To run payroll in a UK limited company you process a pay run each period: take each employee's gross pay, deduct income tax (PAYE), employee National Insurance, any pension and student loan, then report it to HMRC with a Full Payment Submission (FPS) on or before payday and pay HMRC by the 22nd of the following month. You'll need RTI-compatible payroll software and to be registered as an employer first.
This guide assumes you've already registered (or are about to register) for PAYE. If you haven't, start with our walkthrough on how to register for PAYE as an employer, then come back here for the mechanics of actually running each pay run.
What does "running payroll" actually involve?
Registering for PAYE just opens the door. The ongoing job is a repeating cycle, usually monthly:
- Record each employee's gross pay, hours and any extras for the period.
- Calculate deductions: income tax, National Insurance, pension, student loan.
- Work out employer National Insurance and the employer pension contribution.
- Produce and issue payslips.
- Send an FPS to HMRC on or before payday (and an EPS where needed).
- Pay your employees, then pay HMRC by the 22nd of the next month.
Then you repeat it every pay period, with extra steps at year-end. Get the cycle right and payroll is routine; miss the RTI deadlines and you collect penalties.
Should you use payroll software or an accountant/bureau?
Every employer must report payroll in real time, so you need RTI-compatible software. HMRC's free Basic PAYE Tools exists but is deliberately limited — it won't produce payslips, won't handle auto-enrolment and is impractical above a handful of employees — so most employers either buy commercial software or outsource. There are three routes:
- Commercial payroll software — you run it yourself. Cheapest in cash terms, but you own the deadlines, the calculations and the year-end.
- An accountant or payroll bureau — they run it for you, file the FPS/EPS and tell you what to pay HMRC. Best if you'd rather not touch RTI at all.
- Hybrid — software plus an accountant who reviews and handles year-end.
For a single director or a handful of staff, a fixed-fee bureau is often cheaper than the time you'd spend learning the rules. Our payroll services page sets out how we handle the full cycle, including auto-enrolment and year-end.
Collecting employee details before the first pay run
Before anyone's first payday you need enough information to set the right tax code and deductions:
- P45 from a previous job — gives you their tax code, pay and tax to date. Use parts 2 and 3.
- Starter checklist — if there's no P45 (first job, or P45 lost). It sets a temporary tax code and tells you whether to apply a student loan plan.
- Personal details — full name, address, date of birth, National Insurance number, start date.
The tax code drives how much tax-free pay each employee gets. For 2026/27 the standard personal allowance is £12,570, shown as tax code 1257L. If a code looks wrong, our guide on whether your tax code is wrong explains how to check and fix it.
Running a pay run: how gross-to-net works
Each pay run turns gross pay into net pay by stacking deductions. Here's what comes off, in order of how people usually think about them.
Income tax (PAYE)
Tax is charged on pay above the personal allowance. The 2026/27 bands are 20% basic (£12,571–£50,270), 40% higher (£50,271–£125,140) and 45% additional (over £125,140). Software spreads the allowance across the year, so a monthly payslip taxes roughly one-twelfth of each band.
Employee and employer National Insurance
Employees pay Class 1 NIC on earnings above the primary threshold. Separately, you pay employer (secondary) Class 1 NIC on earnings above the secondary threshold of £5,000 a year (frozen) — a real cost on top of the salary. The mechanics of the employer charge are covered in our note on employers' National Insurance for 2026/27.
Pension auto-enrolment
If you employ eligible jobholders you must automatically enrol them into a qualifying pension and contribute. Both employee and employer contributions are deducted/added in the pay run. See our overview of auto-enrolment for small businesses for who counts as eligible.
Student loan deductions
If an employee is repaying a student or postgraduate loan, you deduct repayments through payroll once their pay crosses the relevant plan threshold. Our explainer on how student loan repayments work on your payslip shows the plans and how they appear.
A simple gross-to-net worked example
Take one employee on the National Living Wage. From 1 April 2026 the NLW for workers aged 21+ is £12.71 an hour (per GOV.UK). Full time at 37.5 hours a week is roughly £24,785 a year — say a round £24,000 gross salary for a clean illustration, with tax code 1257L and no student loan.
| Line | Calculation | Amount (year) |
|---|---|---|
| Gross salary | — | £24,000 |
| Personal allowance | Tax-free | £12,570 |
| Taxable pay | £24,000 − £12,570 | £11,430 |
| Income tax | £11,430 × 20% | £2,286 |
So on this salary the employee pays roughly £2,286 of income tax for the year (about £190.50 a month), before employee NIC and any pension. On top of that, you as the employer pay secondary Class 1 NIC on pay above the £5,000 threshold — a cost the employee never sees but that lands on your monthly HMRC bill. To model take-home for a specific salary including NIC, use our take-home pay calculator.
