The short answer: To run payroll in the UK, register as an employer with HM Revenue and Customs (HMRC) and get a PAYE reference. Choose HMRC-recognised software, collect each employee’s tax code and P45, then calculate gross pay, tax, National Insurance and pension deductions. Send a Full Payment Submission on or before payday, issue payslips, then pay HMRC by the 22nd.
Running payroll properly means getting a lot of moving parts to land in the right order, every single pay period, without fail. Get the sequence right and HMRC barely crosses your mind. Get it wrong, and you’re untangling tax codes, National Insurance categories and submissions long after everyone else has gone home. Below, you’ll find the full 2026-27 process: registering as an employer, running the calculation itself, filing with HMRC, meeting your deadlines, and fixing things when they go wrong.
Every figure and deadline below is checked against HMRC’s rates and thresholds for employers 2026 to 2027, October 2026.
What are the UK payroll rates and thresholds for 2026-27?
Here are the core figures you’ll use on every pay run between 6 April 2026 and 5 April 2027. Deadlines, the Employment Allowance and the Apprenticeship Levy are covered in their own sections further down.
| Item | 2026-27 |
|---|---|
| Personal allowance and standard code | £12,570 (£1,048/mo, £242/wk), code 1257L. Emergency 1257L W1, M1 or X |
| Income tax: England, Wales, and Northern Ireland | 20% to £37,700, 40% to £125,140, 45% above (taxable pay, after the personal allowance) |
| Scottish income tax (taxable pay) | 19% to £3,967, 20% to £16,956, 21% to £31,092, 42% to £62,430, 45% to £125,140, 48% above |
| National Insurance thresholds | Lower Earnings Limit £129/wk (£6,708/yr), Secondary Threshold £96/wk (£5,000/yr), Primary Threshold £242/wk (£12,570/yr), Upper Earnings Limit £967/wk (£50,270/yr) |
| National Insurance rates | Employee 8% then 2% above the Upper Earnings Limit. Employer 15%. Class 1A 15% |
| Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP) | SSP £123.25/wk or 80% of Average Weekly Earnings (AWE), whichever is lower. SMP 90% of AWE for 6 weeks, then £194.32 or 90% of AWE, whichever is lower |
| National Living Wage (NLW) and National Minimum Wage (NMW) from 1 April 2026 | 21+ £12.71, 18 to 20 £10.85, under 18 and apprentice £8.00 |
| Student loans | Plan 1 £26,900, Plan 2 £29,385, Plan 4 £33,795, Plan 5 £25,000, all 9%. Postgraduate 6% above £21,000 |
| Auto-enrolment | £10,000 trigger, qualifying earnings £6,240 to £50,270, 8% total with 3% employer minimum. All frozen |
Note: The income tax bands apply to taxable pay, after your personal allowance has come off—not gross salary. So the 40% band starting at £37,700 of taxable pay corresponds to roughly £50,270 of total income for most employees. It’s a common mix-up, so worth flagging to anyone reading the table at a glance.
What do I need to do before my first pay run?
Three things need to be in place before you pay anyone: a PAYE reference, recognised software, and the right details for every employee.
Register as an employer
You need to register as an employer before the first payday. Register as soon as you take on anyone earning £129 or more a week (the Lower Earnings Limit), anyone with another job or a pension, or anyone who has had another job since 6 April.
You can use the gov.uk service to do this online. HMRC aims to have you registered within five working days but this can take longer. If payday arrives first, run the payroll anyway and file the Full Payment Submission (FPS) once the reference lands, using late reporting reason code G.
You’ll get two identifiers, and it’s worth knowing the difference:
- The Employer PAYE reference (for example 123/AB45678) appears on payslips, P60s and P45s.
- The Accounts Office reference (for example 123PA00012345) is what you quote when you pay HMRC.
Use the wrong one and the money sits unallocated, while HMRC chases a debt you’ve already settled.
