Small business payroll · UK guide · 2026
Payroll for small business UK: PAYE, RTI, and first hire.
Written by Iftikhar Rashid FCCA — 16 years in practice.
What you need when hiring your first employee
Hiring your first employee triggers: PAYE registration with HMRC, Real Time Information (RTI) submissions on every payday, employer National Insurance contributions, auto-enrolment pension obligations, and employer liability insurance. These must all be in place before or on the first payday. None of them can be retrospectively applied. See gov.uk/paye-for-employers and The Pensions Regulator's first-employer guidance.
Setting up payroll — step by step
Register as an employer with HMRC
Register before the first payday — ideally 4–8 weeks in advance. HMRC sends your PAYE reference and Accounts Office reference by post. You need both to submit RTI.
Get payroll software
HMRC's free Basic PAYE Tools handles up to 10 employees. Commercial options (Xero Payroll, Sage, BrightPay) offer more automation. Software must support RTI submissions.
Collect employee details
P45 from previous employer or completed starter checklist (P46). National Insurance number, date of birth, tax code.
Run payroll and submit RTI
Calculate gross pay, apply tax code, deduct income tax and employee NI. Submit Full Payment Submission (FPS) to HMRC on or before payday — not after.
Pay HMRC by the 22nd
Income tax and NI deducted must be paid to HMRC by the 22nd of the following month (19th if by cheque). PAYE payments and RTI submissions are separate.
Meet workplace-pension duties
Assess staff from their duties start date, choose a suitable workplace-pension scheme, and calculate contributions for those who must be enrolled. The Pensions Regulator sets the duties and contribution rules.
FAQs
How do I set up payroll for my small business?
To set up payroll as a UK employer: (1) Register as an employer with HMRC — you must do this before the first payday; (2) Get payroll software (HMRC's free Basic PAYE Tools or commercial software); (3) Collect employee information (P45 or starter checklist); (4) Run payroll and submit RTI (Real Time Information) reports to HMRC on or before each payday; (5) Pay employees and pay HMRC by the 22nd of the following month (19th if paying by cheque). See gov.uk/register-employer.
What is Real Time Information (RTI)?
Real Time Information is HMRC's system for reporting payroll information. Every time you pay an employee, you must submit a Full Payment Submission (FPS) to HMRC on or before the payment date. If no employees are paid in a period, you must submit an Employer Payment Summary (EPS) instead. Late RTI submissions attract automatic penalties.
What employer costs come with hiring my first employee?
Beyond the gross salary, employer costs include: employer National Insurance contributions at 15% on earnings above the £5,000 secondary threshold, employer pension contributions (minimum 3% under auto-enrolment on qualifying earnings), any benefits in kind (which have P11D implications), and employer liability insurance (legally required). Employer NI and pension add approximately 18–20% on top of gross salary for most small business employees. The £10,500 Employment Allowance can offset employer NI for eligible employers.
What is auto-enrolment?
Auto-enrolment requires UK employers to assess staff for workplace-pension duties. Eligible jobholders aged 22 to State Pension age who earn above the applicable earnings trigger must be enrolled. Minimum contributions are normally 3% from the employer and 5% from the worker on qualifying earnings, subject to the scheme and the worker's circumstances. The Pensions Regulator sets the duties and may take enforcement action where an employer does not meet them.
Can I run my own payroll as a small business?
Yes — HMRC's free Basic PAYE Tools handles payroll for businesses with up to 10 employees. It is straightforward for simple payrolls. Most small business owners find it manageable initially. However, as headcount grows, or if you have employees with complex tax codes, benefits in kind, or salary sacrifice arrangements, outsourcing to your accountant typically saves time and reduces error risk.
Hiring your first employee? Keep payroll connected to compliance.
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