Payroll in United Kingdom

Payroll in the United Kingdom runs on a monthly cycle. Payment is usually due by the 25th of each month.

Most UK employers pay monthly, though weekly and bi-weekly payments are also common, especially in manufacturing and retail sectors. There's no legal requirement for specific payment frequency, but you must maintain consistency once established.

The most popular pay dates are the 25th or last working day of each month. If the 25th falls on a weekend or bank holiday, payments typically process on the preceding working day.

Payment timing requirements

You must pay employees by their agreed pay date. Late payments can result in employment tribunal claims and damage employee relations.

For final payments when employment ends, you must pay by the next normal pay date or within 30 days, whichever is sooner.

Are 13th month payments required?

The UK doesn't require 13th month payments. Unlike many European countries, there's no legal obligation or widespread custom for additional monthly payments.

Some employers offer Christmas bonuses, but these are discretionary and typically much smaller than a full month's salary. Any bonus payments you do make are subject to full income tax and National Insurance contributions.

How does holiday pay work?

UK employees earn 5.6 weeks of paid annual leave (28 days for full-time workers). This includes the 8 bank holidays, so the minimum statutory entitlement is actually 20 days plus bank holidays.

Holiday pay calculates based on average weekly earnings over the 52 weeks before the leave period. For employees with regular hours, it's straightforward - they receive their normal pay.

For workers with irregular hours or overtime, you'll need to calculate the average weekly pay, excluding weeks where no pay was earned.

You can pay holiday pay in advance, with regular salary, or as a lump sum when leave is taken. Most employers include it in regular monthly payments for simplicity.

What payment methods are required?

Bank transfers are the standard payment method in the UK. You'll need each employee's:

• Full name as it appears on their bank account
• Sort code (6 digits)
• Account number (8 digits)
• Bank name

Cash payments are legal but impractical for most businesses due to security and record-keeping requirements. Cheques are rarely used and many banks no longer process them efficiently.

For international companies, you can pay in GBP from overseas accounts, but ensure your bank can process UK domestic transfers efficiently to avoid delays.

What must payslips include?

Every employee must receive a payslip showing:

You can provide payslips electronically, but employees must be able to access, store, and print them easily. Most payroll software generates compliant payslips automatically.

Payslips must be in English or include English translations. You must provide them on or before the pay date - never after payment is made.

Keep payslip records for at least 3 years. HMRC can request them during inspections, and employees may need copies for mortgage applications or benefit claims.

Tax withholding reports in the UK are due by the 19th of each month. Late filing can mean a monthly penalty of £100 to £400, depending on how many employees you have.

The UK operates a Pay As You Earn (PAYE) system where employers withhold income tax and National Insurance contributions from employee wages. You'll also need to handle student loan repayments and pension contributions through the same system.

Income tax brackets

The UK tax year runs from April 6th to April 5th the following year. For 2026-27, personal allowance remains at £12,570, meaning the first £12,570 of annual income is tax-free.

Scotland has different rates: Scottish taxpayers pay different income tax bands and rates while keeping the same personal allowance, so check the employee's tax code (S prefix) and the current Scottish rates.

Personal allowance reduces by £1 for every £2 earned over £100,000. This creates an effective 60% tax rate between £100,000 and £125,140.

Withholding requirements

You're responsible for operating PAYE from your first employee's first payday. HMRC expects Real Time Information submissions every time you pay employees - monthly, weekly, or daily payrolls all trigger reporting requirements.

Monthly filing deadlines:

• RTI submissions: On or before payday
• PAYE payment: 22nd of following month (19th if paying by post)
• Annual P60s: May 31st following tax year end

Register for PAYE online through HMRC's Business Tax Account. You'll receive a PAYE reference number and Accounts Office reference within 10 working days.

The system calculates cumulative tax from April 6th, automatically adjusting for over or underpayments throughout the year. This means changing an employee's salary mid-year won't create year-end complications.

Tax registration

New employers must register for PAYE before their first payday. The registration process takes up to 10 working days, so start early.

Documentation needed:

• Certificate of incorporation
• Business bank statements
• Director and employee details
• Registered office address

You can't process payroll legally without PAYE registration. Employees can't receive their first pay until HMRC activates your scheme.

Special tax considerations

Non-resident employees pay UK tax on UK-sourced income. EU/EEA nationals working temporarily might qualify for split-year treatment, reducing UK tax liability.

Tax treaty benefits apply automatically for most countries. US employees might benefit from the totalization agreement, reducing double taxation on certain benefits.

