Payroll Administration

Yes, if you’re paying an employee £123 per week or more, or they receive expenses, benefits, or have another job/pension, you must register as an employer with HMRC and operate PAYE (Pay As You Earn). This system collects Income Tax and National Insurance Contributions (NICs) on behalf of HMRC.

Even if you’re the sole director taking a salary, PAYE registration may still be required.

Tip. For a one director company where it is their only source of income, running a payroll can save over £1,000 in corporation tax.

Once registered, you must:

• Calculate and deduct the correct tax and NIC from employee wages
• Report payroll information to HMRC on or before each payday via Real Time Information (RTI)
• Pay HMRC the deductions (usually monthly)
• Provide employees with payslips, P60s, and P45s (as needed)
• Handle statutory payments (e.g. sick pay, maternity pay)
• Keep payroll records for at least 3 years

Failure to meet these duties can lead to penalties and interest.

Tip. If you plan to keep the payroll in house, invest in a good software provider that has good online manuals and technical support line. Often this will save you a lot of stress.

Auto-enrolment is a legal obligation for all UK employers to provide a workplace pension scheme and automatically enrol eligible employees. Employees must be:

• Aged between 22 and State Pension Age
• Earning over £10,000 per year
• Working in the UK

As an employer, you must make minimum contributions (currently 3%) and manage opt-outs, re-enrolment, and compliance with The Pensions Regulator.

Tip. Consider offering salary sacrifice to your employees. This will not only save you employer national insurance, which is great considering recent increases but will also save tax and national insurance for your employees.

You can run payroll yourself, but you’ll need HMRC-recognised payroll software to submit RTI filings and calculate taxes. For many small businesses, outsourcing payroll to an accountant or payroll bureau can save time, reduce errors, and ensure compliance with evolving regulations.

Whichever route you choose, it’s essential that deadlines are met and calculations are accurate.

Tip. If you google “find payroll software that is recognised by HMRC” you will see a list of all HMRC recognised providers. We would advise to review the whole list and choose one that best suits your needs. There are some that are free of charge provider you have a limited number of employees.

Mistakes in payroll—such as overpayments, underpayments, or missing RTI submissions—can result in:

• Penalties and interest from HMRC
• Employee dissatisfaction
• Additional admin to correct errors (e.g. submitting an FPS or EPS correction)

If you discover an error, it’s important to correct it promptly using your payroll software or by contacting HMRC. Consistent late submissions may result in monthly penalties, even if no tax is due.

Tip. In most cases any errors can be corrected in the following payroll month. Always check payroll software manuals for correct way to fix the errors to avoid making further errors.