Payroll in UK terms means operating PAYE, the system HM Revenue and Customs uses to collect income tax and National Insurance directly from pay. An employer registers with HMRC, reports every payment to employees on or before payday under real time information rules, deducts income tax, employee National Insurance, student loan repayments and pension contributions, and pays over what it owes, usually monthly. The mechanics are well documented and the rates are published for each tax year; what trips up foreign companies is not the arithmetic but the registration and reporting duties, which apply from the first employee.
PAYE and real time information
HMRC requires registration as an employer when any employee earns at or above the lower reporting threshold, currently £96 a week, receives expenses or benefits, has another job or receives a pension; even below that, payroll records must still be kept. The defining duty is real time reporting: HMRC states you must report employees' payments and deductions on or before each payday, using payroll software that calculates the tax and National Insurance due. Additional reports cover joiners, leavers and changes such as an employee reaching State Pension age, plus annual reporting of expenses and benefits. Payment to HMRC is normally monthly, with a quarterly option for small employers whose monthly liability is under £1,500. Missing the on-or-before deadline is the classic first mistake of a foreign employer running UK payroll from abroad.
What the employer pays on top of salary
For the 2025 to 2026 tax year, employer Class 1 National Insurance is 15% on each employee's earnings above the secondary threshold of £5,000 a year, per HMRC's published rates. Eligible employers can reduce their bill through the Employment Allowance of £10,500 a year. Employees have their own deductions taken from pay: income tax above the £12,570 personal allowance, and employee National Insurance at 8% between the primary threshold and the upper earnings limit, then 2% above it. Employers also carry statutory payments such as sick pay at £118.75 a week under current rates, pension duties under automatic enrolment, and, for large payrolls, the apprenticeship levy at 0.5% of the pay bill above an annual allowance. A UK employment budget therefore runs meaningfully above gross salary, and the published HMRC rates page is the source to cost it from.
Running UK payroll without a UK entity
A foreign company employing someone in the UK has options. It can register with HMRC as an overseas employer and operate PAYE itself, usually through a UK payroll bureau, which works but leaves every reporting duty and statutory obligation with the foreign company. Or it can use an employer of record, whose UK entity becomes the legal employer, runs PAYE, National Insurance, pension enrolment and statutory payments, and invoices the full employment cost plus a fee. The EOR route removes the registration burden and the risk of missed real time filings at the cost of a monthly fee per employee, and it is the standard choice for one to a handful of UK hires. Whichever route you take, employment contracts must meet UK employment law minimums, and the contract and policy documents control; nothing here is legal or tax advice.
Questions people ask about payroll in uk
When must a company register for PAYE?
When any employee earns £96 or more a week, gets expenses or benefits, has another job or receives a pension, under HMRC's current guidance. Records must be kept even where registration is not required.
What is employer National Insurance in 2025-26?
15% on earnings above the secondary threshold of £5,000 a year for standard category letters, per HMRC's published rates, with an Employment Allowance of £10,500 available to eligible employers.
How often is payroll reported to HMRC?
Every payday. Real time information rules require reporting payments and deductions on or before the day employees are paid, with further reports for joiners, leavers and status changes.
Can a foreign company employ UK staff without an entity?
Yes, either by registering with HMRC as an overseas employer and running PAYE directly, or by hiring through an employer of record whose UK entity carries the PAYE, pension and statutory duties for a monthly fee.