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UK Payroll Compliance Guide 2026/27: PAYE, National Insurance, RTI & Statutory Pay
Summary:
- UK payroll runs on PAYE: employers deduct income tax and National Insurance each payday and report to HMRC in real time (RTI) via the Full Payment Submission, on or before payday.
- 2026/27 income-tax bands (England, Wales, NI): 0% to £12,570, 20% to £50,270, 40% to £125,140, 45% above. Scotland sets its own rates.
- Employer on-costs: 15% employer National Insurance above £5,000/yr, a minimum 3% workplace pension, and (over a £3m pay bill) the 0.5% Apprenticeship Levy.
- Key deadlines: FPS on/before payday, PAYE/NIC by the 22nd, P60 by 31 May, P11D by 6 July.
Quick answer: To run UK payroll you operate PAYE: deduct income tax (0/20/40/45% by band) and National Insurance (employee 8%/2%; employer 15% above £5,000/yr) each payday, report to HMRC in real time via the FPS, auto-enrol eligible staff into a workplace pension (8% minimum, at least 3% employer), and handle statutory pay, P60s, P45s and P11Ds. You need a UK entity to register a PAYE scheme, or an Employer of Record to employ with no entity.
How is UK payroll run? PAYE and Real Time Information
UK payroll runs on PAYE (Pay As You Earn): employers deduct income tax and National Insurance from each payslip and pay them to HMRC. Since 2013 reporting has been real time — under Real Time Information (RTI) you report pay and deductions to HMRC on or before every payday, not once a year. The tax year runs from 6 April to 5 April, and the tax month from the 6th to the 5th. This is the educational companion to our managed UK payroll service; if you’d rather hand the whole run to a specialist, talk to an expert.
UK income tax (PAYE) bands for 2026/27
Income tax is deducted at source using the employee’s tax code. The bands below apply to England, Wales and Northern Ireland; Scotland sets its own rates and bands, signalled by an “S” tax-code prefix.
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Personal Allowance taper: the £12,570 allowance is reduced by £1 for every £2 of income above £100,000, reaching £0 at £125,140 — creating an effective 60% marginal rate in between.
UK tax codes and how PAYE is applied
Every employee has a tax code that tells the employer how much tax-free pay to apply each period. HMRC issues and updates codes.
- 1257L — the standard code for someone with one job and the full £12,570 Personal Allowance (the number is the allowance ÷ 10).
- BR / D0 / D1 — flat-rate codes taxing all pay at 20%, 40% and 45% respectively; common for second jobs or pensions.
- W1 / M1 / X — non-cumulative “emergency” codes used when prior pay/tax details are missing.
- K codes — used when deductions (e.g. taxable benefits) exceed allowances, adding to taxable pay.
- NT — no tax to be deducted.
- S / C prefix — routes the employee to Scottish (S) or Welsh (C) income-tax rates.
National Insurance contributions (Class 1)
National Insurance (NIC) is paid by both employee and employer on earnings above set thresholds.
| Contribution | Who pays | Rate / threshold |
|---|---|---|
| Class 1 primary | Employee | 8% from £242/wk (primary threshold) to £967/wk; 2% above |
| Class 1 secondary | Employer | 15% on earnings above the £5,000/yr secondary threshold |
| Class 1A / 1B | Employer | 15% on most taxable benefits in kind |
Employers may be able to reduce the secondary NIC bill through the Employment Allowance, claimed through the EPS (see below).
Pension auto-enrolment
Employers must automatically enrol eligible workers — those aged 22 to State Pension age earning over £10,000 — into a qualifying workplace pension. The statutory minimum is 8% of qualifying earnings, of which at least 3% must come from the employer and 5% from the employee. Employers must also manage opt-outs, opt-ins, three-yearly re-enrolment, and file a declaration of compliance with The Pensions Regulator.
UK payroll reporting cycle and deadlines
Missing an RTI deadline triggers automatic HMRC penalties, so this calendar is the backbone of a compliant UK payroll.
- On or before payday — FPS (Full Payment Submission). The core RTI return: reports each employee’s pay, tax, NI and deductions to HMRC on or before the day they are paid.
- By the 22nd — PAYE & NIC payment. Tax and NICs for the tax month are paid to HMRC by the 22nd electronically (19th by post). Small employers under £1,500/month may pay quarterly.
