A Plain-English Guide to Managing Payroll for Your Small Business
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Running payroll sounds straightforward until you miss a Real Time Information submission or apply the wrong tax code and HMRC sends a letter. This guide walks you through how PAYE payroll actually works in the UK, what changes apply from April 2026, and how to decide whether running it yourself still makes sense.
Why getting payroll right matters more than most business owners realise
Payroll is one of the few areas where a small mistake lands in your employees’ bank accounts and on HMRC’s radar at the same time. According to the Office for National Statistics PAYE Real Time Information data for February 2026, there are 30.3 million payrolled employees in the UK, all reported under RTI. Every one of those payroll records is visible to HMRC in near-real time.
New rates for the National Minimum Wage and National Living Wage came into force on 1 April 2026, and the Small Employers’ Relief compensation rate increased from 8.5% to 9% from the same date. If your payroll software or calculations have not been updated to reflect these changes, you may already be underpaying staff or over-claiming relief. These are not obscure details that slip through unnoticed.
From 6 April 2026, tax and National Insurance exemptions for employer-reimbursed eye tests, flu vaccinations and homeworking equipment were expanded. If you reimburse staff for these costs, it is worth checking whether your payroll records reflect the updated exemptions correctly. Source: HMRC Employer Bulletin, April 2026.
Where most small business owners go wrong with payroll
Most payroll errors do not come from dishonesty. They come from complexity that grows faster than the person managing it. The UK Business Forums discussion on manual payroll submission reflects a common pattern: business owners who started with one or two employees on a spreadsheet find the same approach unworkable at five or eight employees, but carry on anyway because switching feels complicated.
Missing or late RTI submissions
Under the HMRC employer guide for PAYE and National Insurance, employers must submit payroll information to HMRC on or before each pay date using Real Time Information. A late or missed Full Payment Submission can trigger an automatic penalty. Many small employers only discover this when the penalty notice arrives.
Using the wrong tax codes or NI categories
Tax codes change when an employee’s circumstances change, when HMRC issues a new code, or at the start of a new tax year. Using an outdated code means an employee pays too much or too little tax, and HMRC expects the employer to apply corrections. Getting this wrong repeatedly flags your PAYE scheme for closer inspection.
“Most of the payroll problems I see could have been caught early. The issue is that by the time a client realises something is wrong, it has often run for several months and the correction takes longer than the original mistake.”
How payroll actually works, step by step
Payroll is a sequence of tasks that must happen in a specific order and on a fixed schedule. Miss a step and the error compounds across every subsequent pay run. Here is how a compliant payroll cycle looks for a small UK employer.
- Register as an employer with HMRC before your first pay date and set up a PAYE scheme. You cannot submit RTI without one. If you use payroll software, check it is HMRC-recognised and capable of Real Time Information submissions.
- Before each pay run, check for any changes that affect the figures: new National Minimum Wage rates (updated from 1 April 2026), updated tax codes issued by HMRC, changes to an employee’s hours, pension contribution levels, or statutory payments such as SSP or SMP.
- Run the payroll, calculate gross pay, deduct Income Tax and National Insurance using the correct codes and rates, deduct any pension contributions under auto-enrolment, then submit the Full Payment Submission to HMRC on or before the pay date. Pay HMRC the PAYE and NI due by the 19th of the following month (or 22nd electronically).
After the pay run, keep full records of every submission, every payslip and every payment to HMRC. The HMRC employer guide confirms employers must maintain payroll records and be prepared for HMRC inspection at any time. At the end of the tax year, submit your Final Payment Submission and issue P60s to all employees still in your employment.
Costs and what to expect
The honest cost of payroll is not just what you pay to have it done. It includes the time you spend doing it yourself, the risk exposure if something is filed incorrectly, and the cost of fixing errors retrospectively. Analysis of payroll outsourcing for UK businesses identifies hidden costs as one downside of outsourcing, which is fair. With Anchor Accounts and Books, the fee is fixed and agreed upfront, so there are no add-ons for extra submissions or year-end P60s.
| Option | Pros | Cons |
|---|---|---|
| Managing payroll yourself | No ongoing fee for payroll software or accountant | Time-consuming, high compliance risk, penalties likely if rates or codes change unnoticed |
| Using an accountant | RTI submissions handled, correct rates applied, someone accountable for errors | Monthly fee, though typically less than the time cost of doing it yourself |
How to get started today
If you are already behind, the first step is to find out where you actually stand. That means checking your last RTI submission date, confirming the tax codes in use for each employee, and verifying that your payroll figures reflect the National Minimum Wage and National Living Wage rates that came into force on 1 April 2026. If you are unsure on any of those, a short conversation is a faster way to find out than working through it alone.
- Log into your HMRC Business Tax Account and check the status of your PAYE scheme. Confirm your last Full Payment Submission was accepted and that no late filing notices have been issued.
- Book a free 20-minute call at anchoraccountsandbooks.co.uk/contact. Bring your current number of employees and your pay date schedule. I can tell you within the call whether your current setup is compliant and what it would cost to have me take it over.
Ready to sort your payroll?
I process payroll, submit RTI to HMRC, issue payslips and handle year-end P60s personally for sole traders, limited companies and contractors across the UK, on a fixed monthly fee with same-day responses and no tie-in. Book a free call and we can have your payroll running correctly from your next pay date.
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AAT qualified accountant based in Uttoxeter. Personal, one-to-one accounting for small businesses and sole traders across the UK.