Best Payroll Software for Small Businesses in the UK

Looking for the best payroll software for small business? With the best payroll software, you can have a seamless integration with your existing accounting tools while ensuring HM Revenue and Customs (HMRC) compliance. Therefore, many accountants and business owners search for the available options and their features to make their payroll processing easier. Let’s discuss the best payroll software for small businesses, how you can save time and reduce errors with automation, and what mistakes to look out for.

What is Payroll Software and Why Do You Need It?

Payroll software is a digital tool that helps businesses to manage, record, and automate employees’ payslips, statutory payments, and tax deductions. It also handles Human Resources (HR) tasks and ensures your business complies with HMRC tax regulations.  Your business needs the right software, as it makes the complex payroll process a lot easier. You can automate routine tasks and make payments easier for employees. Here is what a good payroll system for small businesses offers:

• HMRC Compliance by automating the submission of Real-Time Information (RTI) and ensuring you never miss a deadline 
• Payroll software syncs directly with your bank feeds to ensure it matches your account. This helps to reduce human errors. 
• A quality payroll software automatically assesses workers’ eligibility and calculates the National Insurance (NI) and pension contributions. 
• A specialised payroll software for small businesses gives you better cash flow visibility and may reduce reliance on manual payroll processing. 

How to Choose the Best Payroll Software for Small Business?

Before choosing software for payroll for small business, you must carefully evaluate the software’s core features and integrations. Make sure the software calculates Pay As You Earn (PAYE) and NI contributions.  The best payroll software should record accurate data and submit RTI (Full Payment Submission, Employer Payment Summary) directly to HMRC to ensure payroll compliance. It should secure your data by offering data encryption with two-factor authentication. Other features you should consider in payroll systems for small businesses include:

• Direct submission of employer payment summaries and full payment submissions. 
• Automatic assessment of workers' eligibility and reporting to pension providers
• Handles PAYE, bonuses, sick pay and maternity pay. 
• Secure automatic backups
• Cloud-based access
• Comprehensive reporting for gross-to-net pay
• Ability to manage weekly or monthly payroll

Additionally, it should offer automation and usability while integrating with your existing accounting software.  Remember to compare price structures and assess customer support quality. If possible, take advantage of free trials.

What are the Top Payroll Software for Small Businesses in the UK?

There are multiple payroll software solutions for small businesses with different features and pricing. Let’s discuss some of the best and top payroll software for small businesses in the UK:

Sage UK

Sage software is known for reliability and scalability. This software is trusted by many UK businesses that require a stable and traditional structure. It works great for established small businesses with complex salary structures. If you need detailed financial reporting and 24/7 dedicated support, Sage is an ideal tool for your business. The key features of Sage include:

• Modules for expenses, timesheets, shift scheduling, and recruitment
• Automated HMRC and pension sync
• Error correction and strong data security
• Robust reporting and integration with Sage accounting, Zapier, and Deputy
• Calculates Statutory Maternity Pay (SMP) and Statutory Sick Pay (SSP)

The pricing of Sage payroll software varies depending on the essentials, standard, and premium. For payroll essentials, the price is £20 per month. For the payroll standard, it is £40 per month, and for the payroll premium, it’s £60 per month. 

QuickBooks Payroll

QuickBooks Payroll is also a prominent name in the list of the best payroll software for small businesses and sole traders. This software is ideal for businesses that need to handle Construction Industry Scheme (CIS) deductions. Its features are:

• RTI submission to HMRC
• Calculates contractor deductions automatically
• Sends details to Smart Pension
• Generates payslips
• Calculates SMP and SSP
• Integrates with Stripe, Wise and QuickBooks Connector apps like Amazon and PayPal.

The pricing of QuickBooks payroll software varies depending on the Essentials, Standard, and Premium. For payroll essentials, the price is £38 per month. For the payroll standard, it is £56 per month, and for the payroll premium, it’s £123 per month. 

Xero Payroll

Xero is an HMRC-recognised payroll software and is one of the best payroll software for small businesses. It automatically calculates wages and salaries for employees accurately and submits RTI to HMRC. This software is best for growing Small and Medium-sized Enterprises (SMEs). It also offers:

• Automatic pension filing
• Handles SMP and SSP
• Calculate CIS deductions
• Leave management 

It integrates with Stripe, HubSpot, Square, and Employment Hero. However, the pricing of this software is low compared to other software like Sage and QuickBooks. 