Choose HMRC recognised software
Before you run payroll, you need to have the right tools to do so; and HMRC recognised payroll software is at the top of that list. Software has to be on HMRC’s recognised software list to file Real Time Information (RTI). That’s a filing standard, not a quality judgement. Every recognised product calculates PAYE the same way, so what separates them is everything around the engine: how many PAYE schemes it holds, whether it supports parallel running, how pension files are produced, and how it handles retrospective and off-cycle pay. If you want to go deeper, how payroll software works is covered separately.
Collect new employee details
The next step is collecting your employee’s details. It goes without saying that these need to be right. Get this wrong, and every downstream figure will be wrong too. You’ll need:
- Full name, date of birth, and gender
- Address and National Insurance number
- Start date and bank details
- Student loan status
- Either a P45 or a completed starter checklist
The P45 gives the leaving date, pay and tax to date, tax code, and student loan flag. Parts 2 and 3 come to you; part 1A stays with the employee. Without a P45, they’ll need to complete a starter checklist instead, and that checklist decides their starting tax code.
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How do I run a pay run, step by step?
This is the order the calculation has to happen in, because National Insurance is worked out on the pay period alone, while income tax on a cumulative code is worked out on the year to date.
Step 1: Calculate gross pay
Take contractual pay, add overtime, commission, bonus, holiday pay, statutory payments, and any taxable expenses being payrolled, then subtract unpaid absence. For hourly staff, test the result against the National Minimum Wage across the whole pay reference period, not week by week.
Salary sacrifice applies here, before anything else. The employee gives up contractual pay for a non-cash benefit (usually a pension contribution), so the sacrificed amount never becomes pay and sits outside income tax and both sides of National Insurance. A £1,188 sacrifice saves the employer £178.20 at 15%. It must be a genuine contractual variation agreed in advance, and it must not take cash pay below the minimum wage.
Step 2: Calculate income tax
The tax code tells you how much to deduct, but the prefix matters as much as the number. For a new starter, their starter declaration sets the code:
| Declaration | Situation | Usual code |
|---|---|---|
| A | First job since 6 April, no other taxable income | 1257L cumulative |
| B | Only job now, but has had another since 6 April | 1257L W1 or M1 |
| C | Has another job or a pension | BR, every pound at basic rate |
| Nothing supplied | No P45, no checklist | 0T W1 or M1, no allowance at all |
Apply the code to work out free pay, then apply the Income Tax band rates. On a cumulative code, you’re working from year-to-date figures, so any over- or underpayment corrects itself. On W1 or M1, nothing self-corrects—which is how someone on an emergency code can be overtaxed for months without anyone noticing.
Prefixes depend on where someone lives, not where they work. S means a Scottish taxpayer (six bands, top rate 48%), so they’ll pay a different amount to an identical colleague in Newcastle. C means a Welsh taxpayer, whose rates currently match England and Northern Ireland. So someone living in Berwick and working in Edinburgh is an English taxpayer. HMRC makes that call and tells you by coding notice.
Mid-year changes arrive on a P6 and apply from the next payday after you receive it. New-year codes arrive on a P9 and apply from 6 April, not before. Applying a P9 early in a late March supplementary run is one of the most common self-inflicted errors we see, so it’s worth building a check into your process. And watch the personal allowance taper: it drops by £1 for every £2 earned over £100,000, so a mid-year bonus can outrun the coding notice.
Step 3: Calculate National Insurance, both sides
National Insurance (NI) works differently from Income Tax. It’s worked out on each pay period by itself, with no look back at earlier months, so the NI on a one-off bonus is settled in the period it’s paid. Directors are the exception—their NI is based on earnings across the whole tax year, so when a bonus is paid doesn’t change what they pay in total.
Why the threshold catches employers out
Employee and employer NI start at different points. Your employee starts paying at the Primary Threshold (£242 a week), but your employer charge starts at the Secondary Threshold (£96 a week, £417 a month or £5,000 a year).
