10,000 a year
Qualifying earnings range	£6,240 to £50,270
Statutory Sick Pay	£123.25 a week

These figures can change between tax years. Payroll software should therefore be updated before processing the first payroll after 6 April.

How Should Workplace Pensions Be Managed?

An employer must assess eligible workers for automatic enrolment every time payroll is run. In 2026/27, a worker will generally qualify for automatic enrolment when aged between 22 and State Pension age and earning more than £10,000 a year.

Under the standard qualifying-earnings method, the total minimum pension contribution is normally 8%, including at least 3% from the employer. A pension scheme may instead use a different certified contribution basis.

Payroll software should calculate contributions and send the required information to the pension provider. Employers must also process valid opt-in and opt-out requests, maintain records and complete their declaration of compliance.

When Must Payroll Be Reported to HMRC?

The employer must send a Full Payment Submission to HMRC on or before the employee’s payday. The FPS reports each employee’s gross pay, deductions, net pay and year-to-date information.

An Employer Payment Summary may also be needed when the employer:

• Needs to claim a reduction in the PAYE bill
• Has paid no employees during a tax month
• Is claiming Employment Allowance
• Needs to report certain statutory payment information

An EPS that affects the amount owed should generally reach HMRC by the 19th following the relevant tax month.

A late FPS can lead to an incorrect PAYE bill, employee tax problems and possible penalties. The submission receipt should therefore be checked and retained after every payroll run.

How Should Employees Be Paid?

Once payroll has been approved, the employer can arrange payment by bank transfer or another agreed method. The net pay shown by the payroll system must match the amount transferred to the employee.

The business should maintain enough money to cover both employee wages and the later payment to HMRC. A separate payroll account is not compulsory, but it can help prevent PAYE funds from being used for ordinary business expenses.

Good financial records are equally important. The payroll journal should be entered into the company’s accounts so that wages, employer National Insurance, pension costs and liabilities are recorded correctly. These transactions form part of the wider bookkeeping process for a small business.

What Must Appear on a Payslip?

Every employee and eligible worker must receive an itemised payslip on or before payday. It can be provided electronically or on paper.

The payslip should show gross pay, fixed and variable deductions, net pay and the payment method. Where pay varies according to hours worked, the payslip must also show the relevant number of hours.

Employers should check that payslips match the payroll report and bank payments. Employees may also be able to compare reported earnings through their Personal Tax Account, as explained in this guide on checking wages through HMRC.

When Must PAYE Be Paid to HMRC?

Most employers must pay the PAYE bill by the 22nd of the following tax month when paying electronically. The deadline is normally the 19th when payment is made by post.

The amount can include:

• Income Tax deducted from employees
• Employee National Insurance
• Employer National Insurance
• Student loan deductions
• Construction Industry Scheme deductions
• Adjustments reported through an EPS

Employers whose average monthly liability is below £1,500 may be permitted to make quarterly payments. This arrangement should be confirmed with HMRC before changing the payment frequency.

The correct Accounts Office reference and payment suffix must be used. An incorrect reference can cause a payment to be allocated to the wrong period.

Which Payroll Records Must Be Kept?

Employers generally need to retain payroll records for the current and previous three tax years. Records used to prove compliance with the National Minimum Wage should normally be kept for at least six years.

Records should cover employee pay, deductions, tax codes, taxable expenses, statutory payments, pension contributions, hours worked, HMRC submissions and payments. Copies of payslips, P45s, P60s and payroll reports should also be retained securely.

Payroll contains sensitive personal and financial information. Access should be restricted, data should be backed up and old records should be disposed of securely when there is no longer a lawful reason to retain them.

What Must Be Done When an Employee Leaves?

The employee should be marked as a leaver in the payroll system, and their final pay should include any outstanding wages, approved expenses and holiday pay. Any lawful deductions must also be processed.

The leaving date and final payment are reported through the FPS. The employer must then provide the employee with a P45 showing their pay and tax details for the current tax year.

If a P45 was prepared with incorrect information, the employer should correct the payroll records through the appropriate submission process rather than simply issuing a replacement without checking HMRC’s correction rules.

What Must Be Completed at the End of the Tax Year?

The final payroll report for the tax year must indicate that it is the final submission. Employers should check that year-to-date totals agree with their accounts and HMRC records.

A P60 must be given to every employee who remains employed on 5 April, normally by 31 May. Taxable benefits that have not already been processed through payroll may also need to be reported separately.

Before processing payroll for the new tax year, the employer should install software updates, apply new thresholds and confirm that employee tax codes have been carried forward correctly.

What Payroll Mistakes Should Be Avoided?

Frequent mistakes include submitting the FPS after payday, using an incorrect tax code, choosing the wrong National Insurance category and forgetting pension assessments. Errors can also arise when overtime, starters, leavers or statutory payments are entered after payroll has been finalised.

Every payroll should be reviewed before submission. The employer should compare the current report with the previous period, investigate unusual changes and confirm that net pay agrees with the bank payment file.

If an error is discovered, it should be corrected promptly through the payroll software. The appropriate correction method depends on whether the mistake affects the current tax year, an earlier tax year or an employee’s personal details.

Is Doing Payroll Yourself Worth It?

Managing payroll internally can be cost-effective for a small business with straightforward pay arrangements. It also gives the owner direct control over payday, employee changes and cash-flow planning.

However, payroll takes time and mistakes can affect both the business and its employees. A growing business should compare the cost of software and administration with the price of professional support. The likely expense can be considered alongside typical accountancy costs for a UK limited company.

A practical alternative is to process routine payroll internally while asking an accountant to check the initial setup, director arrangements or year-end records.

Conclusion

Doing payroll yourself in the UK is possible when the business has reliable software, accurate employee information and a consistent process. The employer must calculate pay and deductions, submit the FPS on time, issue payslips, pay HMRC and manage workplace pension duties.

For a simple payroll, a clear checklist and regular reconciliation may be enough to keep the system under control. When payroll becomes more complicated, obtaining professional advice can protect employees and prevent expensive reporting errors.

FAQs

Can a Company Director Run Their Own Payroll?

Yes. A director can register the company as an employer and process their salary through payroll. Directors have specific National Insurance calculation rules, which suitable payroll software should support.

Is Payroll Software Compulsory in the UK?

Employers running PAYE generally need software capable of calculating deductions and sending Real Time Information reports to HMRC. This may be HMRC’s Basic PAYE Tools or compatible commercial software.

Can Payroll Be Run Without an Accountant?

Yes. There is no general requirement to appoint an accountant, but the employer remains responsible for correct calculations, submissions and payments.

Do Employers Need to Run Payroll Every Month?

Payroll must follow the agreed pay frequency. Employees may be paid weekly, fortnightly, four-weekly or monthly, provided the arrangement complies with their employment terms.

What Happens If an FPS Is Submitted Late?

A late FPS can produce an incorrect PAYE account and may result in penalties. The employer should submit the missing information as soon as possible and record the appropriate late-reporting reason where required.

Does a Business Need Payroll for One Employee?

It may do. A business can need a PAYE scheme even when it employs only one person, including a company director, depending on the employee’s pay and circumstances.