Submitting the FPS and EPS to HMRC
Real Time Information (RTI) means HMRC expects a report every time you pay someone:
- Full Payment Submission (FPS) — sent on or before payday, every pay run. It tells HMRC what you paid each employee and what you deducted.
- Employer Payment Summary (EPS) — sent when you need to tell HMRC something the FPS can't: claiming the Employment Allowance, recovering statutory pay, reclaiming CIS deductions, or reporting a nil payment in a month where you paid no one.
The FPS is the non-negotiable one. Late or missing FPS submissions are the most common trigger for payroll penalties.
Paying HMRC: the 22nd deadline
Each month you owe HMRC the income tax and total (employee + employer) National Insurance you deducted, plus any student loan. The deadline is the 22nd of the following tax month if you pay electronically, or the 19th if you pay by post. Employers whose average monthly PAYE and NIC is under £1,500 can usually arrange to pay quarterly. Miss the date and HMRC charges interest and late-payment penalties.
Payslips: a legal requirement
Every worker has a legal right to an itemised payslip, on or before payday. It must show:
- Gross pay for the period.
- The amounts of any variable and fixed deductions, and what they're for (tax, NIC, pension, student loan).
- Net pay.
- Where pay varies by time worked, the number of hours paid.
You can issue payslips on paper or electronically. To sanity-check the deductions on a payslip, our payslip calculator breaks down gross to net line by line.
Directors' payroll: why it's different
A director is an employee for PAYE, but National Insurance works differently. Directors use an annual earnings period for NIC: their thresholds apply across the whole year rather than per pay run, so the timing of NIC differs from a normal employee even if salary is identical.
You can run a director's payroll monthly (smooths cash flow, normal RTI rhythm) or annually (a single pay run, common for owner-managers taking a small salary plus dividends). Either way you still need to file an FPS and meet the deadlines. Many small-company directors set a salary that uses the personal allowance efficiently alongside dividends — our tax-efficiency notes touch on how salary and dividends interact.
Payroll year-end: final FPS, P60s and P11Ds
The tax year ends on 5 April. To close it off:
- Final FPS — mark your last submission of the year as final (or send a final EPS).
- P60s — give every employee still working for you at year-end a P60 summarising their pay and deductions, by 31 May.
- P11D — report any taxable benefits in kind (company car, private medical, etc.) by 6 July, and pay Class 1A NIC on them.
Then you update tax codes for the new year and carry on.
Common mistakes and penalties for late RTI
- Filing the FPS after payday — the single most common slip. HMRC charges monthly late-filing penalties that scale with headcount.
- Forgetting the nil EPS — if you pay no one in a month, you must tell HMRC via an EPS, or they'll chase a payment you don't owe.
- Paying HMRC late — interest plus late-payment penalties after the 22nd.
- Wrong tax code or NI category — leads to under- or over-deductions you'll have to unwind.
- Missing auto-enrolment duties — The Pensions Regulator has its own penalty regime, separate from HMRC.
If running payroll alongside the rest of the business is becoming a chore, book a free call with Zmartly and we'll set up and run the whole cycle — software, RTI filing, auto-enrolment and year-end — so the deadlines stop being your problem.
Frequently asked questions
How often do I have to report payroll to HMRC?
Every pay run. You send a Full Payment Submission (FPS) on or before each payday, whether you pay weekly or monthly. If you pay nobody in a particular month, you instead send an Employer Payment Summary (EPS) to report a nil payment. There is no way to skip a period silently under RTI.
When do I have to pay HMRC the PAYE and National Insurance I deduct?
By the 22nd of the following tax month if you pay electronically, or the 19th if you pay by post. The amount is the income tax plus employee and employer National Insurance you deducted, plus any student loan repayments. Employers whose average monthly PAYE and NIC is under £1,500 can usually arrange to pay quarterly instead.
Do I need to run payroll for a single director?
If the director takes a salary through the company, yes — they're an employee for PAYE and you must operate payroll and file an FPS. Directors use an annual earnings period for National Insurance, and you can run their pay monthly or as a single annual pay run. Even a small salary still needs to be reported in real time.
What must a UK payslip show?
A payslip is a legal right and must show gross pay, the amount and reason for each deduction (tax, National Insurance, pension, student loan), and net pay. Where pay depends on hours worked, it must also show the number of hours paid. Payslips can be paper or electronic but must be provided on or before payday.