- By the 19th — EPS (Employer Payment Summary). Filed to reclaim statutory payments and the Employment Allowance, or to report a nil payment.
- By 31 May — P60. The annual summary of total pay, tax and NI, given to every employee still employed on 5 April.
- By 6 July — P11D & P11D(b). Reports taxable benefits in kind (company cars, private medical, etc.) and the Class 1A NIC due.
- On leaving — P45. Issued when an employee leaves, showing pay and tax to date for their next employer.
Statutory pay and leave to budget for
Beyond gross salary, UK employers fund a range of statutory payments and leave. Many can be partly reclaimed from HMRC via the EPS, but all must be calculated correctly each run.
- Statutory Sick Pay (SSP) — £123.25/week for up to 28 weeks. From April 2026, SSP is payable from the first qualifying day.
- Statutory Maternity Pay (SMP) — up to 39 weeks: 90% of average weekly earnings (AWE) for 6 weeks, then the lower of £194.32/week or 90% of AWE for 33 weeks.
- Paternity, Adoption & Shared Parental Pay — the lower of £194.32/week or 90% of AWE.
- Annual leave — a statutory minimum of 5.6 weeks (28 days for a full-time worker, which may include the 8 bank holidays).
- Working time — an average 48-hour week over a 17-week reference period under the Working Time Regulations; workers may individually opt out.
- Apprenticeship Levy — employers with a pay bill over £3 million pay 0.5% through PAYE, offset by a £15,000 annual allowance.
National Minimum and Living Wage (from April 2026)
- National Living Wage (21 and over): £12.71/hour.
- 18–20: £10.85/hour.
- Under 18 and apprentices: £8.00/hour.
Rates are reviewed every April. Paying below the minimum is a criminal offence and triggers HMRC enforcement and naming.
Do you need a UK entity to run payroll?
To register a PAYE scheme with HMRC and act as the legal employer, you need a UK entity, a registered place of business, or a partner who already holds these. A global payroll provider like TopSource can run compliant payroll under your existing UK entity. If you don’t have one, our UK Employer of Record service employs and pays staff in the UK with no entity setup — and you can switch to managed payroll once your own entity is live.
Outsourcing your UK payroll
Running UK payroll in-house means owning PAYE calculations, RTI filing, pension auto-enrolment, statutory pay and year-end reporting — and the penalty risk if any of it slips. Outsourcing hands that to named UK specialists for a single managed fee. See our UK global payroll service for what’s included, or talk to an expert about a transfer.
Frequently asked questions
What is the UK tax year for payroll?
The UK tax year runs from 6 April to 5 April. The tax month runs from the 6th to the 5th, and PAYE/NIC for each tax month is paid to HMRC by the 22nd (electronically). RTI Full Payment Submissions are filed on or before every payday.
How much is employer National Insurance in the UK?
Employers pay Class 1 secondary National Insurance at 15% on each employee’s earnings above the secondary threshold of £5,000 a year. Class 1A and 1B NIC of 15% also applies to most taxable benefits in kind. The Employment Allowance can reduce the secondary NIC bill for eligible employers.
What is RTI in UK payroll?
Real Time Information (RTI) is HMRC’s system requiring employers to report pay and deductions every payday rather than once a year. The main return is the Full Payment Submission (FPS), filed on or before the day employees are paid; an Employer Payment Summary (EPS) is filed by the 19th of the following month to reclaim statutory payments or report a nil payment.
What is the difference between a P45, P60 and P11D?
A P45 is issued when an employee leaves, showing pay and tax to date. A P60 is the annual summary of total pay, tax and NI, given to every employee still employed on 5 April by 31 May. A P11D reports taxable benefits in kind (e.g. company cars, private medical) to HMRC by 6 July, with the Class 1A NIC reported on the P11D(b).
How much must employers contribute to pensions in the UK?
Under auto-enrolment, eligible workers (aged 22 to State Pension age earning over £10,000) must be enrolled in a workplace pension with a minimum 8% of qualifying earnings, of which at least 3% comes from the employer and 5% from the employee.
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Mark is the Global Sales Director at Topsource Worldwide. He has been a pioneering figure in the global expansion space since 2013. He is the first salesperson to sell EOR services in Europe, a feat he accomplished in 2013.