How to run payroll in the United Kingdom: a step-by-step guide
Reviewed by Mellow Editorial Team, HR & payroll content team
Running payroll in the UK means registering with HMRC, calculating tax and National Insurance correctly for each employee, reporting in real time, and paying what you owe on time. Get any of those steps wrong and you face penalties, unhappy staff, or both.
Register as an employer before your first payday
You must register with HMRC as an employer before you pay anyone for the first time. HMRC will issue you a PAYE reference number and an Accounts Office reference — you need both to submit returns and make payments.
Registration can take up to five working days, so do it early. If you use payroll software, you will also need to set it up with these references before you can file anything.
Gather the right information for each employee
Before you can calculate a single payslip, you need:
- The employee's full name, address, date of birth and National Insurance number
- A P45 from their previous employer, or a completed starter checklist if they do not have one (the starter checklist determines their tax code)
- Their contracted hours and agreed salary or hourly rate
- Confirmation of whether they qualify for auto-enrolment into a workplace pension
The starter checklist matters because the wrong tax code means the wrong deductions from day one. If no information is provided, HMRC requires you to use a specific emergency code until the correct one is confirmed.
Calculate tax, National Insurance and pension deductions
For each pay period, you apply the employee's tax code to work out income tax. The personal allowance for 2026/27 is £12,570 per year, meaning employees pay no income tax on earnings up to that threshold. Above it, the basic rate is 20%, the higher rate 40%, and the additional rate 45%.
National Insurance is separate. Employees currently pay 8% on earnings between the lower and upper earnings limits, then 2% above the upper limit. As the employer, you pay 13.8% in Class 1 secondary contributions on earnings above the secondary threshold — this is a cost on top of gross salary, not deducted from the employee.
For pension auto-enrolment, eligible employees must be enrolled into a qualifying scheme. The minimum contribution is 3% from you as the employer and 5% from the employee, calculated on qualifying earnings. These contributions are deducted from pay and paid to the pension provider separately.
Most payroll software handles these calculations automatically once you have entered the correct tax codes, pay rates and NI categories. That reduces arithmetic errors, but you remain legally responsible for the outputs.
Report to HMRC on or before every payday (RTI)
The UK uses Real Time Information (RTI) reporting. You must submit a Full Payment Submission (FPS) to HMRC on or before each payday — not monthly, not after the event. The FPS tells HMRC exactly what you paid each employee and what deductions you made.
If you have no employees to pay in a given period but still have an active PAYE scheme, you submit an Employer Payment Summary (EPS) instead, so HMRC knows why no FPS has arrived.
Missing or late FPS submissions can trigger automatic penalties, so build the submission step into your payroll process, not as an afterthought.
If you reduce what you owe HMRC — for example because you have reclaimed statutory pay — you also use the EPS to notify them.
Pay HMRC and meet your year-end obligations
PAYE and NI liabilities are typically due to HMRC by the 19th of the following month if paying by cheque, or the 22nd if paying electronically. Missing these deadlines attracts interest and, eventually, surcharges.
Pension contributions have their own deadlines set by the scheme — check with your provider, but they are usually within a fixed number of days of payday.
At the end of the tax year, two further obligations apply:
- P60: issue one to every employee still on your payroll by 31 May. It summarises their total pay and deductions for the year.
- P11D: report any benefits in kind (company cars, private medical cover, etc.) to HMRC by 6 July. If you payroll your benefits rather than reporting them on P11D, you must register to do so in advance.
Keep records and understand your ongoing duties
Payroll is not a once-a-year job. You must maintain accurate records — payslips, deduction records, RTI submissions — for at least three years after the end of the tax year they relate to.
Beyond the mechanics, remember that your obligations towards employees are also expanding. The Employment Rights Act 2025 has strengthened day-one rights for workers, which affects how quickly some entitlements apply from the start of employment. Statutory annual leave remains at 5.6 weeks (28 days including bank holidays for a standard five-day week), and statutory sick pay and family-leave pay obligations continue to apply regardless of how long someone has worked for you.
If you operate across multiple countries or engage contractors internationally, a single-country payroll setup may not be sufficient — how Mellow runs payroll across six countries covers what that looks like in practice.
---
Run HR and payroll in United Kingdom with Mellow
Mellow brings HR, payroll and 12 AI agents into one platform — built to handle United Kingdom properly, with payroll included, from £4 per employee per month. The AI agents don't just answer questions; they generate contracts, run cost estimates and draft letters for you.
- United Kingdom payroll software
[Start a free trial →](/register)