So anyone earning between £96 and £242 a week costs you employer NI, even though nothing comes out of their pay. On an £8,000 salary, that’s £450. If you’re budgeting from £242, you’ll come up short on every part-time, term-time and low-hours role you run. This gap got much wider in April 2025, when the threshold dropped from £9,100 to £5,000. If you haven’t reviewed your setup since then, it’s worth a check.
Check the category letter
Most employees are on category A, but a few letters mean you pay no employer NI on earnings up to £967 a week:
- H: apprentices under 25.
- M: employees under 21.
- V: veterans in their first year of civilian employment.
These are easy to miss, and they’re worth real money. A 20-year-old on £30,000 costs you £3,750 in employer NI on category A, and nothing at all on category M.
Step 4: Apply student and postgraduate loan deductions
Student loans come off gross pay, are calculated on the pay period, and round down to the nearest pound with no cumulative adjustment. Five plans are currently live, and someone can be on a student loan plan and a postgraduate loan at the same time—in which case both apply.
Start a deduction on an SL1 or PGL1 notice, or from a P45 or starter checklist. Stop only on an SL2 or PGL2—never just because the employee says they’ve finished repaying.
Step 5: Apply pensions contributions and auto-enrolment
Assess for auto-enrolment every pay period, not just once at hire. An eligible jobholder is aged 22 to State Pension age and earns above the £10,000 trigger. Minimum contributions are 8% of qualifying earnings, with at least 3% from the employer. On £30,000, that’s £23,760 of qualifying earnings—so £712.80 from the employer and £1,188 from the employee.
Three mechanics change the numbers:
- Net pay arrangement: the contribution comes off before income tax, so relief is immediate and NI is unaffected.
- Relief at source: it comes off after tax and the provider reclaims 20%.
- Salary sacrifice, not an employee deduction at all.
Re-enrolment comes round every three years, and you’ll need to file a re-declaration of compliance with The Pensions Regulator even if nobody needed re-enrolling. It’s an easy step to forget precisely because nothing seems to have changed.
Step 6: Apply other deductions
Once tax, NI and pensions are done, you can apply everything else. Some deductions are legal orders you must follow:
- Attachment of earnings orders (AEOs): these cover council tax arrears, fines and civil debt. Priority orders come before non-priority ones, and you can take £1 per order each period as an admin charge.
- Deduction from earnings orders (DEOs): these are for child maintenance. The employee must always keep at least 60% of their net pay.
- Direct Earnings Attachments (DEAs): these come from the Department for Work and Pensions (DWP) and recover benefit overpayments without a court order.
Each order is worked out on attachable earnings (pay after tax, NI and pension contributions), not gross pay, so follow the paperwork closely. In Scotland, you’ll see earnings arrestments instead of AEOs.
Others are voluntary, such as trade union fees and Payroll Giving. Payroll Giving is taken before Income Tax but after NI, so a £10 donation costs a basic-rate taxpayer £8. It has to run through an HMRC-approved agency.
For any voluntary deduction, make sure you have the employee’s written agreement first. Without it, you risk an unlawful deductions claim.
Step 7: Calulate net pay
Gross pay, less income tax, employee NI, student and postgraduate loans, pension (where the scheme deducts from pay), and other deductions. Then the bank file goes out, payslips go to employees, and the FPS goes to HMRC on or before payday.
What must a UK payslip include by law?
Every worker—not just every employee—is entitled to an itemised payslip on or before payday, paper or electronic. The legal minimum includes:
- Gross pay
- The amount and purpose of variable deductions
- The amount and purpose of fixed deductions, unless a standing statement has been issued in the last 12 months
- Net pay
- The split, where payment goes to more than one account
- The number of hours paid, where pay varies by hours worked
That hours rule has applied since April 2019, and it’s the one most often missed on variable-hours payrolls. Worth building a specific check for it if your organisation runs zero-hours or term-time contracts.
How and when do I pay HMRC, and what happens if I get it wrong?