Regional variations matter: Scottish employees pay Scottish income tax rates but UK National Insurance rates. Welsh employees follow UK rates but pay different council tax bands.

Expatriate considerations: UK residents working abroad for UK companies might remain in UK tax scope. The statutory residence test determines liability - days in the UK, family ties, and accommodation all factor into the calculation.

Common tax mistakes

Incorrect tax codes cause 40% of payroll errors. Always use the tax code from HMRC notices, not previous employers' information. Emergency tax codes (1257L W1/M1) should resolve within 6-8 weeks.

Late RTI submissions cost £100 (1 to 9 employees), £200 (10 to 49), £300 (50 to 249) or £400 (250 or more) a month. The first late submission in a tax year does not usually attract a penalty.

Benefit-in-kind oversights catch many employers. Company cars, private medical insurance, and loans over £10,000 all require P11D reporting and Class 1A National Insurance.

Student loan deductions using wrong plan types create employee hardship. Plan 1, Plan 2, Plan 4, Plan 5 and Postgraduate loans all have different thresholds and rates, so use the plan type on the employee's starter checklist or HMRC notice.

United Kingdom employer contributions start with National Insurance at 15% on earnings above £5,000 a year, plus a minimum 3% pension contribution on qualifying earnings.

For a £60,000 salary, you'll pay about £9,571 in employer contributions on top of the base salary, bringing your total cost to about £69,571.

Contribution breakdown

Employer National Insurance applies to earnings above the £5,000 annual secondary threshold, with pay-period thresholds and category reliefs. There's no upper limit, so high earners don't get a break.

The Apprenticeship Levy only applies if your UK payroll exceeds £3 million annually. Most international companies won't hit this threshold initially.

Total employer cost example

Here's what a £60,000 salary costs you in 2026/27:

• Base salary: £60,000
• National Insurance: £8,250 (15% on £55,000 above the £5,000 threshold)
• Pension contribution: £1,320.90 (3% of £44,030 qualifying earnings)
• Apprenticeship Levy: £0 (only for payrolls over £3M)

Total employer cost: £69,570.90 Cost multiplier: 1.16

Higher earners cost proportionally more since there's no National Insurance cap. A £100,000 salary costs you about £115,571 on the same basis.

Contribution caps and ceilings

Employer National Insurance has no annual cap. You'll pay 15% on every pound above £5,000, whether the employee earns £30,000 or £300,000.

Pension contributions under a qualifying-earnings scheme are calculated on the £6,240-£50,270 band, though scheme rules may require more or use a different earnings basis.

Registration requirements

You must register for PAYE (Pay As You Earn) before paying your first employee. HMRC requires registration at least 2 weeks before the first payday.

Auto-enrolment pension registration happens automatically once you have eligible employees. You'll need to choose a qualifying pension provider and register within 3 months.

For the Apprenticeship Levy, registration is automatic through your PAYE scheme if your payroll exceeds £3 million.

Payment deadlines

PAYE and National Insurance payments are due by the 22nd of each month if you pay electronically (19th if paying by post). Late payments trigger penalties from HMRC.

Pension contributions must reach the pension provider by the 22nd of the month following deduction.

Real Time Information submissions to HMRC are required on or before each payday - not monthly like some countries.

Miss the 22nd deadline and you'll face automatic penalties. HMRC doesn't send reminders - the penalty appears on your account within days.

Statutory Sick Pay in the United Kingdom is paid by the employer for up to 28 weeks. Here's how it affects your payroll calculations.

Annual leave

UK employees get 28 days minimum annual leave (5.6 weeks for full-time workers). Part-time workers get pro-rated entitlement based on days worked.

Calculate holiday pay using the worker's average weekly earnings over the 52 weeks before the holiday. If they haven't worked 52 weeks, use the actual weeks worked.

Carryover and payout rules

Workers can carry over unused statutory holiday into the next year, but only if prevented from taking it due to circumstances beyond their control. Additional contractual holiday may have different carryover rules.

When employment ends, pay out all accrued but unused holiday at the normal rate. Calculate this as: (Holiday entitlement ÷ 12) × months worked - holidays already taken.

Sick leave

For 2026/27, Statutory Sick Pay (SSP) is the lower of £123.25 a week or 80% of average weekly earnings, for up to 28 weeks. It is paid for qualifying working days from the first full working day of sickness, subject to eligibility. You pay this directly through payroll.

Medical certification

Workers self-certify for the first seven days. From day eight onwards, they need a fit note from a healthcare professional. No exceptions to this rule.