FreeAgent Payroll

FreeAgent Payroll is an HMRC-approved payroll software, best for sole traders and micro-businesses. The main features of FreeAgent Payroll are:

• HMRC RTI compliance
• Automate statutory payments, including SMP and SSP
• Leave management 

It integrates smoothly with PayPal, Stripe, Shopify, and Zapier. You can have a free subscription option if you have a business account with Royal Bank of Scotland, Mettle, or NatWest. The pricing varies depending on business types. For a sole trader, the price is £19 per month, and for a limited company, it starts from £27 per month. Visit the official Government website to find more payroll software that is recognised by HMRC.  Note: The pricing of the payroll software can be updated, and it may vary based on specific features, vendor and number of employees. 

What Are the Types of Payroll Software?

Although features are crucial to consider while choosing the best payroll software for a small business, you should know the different types of payroll software. This can help you with integration needs and avoid HMRC penalties.

Desktop Software

Desktop software is installed on a single computer and may suit businesses that do not require remote access.

Cloud-Based

A cloud-based software provides real-time updates for tax compliance and automatic backups. Moreover, you can access your financial data from anywhere and at any time. 

Accountant-Managed Software

Use software that your accountant manages, or use a hybrid model where you input hours and accountants manage the final submission. 

Integrate Payroll Systems

Combines payroll with other HR functions, including holiday management, employee self-service portals and time tracking. 

Why is Implementing the Best Payroll Software for Small Business Crucial?

The UK has a strict tax system for small and large businesses. Whether you are a small or large business owner, you must ensure compliance with UK tax regulations. Implementing great payroll software helps you comply with HMRC, hence reducing the risk of hefty penalties. It can also help you with:

Data Security

It protects sensitive employee data through encryption and often cloud-based storage, so your payroll system remains compliant with the UK General Data Protection Regulation (GDPR). 

Time Savings

Payroll software generates payslips, financial reports and automates routine tasks, helping in saving time so you can focus on your business growth. 

Accessibility

Cloud-based software offers accessibility from anywhere. You can work remotely and can track financial data from anywhere. 

Tax Efficiency

Payroll software simplifies the submission of payroll data to HMRC, including pension contributions. 

Common Challenges for Payroll Software for Small Businesses

When implementing the best payroll software for small businesses, some common mistakes can arise, including:

• Choosing a non-compliant software that does not fully support HMRC regulations. You must select HMRC-approved software. 
• Using poorly backed-up or unsecured systems. You should prioritise cloud-based platforms with strong data encryption.  
• Using spreadsheets or relying on manual data entry increases the risk of errors. Use a tool that integrates directly with accounting systems
• Rushing the implementation and underestimating training needs. You must run a new system in parallel with the old one to ensure accuracy. 

Simplify Payroll For Your Small Business with MicroEntityAccounts

If you are new to business or busy running your business, choosing the right payroll system may be complicated for you. Using the best payroll software for small businesses is important as it ensures your employees are paid accurately and promptly. At MicroEntityAccounts, we help choose the right payroll software for small businesses and set it up for you.

The Bottom Line

The best payroll software for small businesses focuses on scalability and simplicity while ensuring compliance with UK regulations. If you are a small business owner, your payroll tool should be HMRC-recognised. You must choose a software that simplifies payroll processing for small businesses.  A good payroll software automates calculations, supports accurate reporting and reduces errors. Invest in a reliable payroll system to manage payroll confidently, stay compliant and keep your business running effortlessly. For further HMRC-approved payroll software, visit the website: To learn more about Payroll Services for Small Businesses, read our guides:

• What is a Payroll Provider? A Complete Guide!
• Does Small Business Need a Payroll? A Detailed Guide
• Should I Put Benefits and Expenses Through Payroll?
• How Does Outsourced Payroll Work? A Complete Guide

The content provided on Micro-Entity Accounts, including our blog and articles, is for general informational purposes only and does not constitute financial, accounting, or legal advice.