You owe the income tax deducted, both sides of National Insurance, student loan deductions and the Apprenticeship Levy where it applies, less statutory payment recovery and the Employment Allowance. Pay by the 22nd of the following tax month electronically, or the 19th by post. Tax month 1 runs 6 April to 5 May 2026, so the first payment is due 22 May 2026. If you expect to pay HMRC under £1,500 a month on average, you can arrange with HMRC to pay quarterly instead, though you still send an FPS every pay day.
The Employment Allowance is £10,500 against your secondary Class 1 bill. It’s a business-level allowance, must be claimed by EPS every year, is shared between connected companies, and is unavailable where a sole director is the only person paid above the Secondary Threshold. The Apprenticeship Levy is 0.5% of the pay bill with a £15,000 allowance, so it only bites above a £3m pay bill, and it’s reported monthly through the EPS.
Late filing and late payment are separate regimes, and you can be hit by both in the same month. Your first late payment in a tax year isn’t treated as a default; after that, late payment penalties start at 1% of the amount paid late (one to three defaults) and rise to 4% (ten or more), with a further 5% if tax is still unpaid after six months and again after 12 months. Late filing penalties scale with headcount instead: £100 a month for 1 to 9 employees, £200 for 10 to 49, £300 for 50 to 249 and £400 for 250 or more, though your first late FPS in a tax year is usually not penalised. Interest also runs on unpaid amounts at the Bank of England base rate plus 4%, which is 7.75% from 9 January 2026. For the detail, see our guide to avoiding payroll penalties.
What goes wrong with payroll, and how do you fix it?
Every payroll can go wrong—that’s just reality, not a reflection on how carefully you run things. What separates a controlled payroll from a chaotic one is having the fix written down before you need it.
| Problem | Likely cause | How to fix it | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Wrong tax code applied | A code keyed from a superseded payslip, or a P9 applied before 6 April | Only change a code on a P6, P9 or P45. Cumulative codes self-correct next run; W1/M1 codes don't until HMRC issues a cumulative one. Pull coding notices electronically rather than keying them. | ||||||||||||||||||||||||||
| Employee stuck on 0T or BR | No starter checklist arrived, so payroll defaulted to 0T week 1/month 1 | Get the checklist completed and file the correct starter declaration on the next FPS. Don't apply 1257L on your own initiative—they may genuinely have a second job. | ||||||||||||||||||||||||||
| Duplicate payroll ID (phantom second employment) | Someone re-keyed an employee, or a migration reissued payroll IDs | Report the correct payroll ID with the changed indicator set and the old ID in the old ID field. Don't create a leaver for the duplicate—that produces a P45 nobody earned. | ||||||||||||||||||||||||||
| Wrong NI category letter | Under-21 left on A, apprentice not moved to H, veteran's first year missed | Within the same tax year, change the letter and recalculate year-to-date in the next run. Across tax years, send an earlier year update instead. | ||||||||||||||||||||||||||
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Legal note: Section 14 of the Employment Rights Act 1996 lets you recover an overpayment of wages by deduction without falling foul of the unlawful deduction rules in section 13—but that’s a defence to a wages claim, not a licence to take the money without notice. Always tell the employee first. Statutory payments and leaversSSP isn’t recoverable. Family-related statutory payments (SMP, paternity, adoption, shared parental, parental bereavement and neonatal care pay) are recoverable at 92%, or 109% for small employers (Class 1 NI under £45,000), claimed on the EPS rather than the FPS. Employees only qualify if their average weekly earnings reach the Lower Earnings Limit of £129—which is why that threshold matters even though no contributions are due at it. When someone leaves, enter the leaving date before the final run, mark them as a leaver on the FPS, and issue a P45. If you pay them anything afterwards, don’t reissue the P45—use 0T on a week 1 or month 1 basis instead, and tick the payment-after-leaving indicator. How long do I need to keep payroll records?HMRC requires PAYE records to be kept for three years after the end of the tax year they relate to—so 2026-27 records must be kept until 5 April 2030. Fail to keep adequate records, and HMRC can estimate what you owe and charge up to £3,000. The often-quoted seven years isn’t a payroll rule; it comes from the Companies Act duty to keep accounting records for six years. UK GDPR also means you shouldn’t keep personal data longer than necessary, and the Information Commissioner’s Office (ICO) expects a documented retention schedule. Can you run payroll yourself, or should you use software or outsource?Legally, yes. HMRC doesn’t require you to use an agent. The real question is where the effort and the risk land.
