UK law never requires you to buy payroll software. It requires you to report PAYE to HMRC online in real time. Employers with fewer than 10 employees can use HMRC’s free Basic PAYE Tools. Software becomes necessary when payslips, auto-enrolment, statutory pay or multiple pay periods exceed what free tools handle. Below about 50 employees, outsourcing usually costs less.
Figures verified against HMRC rates and thresholds for employers 2026 to 2027 on 28 July 2026.
Most guides on this topic answer a slightly different question: is payroll software useful? Yes, it is—but that’s not what we’re covering here. Payroll software calculates pay, files Real Time Information (RTI) returns and produces payslips (our guide to what payroll software does covers that side in full). This page is about the law: what you’re required to do, not what a tool can help you do.
The three legal obligations, in order
- Register as an employer before your first payday. This applies once you pay someone £96 a week or more (£417 a month, £5,000 a year)—or if they have another job, a pension, or expenses and benefits, even below that threshold.
- Report in real time. Send a Full Payment Submission (FPS) on or before every payday, an Employer Payment Summary (EPS) by the 19th of the following tax month, and pay HMRC electronically by the 22nd. If your monthly bill is under £1,500, you can report quarterly instead.
- Keep records for three years after the end of the tax year. HMRC can charge up to £3,000 if your records aren’t good enough—so it’s worth checking your retention process now, not after a request lands.
Nothing in that list says you have to buy software. It says file online, on time and accurately—HMRC checks the submission, not what produced it. So, if you’re a small, straightforward employer, the honest answer is no, you don’t need it.
Am I still liable if someone else runs my payroll?
One sentence on GOV.UK settles more payroll arguments than anything else on the subject.
As an employer, you’re legally responsible for completing all PAYE tasks, even if you pay someone else to do them on your behalf.
That’s a statement about where liability sits. You can move the work, but you can’t move the responsibility. A contract with an accountant, a bureau or a vendor transfers the effort and the fees—not the liability.
In practice:
- Send an FPS a day late, and the penalty lands on your PAYE scheme—not the bureau who ran the calculation.
- Pay someone below the £12.71 National Living Wage, and HMRC names your company, not whoever did the sums.
- Miss auto-enrolment, and The Pensions Regulator writes to you directly.
- Skip payslips, and any tribunal claim names you, not your provider.
Two things follow from that. Outsourcing doesn’t remove your exposure—so it’s worth asking your provider for submission receipts, your penalty position, and who’s named as your HMRC agent. And, buying software doesn’t remove it either. A licence is a tool, not compliance after all.
What can HMRC's free tools do?
Basic PAYE Tools is HMRC’s own free package, and eligibility is a hard line: free software is scoped to employers with fewer than 10 employees. The table uses GOV.UK’s own wording.
| What you need to do | Free tools | Why it matters |
|---|---|---|
| Record employee details | Yes | NI numbers, tax codes, start and leave dates |
| Work out pay and deductions | Yes | Tax, NI, student loans |
| Report PAYE in real time | Yes | The only row the law requires |
| Work out what you owe HMRC | Yes | The monthly or quarterly liability |
| Calculate statutory pay | Varies | SSP £123.25 a week, SMP £194.32 after six weeks |
| Produce payslips | Often not | An itemised payslip is a statutory right |
| Record pension deductions | Often not | Auto-enrolment duty, 8% total, 3% employer minimum |
| Make pension payments | Often not | Contributions must reach the scheme on time |
| Pay different people over different periods | Often not | Breaks when weekly runs alongside monthly |
| Send an Employer Payment Summary | Often not | Reclaims statutory payments (92%, or 109% for small employers) and claims the £10,500 Employment Allowance |
| Who can use it | Fewer than 10 employees | A GOV.UK threshold, not a suggestion |
The pension row is the one that catches most people out. The auto-enrolment trigger is £10,000, and the qualifying earnings band runs from £6,240 to £50,270—both frozen at those levels. The moment one person crosses that £10,000 threshold, you’ve got duties the free tools simply can’t carry, and The Pensions Regulator enforces them separately from HMRC.
What are you legally obliged to do?
PAYE Obligation Checker
Six questions, one verdict, including "nothing you have to buy".
Manual payroll is still legal but manual filing is not
You can work out tax and National Insurance (NI) by hand, using HMRC’s tables—that bit’s never been against the rules. What you can’t do is post the result. Real Time Information (RTI) has to go online, so manual payroll in 2026-27 really means hand calculation plus electronic filing. The real question is never manual versus computerised. It’s simply: what sends the Full Payment Submission (FPS)?
And hand calculation gets harder every year. Scotland has six income tax bands, from 19% to 48%, against three elsewhere. Then, there are five different student loan thresholds to track. Plus, employee NI sits at 8% between £242 and £967 a week, with the employer rate at 15% from £96. These calculations can work fine for a handful of simple, salaried staff, but be aware that even one irregular case can throw the whole thing out—a term-time worker, a mid-month leaver or a salary sacrifice arrangement can each quietly break a spreadsheet, often months before anyone notices.
What does running payroll yourself actually cost?
Hours-saved figures are only useful if you can see how they’re worked out. Here’s the alternative: your own numbers, with every assumption visible and editable.
The true cost of running payroll yourself
Change anything you disagree with. Keep cost per payslip: that is how bureaux quote.
