Taking on your first employee is a big step for a small business. As soon as you pay staff, you become an employer in the eyes of HMRC. That means you must run payroll, take tax and National Insurance from wages, and send reports to HMRC every time you pay people.
This guide explains payroll for small employers in simple English. The rates and thresholds are for the 2026/27 tax year (6 April 2026 to 5 April 2027), checked on GOV.UK on 8 October 2026. The figures are for England and Northern Ireland. Scotland and Wales can have different Income Tax rates.
What is payroll?
Payroll is the system you use to pay your staff and report to HMRC. In the UK this is called PAYE (Pay As You Earn). Each payday you must:
- work out each employee’s pay
- take off Income Tax and employee National Insurance
- take off other deductions, such as student loan repayments and pension contributions
- work out the employer National Insurance you must pay
- send a report to HMRC
- pay HMRC what you owe
Most of this is done with payroll software. HMRC must receive your reports online, so paper is not an option for most employers.
Step 1: Register as an employer
You must register with HMRC as an employer before your first payday. GOV.UK says you cannot register more than 2 months before you start paying people. When you register, HMRC sends you an employer PAYE reference number by letter.
Many people do not know this: if you are the only director of a limited company, GOV.UK says you must register even if you are only employing yourself.
If you need to pay someone before your reference number arrives, GOV.UK says you can run payroll, store your report, and send it late once you have your reference.
Step 2: Collect your employee’s details
Before you pay a new starter, you need their basic details, such as their name, address, date of birth, National Insurance number and start date. You also need information from their P45 (from their last job) or a new starter checklist. This helps you use the right tax code, so the correct amount of tax is taken.
You must also check that the person has the legal right to work in the UK before they start.
Key payroll rates for 2026/27
Here are the main figures from GOV.UK for the 2026/27 tax year (England and Northern Ireland).
Income Tax
- Personal Allowance (tax-free pay): £12,570 a year (£1,048 a month, £242 a week)
- Basic rate 20%: on the first £37,700 above the allowance
- Higher rate 40%: from £37,701 to £125,140
- Additional rate 45%: above £125,140
National Insurance (category A)
- Lower Earnings Limit: £129 a week (£559 a month, £6,708 a year)
- Employee pays 8% on earnings between £242 and £967 a week, and 2% above £967 a week
- Employer pays 15% on earnings above the Secondary Threshold of £96 a week (£417 a month, £5,000 a year)
Minimum wage (from 1 April 2026)
- 21 and over (National Living Wage): £12.71 an hour
- 18 to 20: £10.85 an hour
- Under 18: £8 an hour
- Apprentice: £8 an hour
You must pay at least the right rate for each worker’s age. GOV.UK says these rates change on 1 April every year.
Step 3: Report to HMRC every payday (RTI)
Payroll reporting in the UK is called Real Time Information (RTI). Each time you pay staff, you send a Full Payment Submission (FPS) to HMRC.
GOV.UK says you must send the FPS on or before your employees’ payday. This is true even if you pay HMRC quarterly instead of monthly. Late reports can lead to penalties, so it is important to keep to this rule.
Step 4: Pay HMRC on time
The tax and National Insurance you take from wages, plus your employer National Insurance, must be paid to HMRC. GOV.UK gives these deadlines:
- Monthly payers: by the 22nd of the next tax month (the tax month starts on the 6th)
- Quarterly payers: by the 22nd after the end of the quarter (for example, 22 July for the quarter 6 April to 5 July)
- If you pay by post, the deadline is the 19th instead of the 22nd
Employment Allowance: cut your employer NI bill
Many small employers can claim Employment Allowance. GOV.UK says this lets eligible employers reduce their employer Class 1 National Insurance by up to £10,500 each tax year. You claim it through your payroll software.
Not everyone can claim. For example, GOV.UK says a company with only one director cannot claim if that director is the only employee liable for employer National Insurance. Personal or household staff (like a nanny or gardener) usually cannot be included, unless they are a carer or support worker. Only one company in a group of connected companies can claim.
Workplace pensions (auto-enrolment)
Every employer has pension duties. GOV.UK says you must put eligible staff into a workplace pension scheme. Eligible staff are aged between 22 and State Pension age and earn at least £10,000 a year.
You must pay at least 3% of the employee’s “qualifying earnings” into the scheme as the employer. Your employee normally pays in too. Other staff may also have the right to join.
Other things payroll covers
- Statutory pay: sick pay, maternity pay and paternity pay are paid through payroll. For 2026/27, GOV.UK lists Statutory Sick Pay at £123.25 a week (or 80% of average weekly earnings if lower), and Statutory Paternity Pay at £194.32 a week (or 90% of average weekly earnings if lower).
- Student loans: if an employee has a student loan, you take repayments from their pay above the plan threshold.
- Payslips: you must give every employee a payslip.
- Year end: after 5 April, you give each employee still working for you a P60.
How UK Tax Co can help
Payroll has strict deadlines, and mistakes can cost you in penalties and interest. UK Tax Co runs payroll for small employers all over the UK, online. We register you as an employer, run payroll, send your RTI reports, and tell you how much to pay HMRC and when.
- Payroll: £10 per person per month
- Company Accounts: £50 per month (includes 1 payroll)
See our payroll and PAYE service for more details.
FAQ
Do I need to register as an employer if I only pay myself as a director?
Yes. GOV.UK says you must register even if you are only employing yourself, for example as the only director of a limited company.
When do I send the Full Payment Submission?
On or before your employees’ payday, every time you pay them.
When do I pay HMRC?
By the 22nd of the next tax month if you pay monthly, or by the 22nd after the end of the quarter if you pay quarterly. If you pay by post, it is the 19th.
What is the employer National Insurance rate for 2026/27?
15% on earnings above the Secondary Threshold of £5,000 a year (£96 a week).
How much is Employment Allowance?
Up to £10,500 for the tax year, if you are eligible.
This article is general guidance, not personal tax advice.
Need help? Call UK Tax Co on 020 7050 0712 or WhatsApp 07579566666.