Parental leave

Maternity leave and pay

Statutory maternity leave lasts 52 weeks. Statutory Maternity Pay (SMP) covers up to 39 weeks for eligible employees: 90% of average weekly earnings for the first six weeks, then the standard weekly rate or 90% of earnings, whichever is lower.

You pay SMP through payroll and reclaim it from HMRC. Small employers can reclaim a higher share to cover administration costs.

Paternity leave and pay

Statutory paternity leave is up to two weeks, with pay subject to separate eligibility rules. Partners can also share up to 50 weeks of maternity leave through Shared Parental Leave.

Calculate parental pay using average weekly earnings over the eight weeks before the qualifying week (15th week before the baby is due).

Public holidays 2026

Scotland, Northern Ireland, and some regions have additional local holidays. Check local calendars for your specific locations.

Work on bank holidays doesn't require premium pay unless stated in the employment contract. Many employers provide time off in lieu or enhanced rates voluntarily.

Mandatory benefits affecting payroll

Pension auto-enrollment

All eligible employees must be enrolled in a workplace pension. Minimum contributions for 2026/27 on qualifying earnings: 3% employer and 8% in total, so the employee normally pays 5% including tax relief.

Auto-enroll employees aged 22-State Pension age earning over £10,000 annually. Deduct employee contributions through payroll and pay both portions to the pension provider monthly.

National Insurance and income tax

These aren't benefits but affect take-home pay significantly. The current employee National Insurance main rate is 8%.

Optional common benefits

Many employers provide private medical insurance, life insurance, and enhanced sick pay. These often create benefit-in-kind charges requiring P11D reporting and additional tax calculations.

Company cars, fuel benefits, and accommodation all have specific calculation methods that affect monthly payroll. Use HMRC's benefit calculators to ensure accuracy.

Miss the 19th monthly filing deadline in United Kingdom and HMRC can charge a monthly penalty of £100 to £400, depending on how many employees you have, plus interest on unpaid taxes.

HMRC doesn't give much wiggle room when it comes to payroll compliance. You'll need to stay on top of monthly filings, annual reconciliations, and detailed record-keeping to avoid costly penalties.

Monthly filing requirements

You'll submit Real Time Information (RTI) returns through HMRC's online portal every time you pay employees. This includes Full Payment Submissions (FPS) and Employer Payment Summaries (EPS).

Submit your FPS on or before each payday. If you pay monthly, your deadline is typically the 19th of the following month. Weekly payrolls need FPS submissions within that same week.

EPS submissions are due by the 19th of each month if you're claiming allowances, reporting statutory payments, or have no payroll activity to report.

Late RTI submissions can trigger a monthly penalty:

• 1-9 employees: £100 per month
• 10-49 employees: £200 per month
• 50-249 employees: £300 per month
• 250+ employees: £400 per month

Annual reporting

Your payroll year runs from April 6th to April 5th. You'll need to complete several year-end tasks by specific deadlines.

Submit your final FPS for the tax year on or before the last payday, marked as the final submission.

Provide P60s to all employees by May 31st. These show total pay and deductions for the tax year. You'll also issue P45s when employees leave, covering their pay and tax details from April 6th to their leaving date.

Employee documentation

Employment contracts must include specific minimum terms under the Employment Rights Act 1996. You've got two months from the employee's start date to provide written particulars.

Required contract elements include job title, start date, pay details, working hours, holiday entitlement, notice periods, and workplace location.

Payslips must show gross pay, deductions, net pay, and variable deduction amounts. You can provide these electronically if employees can access and store them easily.

Keep payroll records for three years minimum. HMRC can request these during compliance checks, and missing records can result in estimated tax assessments.

Penalties and enforcement

HMRC charges a monthly penalty for late RTI filing of £100 (1 to 9 employees), £200 (10 to 49), £300 (50 to 249) or £400 (250 or more). Penalties also apply for late payment and incorrect withholding, so check HMRC's current schedule on GOV.UK before relying on a figure.

Interest charges apply to late tax payments. HMRC can also issue determination notices if you fail to submit returns, estimating your tax liability.

Regulatory oversight

HM Revenue & Customs (HMRC) oversees all payroll compliance. Their Employer Helpline (0300 200 3200) handles routine queries, while the PAYE Online portal manages most submissions.

Access RTI submissions through the Government Gateway portal at www.gov.uk/log-in-register-hmrc-online-services. You'll need your employer PAYE reference and Government Gateway user ID.

In an HMRC compliance check, they'll examine RTI accuracy, benefit reporting, and record-keeping standards. Serious non-compliance can result in criminal prosecution and director disqualification.