As a general rule of thumb, if you’ve got under around 200 employees, licensing and running software in-house rarely beats outsourcing payroll to a team that already has the people and the discipline in place. Above that—particularly with multiple PAYE schemes or several entities—in-house software tends to win on control and cost. Doing it yourself works well while the payroll is small and static, and it stops working the moment it’s neither. The real trigger is variability, not headcount: a 40-person payroll with variable hours, three pension schemes and monthly starters is harder work than a 300-person salaried one. If you’re weighing this up for your own organisation, bringing payroll in-house and Cintra’s payroll solutions are both worth a look. Running payroll for hundreds or thousands of people? The mechanics stay the same, but the operating model doesn’t—our guide to running payroll at scale covers what changes. Run your payroll with CintraIf you’re weighing up whether to keep payroll in-house, bring in new software, or hand it over entirely, we’re happy to talk through what makes sense for your organisation’s size and complexity in a personalised demo. 
BROCHURE
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 questionsQ. Can I do my own payroll in the UK? A. Yes. There's no legal requirement to use an accountant or a provider. Register as an employer with HMRC, use HMRC-recognised software so you can file Real Time Information, calculate tax, National Insurance, pension and student loan deductions, issue payslips, and pay HMRC by the 22nd. Q. How do I do payroll step by step? A. Register as an employer, choose HMRC-recognised software, collect each employee's details including a P45 or starter checklist, set the tax code and NI category, run the calculation, file the FPS on or before payday, issue payslips, file an EPS by the 19th if you have anything to reclaim, and pay HMRC by the 22nd. Q. What is PAYE? A. Pay As You Earn is the system through which employers deduct income tax and National Insurance from pay and hand it to HMRC. It covers salary, wages, bonuses, commission, statutory payments and pensions paid through payroll. Employers also pay employer National Insurance at 15% above £96 a week. Q. What is RTI in payroll? A. Real Time Information is the requirement to report pay and deductions to HMRC every time you pay someone, rather than once a year. It's applied since 2013 and works through two submissions: the Full Payment Submission, filed on or before payday, and the Employer Payment Summary, filed by the 19th of the following tax month. Q. Is payroll different in Scotland or Wales? A. Scottish taxpayers (code prefix S) run through six income tax bands with a top rate of 48%, rather than the three bands used in England and Northern Ireland. Welsh taxpayers (code prefix C) currently have rates that match England and Northern Ireland. Residence decides which prefix applies, not where someone works. Q. How much does an employee really cost beyond their salary? A. Employer National Insurance at 15% above the Secondary Threshold, the minimum employer pension contribution, and the Apprenticeship Levy (if your pay bill is over £3m) all sit on top of gross salary. On a £30,000 salary, that typically adds over £4,400 to the real cost of employment. Q. What happens if I miss the payroll deadline to HMRC? Pay immediately by Faster Payments, which settles the same day including weekends, quoting the full Accounts Office reference with the year and month indicator. Your first late payment in a tax year isn't treated as a default; after that, penalties start at 1% of the amount paid late and rise to 4% for ten or more defaults, alongside daily interest at the Bank of England base rate plus 4% (7.75% from 9 January 2026). Q. Can I switch payroll software mid-year? A. Yes, but never cut over live. Run the old and new systems in parallel for two full cycles and reconcile at employee level before relying fully on the new one, because totals can match while individual figures are wrong in offsetting directions. 
Megan Burnham
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