Assumptions, all editable
0.5 plus 0.05 per employee
P60s 31 May, P11Ds 6 July
Refiled on an FPS
Investigate and refile
Employer NI, pension, holiday
Salary to hourly
2.25 hours per run over 12 runs, plus 8 hours at year end, plus 4.0 hours of rework, at a loaded rate of £24.19 an hour (£32,000 salary over 1720 hours, uplifted 1.30 times). That covers 420 payslips a year.
Under about 50 employees, the right route depends on your setup
It’s one of the most common questions small businesses ask: do you need payroll software, or is outsourcing the better fit at this size?
Here’s our honest take—and we say this as a company that offers both software and outsourcing.
Software works well at any size when you’ve got the in-house skill to run it through the tricky moments: a leaver’s final pay, a maternity return, an attachment of earnings order, a year end. Below roughly 200 employees, that in-house capability is often the deciding factor rather than headcount alone—if you’ve got it (or want to build it), software is a genuinely good fit. If not, outsourcing brings the skill and the licence together in one line item.
A bureau prices per payslip and absorbs legislative change on your behalf, which answers “who runs payroll when Jan’s in hospital?” without a gap. Software, on the other hand, gives you full control and can scale with your business as complexity grows—useful if you want that ownership in-house. Our outsourcing versus software comparison sets out exactly where that line sits for your situation. Only an in-house team with multiple schemes and real complexity should shortlist payroll software, starting with the buyer’s guide.
Whatever you choose, payroll data raises the stakes
Payroll files hold bank details, NI numbers, home addresses, salaries and—by implication, every time someone’s paid Statutory Sick Pay (SSP)—health information too. Under UK GDPR, that makes them some of the most sensitive records your organisation holds, and the Information Commissioner’s Office (ICO) enforces this separately from HMRC.
Three failures come up again and again in small payrolls—and they’re almost always down to informality, not incompetence:
- Spreadsheets kept on an unencrypted laptop, or in a shared folder half the office can open.
- Payslips emailed as unprotected attachments.
- Records kept forever because nobody ever set a retention rule.
HMRC wants records kept for three years after the tax year ends, and the ICO expects you not to hold data any longer than you need it. So, it’s worth asking: where does your payroll data live, who can reach it, and when does it get deleted?
Do I need payroll software? Answered.
In short: no single answer fits every business—UK payroll law sets the same duties for everyone, but whether software, outsourcing, or a mix of both is the right fit depends on your size, complexity, and in-house capability, not on any legal requirement to buy a specific tool.
Whatever route you choose, payroll data raises the stakes on its own. These files hold bank details, National Insurance numbers, home addresses and salaries—and every time someone’s paid Statutory Sick Pay, there’s a health-related inference sitting alongside the financial data. Under UK GDPR, that combination means payroll records deserve real care, and the Information Commissioner’s Office enforces data protection separately from HMRC, so getting your payroll processing right doesn’t automatically mean you’re covered on the data side too.
Getting this right isn’t really about software at all—it’s about matching your setup to what UK payroll law actually asks of you. For a small, simple payroll, that might mean nothing more than HMRC’s free tools. For anything with more moving parts—workplace pensions, statutory pay, multiple PAYE schemes—the real decision is whether you build that capability in-house with payroll software, or bring in a payroll bureau that already has it through outsourcing.
With Cintra, we make sure the basics are covered, every time. Whether outsourcing is a permanent fit, or a temporary measure before bringing payroll software in-house, we can scale alongside your business needs every step of the way. If you’d like to see how this could work with our current setup, book a demo with a member of our team.
Payroll Software
Find out more about Cintra's payroll software, built to handle whatever your workforce needs—no matter how complex. Packed with deep functionality, intuitive workflows, and expert support for in-house payroll teams.
Frequently asked questions
Q. Is payroll software a legal requirement in the UK?
A. No. The requirement is to report PAYE online in real time, on or before each payday, and keep records for three years. Software is one way to do that. Basic PAYE Tools is another.
Q. Can I do payroll myself?
A. Yes. You register as an employer, calculate tax and National Insurance on each payment, file an FPS on or before payday, issue payslips and pay HMRC by the 22nd. None of that needs an outside party.
Q. How do I do payroll manually in the UK?
A. You can calculate by hand using HMRC's tables, but you cannot file by hand. RTI goes electronically, so manual payroll means hand calculation plus recognised software to submit.
Q. Do I need payroll software for one employee?
A. No. One employee sits well inside the fewer-than-10 threshold for free HMRC-recognised software. You still register for PAYE, file on or before payday, issue a payslip and assess for auto-enrolment.
Q. What is basic PAYE tools?
A. HMRC's own free payroll software. It records employee details, works out pay and deductions, reports in real time and tells you what you owe. It is limited to fewer than 10 employees and produces no payslips.
Q. Do I still need payroll software if my accountant runs payroll?
A. No, that is what you pay them for. But GOV.UK is explicit that you stay legally responsible for all PAYE tasks even when someone else does them, so ask for filing confirmations.
Q. How long do I have to keep payroll records?
A. Three years after the end of the tax year they relate to, HMRC can charge up to £3,000 where records are inadequate, and can estimate what you owe.
Q. Why do I need payroll at all?
A. Because paying someone triggers PAYE obligations from £96 a week, and employees have statutory rights to correct pay, a payslip and a pension. Payroll delivers all three and evidences it.
General information about UK payroll obligations for 2026-27, not tax or legal advice. Rates come from HMRC guidance, checked 28 July 2026.
