Running payroll is a crucial responsibility for any UK business that employs staff. Payroll involves more than simply calculating employees’ wages. Employers may need to deduct Income Tax and National Insurance (NI), report payments to HMRC, provide payslips, manage workplace pension contributions, and meet other employment-related obligations.
So, if you are a small business, getting payroll right can help ensure employees are paid correctly, and the business meets its reporting and payment obligations. This guide explains PAYE payroll for small businesses, how payroll for small businesses UK works, what employers need to do, and when professional payroll support may be useful.
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What is Payroll for Small Businesses UK?
Payroll is the calculation of employees’ pay, deducting the required deductions and paying employees.
To process payroll, a small business may need to do the following:
- Calculate staff gross and net salary
- Deduct Income Tax if applicable under Pay As You Earn (PAYE)
- Deduct employees’ National Insurance contributions, if applicable
- Work out employer National Insurance contributions
- Deduct student loan or postgraduate loan deductions where applicable
- Issue pay slips to workers and employees
- Report staff pay and deductions to HM Revenue and Customs (HMRC)
- Pay what you owe to HMRC
- Handle workplace pension deductions and employer contributions where applicable
- Handle statutory payments and other payroll-related issues
Employers tend to run PAYE as part of their payroll so they can deduct Income Tax and NI from employees. Also, they usually send details of employees’ pay and deductions to HMRC on or before payday.
When Is Payroll for Small Businesses UK Required?
Generally, a UK business needs to register as an employer and operate PAYE if, in the current tax year, an employee:
- is paid £96 or more a week;
- receives expenses or benefits;
- receives a pension from the employer;
- has another job; or
- receives certain benefits, such as Jobseeker’s Allowance.
Even if PAYE registration is not required, a small business must still keep payroll records. Employers who need to register must do so before the first payday, then keep employee records, calculate pay and deductions, and report payroll information to HMRC.
How Does Payroll for Small Businesses UK Work?
Payroll is normally processed each time employees are paid. Here is how it works:
Collect Employee Information
Gather details such as the employee’s personal information, tax code, NI category, and payment details. For new employees, you may need their P45 or starter checklist.
Calculate Gross Pay
Gross pay is the employee’s earnings before deductions and may include basic salary or wages, overtime, bonuses, commission, and relevant statutory payments.
Calculate Deductions
Payroll calculates deductions such as Income Tax and employee NI, as well as applicable student loan repayments and pension contributions.
Calculate Employer National Insurance
The employer may also pay Class 1 employer National Insurance. For 2026/27, the standard rate is 15% on earnings above the £5,000 secondary threshold (£417 per month or £96 per week). Different rates or thresholds can apply to certain employees, so the correct National Insurance category should be used.
How to Run Payroll for Small Businesses UK?
To run payroll for a small business in the UK, you typically need to:
- Register as an employer with HMRC if required.
- Set up employees with their tax codes, NI categories, and other relevant details.
- Calculate gross pay and deductions, including Income Tax, NI, and pension contributions.
- Pay employees and provide payslips.
- Report payroll information to HMRC using an FPS on or before payday.
- Submit an EPS when required and pay the amounts due to HMRC by the relevant deadline.
- Keep accurate payroll records for the required period.
What Are the 2026/27 Payroll Rates for Small Businesses?
To understand payroll for small businesses UK, it is important to learn the payroll rates. For the tax year 6 April 2026 to 5 April 2027, the standard Class 1 NI rates include:
- Employee NI: 8% on earnings above the Primary Threshold up to the Upper Earnings Limit for category A employees
- Employee NI: 2% on earnings above the Upper Earnings Limit
- Employer NI: 15% on earnings above the Secondary Threshold for standard category A employees
- Secondary Threshold: £5,000 a year
- Primary Threshold: £12,570 a year
- Upper Earnings Limit: £50,270 a year
These are the standard rates and thresholds. The actual calculation can vary depending on the employee’s NI category and circumstances.
What Payroll Information Must Be Reported to HMRC?
One of the most important parts of small business payroll UK compliance is reporting payroll information to HMRC.
Usually, employers send a Full Payment Submission (FPS) to HMRC whenever they pay employees. The FPS reports information such as employees’ pay, tax, NI, and other deductions.
The FPS should normally be submitted on or before payday. However, HMRC allows certain exceptions for late reporting.
Additionally, businesses may need to submit an Employer Payment Summary (EPS). For instance, an EPS can be used to claim reductions in the amount owed to HMRC, such as certain statutory payments or Employment Allowance. Also, an EPS must be submitted instead of an FPS if no employees were paid during a tax month.
What Are the Benefits of Using Payroll Services for Small Businesses?
Some businesses outsource payroll to an accountant or payroll specialist. Payroll for small businesses UK may help with payroll and PAYE calculations, NI calculations, payslips, FPS and EPS submissions, statutory payments, and workplace pension administration. Moreover, payroll records, HMRC deadlines, and year-end payroll tasks are managed properly.
Outsourcing payroll can reduce administrative work and help businesses meet their payroll obligations. However, whether it is suitable depends on payroll complexity, the business’s size, and available resources.
Are Payroll Software for Small Businesses UK Important?
If a small business runs payroll itself, it needs payroll software. Payroll software helps you calculate employee pay and deductions and report payroll information to HMRC correctly.
Payroll software can help with calculating PAYE and National Insurance for employers, producing payslips and submitting payroll information to HMRC. It also helps to calculate certain statutory payments and support workplace pension calculations.
Choosing suitable payroll software for small businesses can reduce manual work and simplify payroll reporting. However, employers remain responsible for ensuring payroll information and calculations are accurate.
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A Quick Summary of Payroll for Small Businesses UK
Payroll for Small Businesses involves calculating wages and deductions, operating PAYE, reporting payroll information to HMRC, making payments on time, and managing workplace pensions where applicable.
For 2026/27, employers should use the current HMRC rates, including the 15% standard employer NI rate and £5,000 secondary threshold. You can manage payroll yourself using suitable software or outsource small business payroll to reduce administrative work. Also, it can help maintain accurate records.
If you want an expert to manage your PAYE and payroll, MicroEntityAccounts is here to assist. Our qualified accountants can manage payroll, maintain records accurately, and stay on top of HMRC reporting requirements.
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