Payroll and taxes in the United Kingdom

At a glance

Key figures with the official source for each, checked November 2026.

Registering as an employer and the first pay run

An employer must register with HMRC before the first payday. Registration produces an employer PAYE reference, which arrives by letter. HMRC does not accept registrations more than two months before the first payment to staff.

If payday arrives before the reference does, GOV.UK guidance is to run payroll anyway, store the Full Payment Submission and send it late once the reference is issued.

• Written statement. Each employee and worker must receive a principal written statement of particulars on the first day of work. A wider statement follows within 2 months.
• Pension duties. Automatic enrolment duties start on the day the first member of staff starts work.
• Insurance. Employers' liability insurance of at least £5 million must be in place as soon as the business becomes an employer in Great Britain.

Under an EOR arrangement the EOR is the registered employer. It holds the PAYE scheme, the pension scheme and the insurance, and the client receives one invoice. A US company that hires directly, without an EOR, must take each of these steps in its own name.

Income tax withholding under PAYE

The employer withholds income tax on each pay run using the tax code HMRC issues for the employee. The standard code for 2026 to 2027 is 1257L, which reflects the £12,570 personal allowance. The allowance falls by £1 for every £2 of income above £100,000 and reaches zero at £125,140.

Scottish taxpayers have an S prefix on their tax code and six bands above the personal allowance: 19%, 20%, 21%, 42%, 45% and a 48% top rate on income above £125,140. Where the employee lives decides which schedule applies, not where the employer is based. Payroll software applies the right table from the tax code.

Student loan repayments are also collected through payroll, at 9% of earnings above the plan threshold, and 6% for postgraduate loans.

National Insurance contributions

National Insurance is the only social contribution on UK payroll. It is calculated per pay period, not cumulatively across the year. The figures below are for standard category A employees in 2026 to 2027.

There is no ceiling on the employer charge, so cost rises in a straight line with salary. On a £70,000 salary the employer contribution is 15% of £65,000, which is £9,750.

• Employment Allowance. Eligible employers can reduce their annual employer bill by up to £10,500.
• Benefits in kind. Taxable benefits such as private medical cover attract Class 1A contributions at 15%, paid by the employer only.
• Reduced employer rates. A 0% employer rate applies up to £50,270 for employees under 21 and apprentices under 25.

Pension auto-enrolment and the Apprenticeship Levy

Under the Pensions Act 2008 the employer must enrol staff who are aged between 22 and State Pension age, earn at least £10,000 a year and normally work in the UK. Staff who become eligible later must be enrolled and written to within 6 weeks.

• Minimum contributions. 8% in total, with at least 3% from the employer and 5% from the employee.
• Earnings base. For most schemes the percentages apply to earnings between £6,240 and £50,270 a year, not to full salary.
• Opt-outs. An employee who opts out within one month of joining gets a refund. The employer must re-enrol eligible leavers every 3 years and file a re-declaration of compliance each time.
• Records. Most pension records must be kept for 6 years.

On a £70,000 salary the statutory minimum employer contribution is 3% of £44,030, about £1,321 a year. Many employers contribute on full salary instead, which costs more.

The Apprenticeship Levy is 0.5% of the annual pay bill. It only becomes payable when the pay bill exceeds £3 million, because each employer has a £15,000 allowance.

Real time reporting, payslips and payment deadlines

PAYE runs on Real Time Information. The tax month starts on the 6th and ends on the 5th.

• Full Payment Submission. Sent on or before payday for every person paid, including those below the National Insurance thresholds.
• Employer Payment Summary. Sent by the 19th of the tax month to reclaim statutory payments or report a month with no pay.
• Payment. Tax and National Insurance must reach HMRC by the 22nd of the next tax month if paid electronically, or the 19th by cheque.
• Payslips. Every employee and worker must receive a payslip no later than payday. It must show gross and net pay, variable deductions and, where pay varies with time worked, the hours.

Late filing penalties are charged monthly and scale with headcount: £100 for 1 to 9 employees, £200 for 10 to 49, £300 for 50 to 249 and £400 for 250 or more. Late payment brings interest and separate penalties.

Employers can reclaim 92% of statutory maternity, paternity, adoption and shared parental pay through the Employer Payment Summary. Statutory Sick Pay cannot be reclaimed.

Pay floors, bonuses and the 13th month question

UK law does not require a 13th month salary, a holiday bonus or any other fixed bonus. Annual salary is normally paid in 12 equal monthly instalments. Bonuses and commission exist only where the contract or a bonus plan provides for them, and they are taxed and subject to National Insurance like salary.

The statutory floor is the National Minimum Wage Act 1998. Rates change every 1 April. From 1 April 2026 they are:

Salaried staff are still covered. A salary that looks comfortable can fall below the floor once long hours, salary sacrifice or deductions are counted, so payroll should test the hourly equivalent each pay period.

The Fair Work Agency, set up on 7 April 2026, now handles complaints about pay and work rights.

Year-end reporting

The tax year runs from 6 April to 5 April. Because every pay run is already reported in real time, year end is light compared with many countries.

• Final submission. The last Full Payment Submission of the year is sent on or before the final payday and flagged as the final one.
• P60. Each employee on the payroll on 5 April must receive a P60 by 31 May.
• Expenses and benefits. Benefits in kind that were not taxed through payroll are reported by 6 July, together with the total Class 1A National Insurance due.
• Class 1A payment. Due by 22 July, or 19 July if paid by cheque.

A late benefits return attracts a penalty of £100 per 50 employees for each month or part month.

New tax codes for the coming year are issued by HMRC before April and loaded into payroll. Thresholds, the minimum wage and statutory pay rates also change each April, so budgets set in dollars should be refreshed at that point. Employees do not file a tax return just because they are employed. Most have their tax settled entirely through PAYE.

Frequently asked questions

More on hiring in the United Kingdom

Employer of record and hiring guide for the United Kingdom · Termination and notice · Benefits and leave · Contractors vs employees · Cost calculator · EOR vs PEO vs entity

Sources

• HMRC, Rates and thresholds for employers 2026 to 2027
• GOV.UK, Income Tax rates and Personal Allowances
• GOV.UK, Running payroll: reporting to HMRC
• GOV.UK, Pay employers' PAYE
• GOV.UK, Payroll: annual reporting and tasks
• GOV.UK, Expenses and benefits for employers: deadlines
• GOV.UK, Workplace pensions for employers
• HMRC, What happens if you do not report payroll information on time

This page is general information, not legal, tax or immigration advice. Rates, thresholds and procedures change, and how they apply depends on the facts. Confirm current figures with a qualified adviser or with Dryft before acting. Checked November 2026.