Understanding HMRC UK Payroll

Payroll knowledge is essential for any business operating in the United Kingdom. Calculating and processing employee compensation, tax deductions, and National Insurance contributions. In this article, we will examine the main elements of UK payroll and provide advice on how to effectively manage it.


PAYE Pay As You Earn (PAYE) is a system utilised by HM Revenue and Customs (HMRC) to deduct income tax and National Insurance contributions from employees’ wages. Employers are responsible for deducting and remitting the correct amount of tax and National Insurance from their employees’ wages to HMRC.

Tax codes

Tax Codes HMRC uses a tax code to determine how much tax an employee must pay. The tax code is a series of numbers and letters based on the employee’s personal allowance, any benefits they receive, and their tax history.

National Insurance

National Insurance (NI) is a contribution made by employees and employers to sustain certain state benefits, such as the State Pension and Jobseeker’s Allowance. Employers pay both Class 1 and Class 1A or 1B contributions, whereas employees only pay Class 1 contributions.


Employers are required to offer eligible employees a workplace pension plan. This is known as automatic enrollment, and it requires employers to contribute on behalf of their employees to a pension plan.

Information in Real Time (RTI)

RTI is a system used by HMRC to obtain real-time payroll data. Employers are required to submit payroll information, including employee earnings and deductions, to HMRC on or before the payment date.

Payroll Application

Employers can use payroll software to assist with payroll management. This software automates many of the calculations and processes associated with payroll, including tax and National Insurance deductions, and can assist employers in meeting their legal responsibilities.

Minimum Wage

Employers are legally required to pay their personnel the National Minimum Wage (NMW). The minimum wage fluctuates based on the employee’s age and whether or not they are an apprentice. Employers must pay their employees at least the minimum wage, or they risk legal action.

Regulatory Payments

Employers may also be required to make statutory payments to their employees, such as Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP). Employers provide these payments to employees who are unable to work due to pregnancy or illness.


In addition to tax and National Insurance contributions, employers may also be required to deduct student loan repayments and pension contributions from employees’ pay.

Annual Leave

Employers must provide a minimum amount of paid annual leave to their employees. This varies based on the employee’s contract and the number of hours worked, but is typically at least 5.6 weeks per year.

Maintaining Documents

Employers are required to maintain accurate records of their payroll, including details of employees’ wages, tax and National Insurance contributions, and any other statutory payments. These documents must be kept for at least three years and be available for HMRC inspection.


Employers are required to submit payroll data to HMRC on a regular basis, typically every month or quarter. This entails submitting to HMRC a Full Payment Submission (FPS) and an Employer Payment Summary (EPS), which detail the payroll for the period in question.


Employers in the United Kingdom must comprehend payroll in order to comply with legal obligations and pay employees accurately and on time. It includes tax and National Insurance contributions, minimum wage, statutory payments, deductions, annual leave, recordkeeping, and reporting, among other factors. Employers can effectively and efficiently manage payroll by keeping up with the most recent legislation and utilising efficient payroll software.

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