Payroll & Auto-Enrolment
Your Employer Obligations.
Running payroll is one of the most heavily regulated functions in a UK business. This guide covers every obligation from RTI submissions and PAYE to auto-enrolment pensions and statutory pay, and the penalties for getting it wrong.
Registering as an Employer
Before you pay anyone, including yourself as a company director, you must register as an employer with HMRC. Registration must be completed before the first payday, and HMRC can take up to 15 working days to issue your PAYE reference number and Accounts Office reference.
You need to register if you pay any employee (including directors) above the Lower Earnings Limit (£6,396 for 2026/27), or if any employee has another job or receives a pension. In practice, virtually every limited company with a director taking a salary needs to be registered.
Director-Only Companies
If you are a sole director taking a salary at or just above the Primary Threshold (typically £12,570), you still need to be registered for PAYE. However, you can elect to run an annual payroll scheme rather than monthly, reducing the reporting to a single FPS submission per year. We set this up as standard for our limited company clients.
RTI Submissions: FPS & EPS
Real Time Information (RTI) replaced the old year-end reporting system in 2013. Under RTI, you report payroll data to HMRC on or before every payday, not at the end of the year. There are two key submissions:
| Submission | What It Reports | Deadline |
|---|---|---|
| Full Payment Submission (FPS) | Employee pay, PAYE deducted, NI contributions, student loan deductions, pension contributions | On or before each payday |
| Employer Payment Summary (EPS) | Statutory pay recovery, Employment Allowance claims, CIS deductions suffered, nil payment months | By the 19th of the following tax month |
The FPS is the main submission. Late filing triggers automatic penalties (see Penalties below). HMRC uses the FPS data to calculate your PAYE liability in real time, which is why the amounts must be accurate, not estimated.
PAYE & National Insurance
As an employer, you are responsible for deducting Income Tax (via PAYE) and employee National Insurance from each employee's pay, then paying these to HMRC along with the employer's National Insurance contribution.
2026/27 Employer NI Rates
From April 2025, the employer NI rate increased to 15% on earnings above the Secondary Threshold (£5,000 for 2026/27). This represents a significant cost that must be factored into your hiring decisions. The Employment Allowance (currently £10,500) offsets some of this for smaller employers.
Employment Allowance
If your total employer NI liability was under £100,000 in the previous tax year, you can claim the Employment Allowance to reduce your employer NI bill by up to £10,500 per year. This is claimed via your EPS submission. Single-director companies with no other employees cannot claim this allowance.
Payment Deadlines
PAYE and NI must be paid to HMRC by the 22nd of the following month (if paying electronically) or the 19th (if paying by cheque). Small employers (monthly PAYE liability under £1,500) can pay quarterly instead. We track these deadlines and send reminders automatically as part of our payroll service.
Auto-Enrolment Pensions
The Pensions Act 2008 requires every employer to automatically enrol eligible workers into a qualifying workplace pension scheme. This is not optional, failure to comply results in escalating fines from The Pensions Regulator (TPR).
Who Must Be Enrolled?
Workers are categorised into three groups based on their age and earnings:
| Category | Criteria | Employer Duty |
|---|---|---|
| Eligible Jobholder | Aged 22 to State Pension age, earning above £10,000/year | Must be auto-enrolled. Employer must contribute. |
| Non-Eligible Jobholder | Aged 16-74, earning £6,240-£10,000/year (or aged 16-21 / SPA-74 earning above £10,000) | Not auto-enrolled, but can opt in. Employer must contribute if they do. |
| Entitled Worker | Aged 16-74, earning under £6,240/year | Can request to join. Employer does not have to contribute. |
Minimum Contribution Rates
Contributions are calculated on qualifying earnings, the band between the Lower Earnings Limit (£6,240) and the Upper Earnings Limit (£50,270). The current minimum rates are:
| Contribution | Minimum Rate |
|---|---|
| Employer contribution | 3% of qualifying earnings |
| Employee contribution | 5% of qualifying earnings (inc. tax relief) |
| Total minimum | 8% of qualifying earnings |
Employer pension contributions are a deductible business expense for Corporation Tax purposes and are exempt from employer National Insurance, making them one of the most tax-efficient forms of remuneration. This is a key consideration in director extraction planning.
Choosing a Pension Scheme
The most common workplace pension scheme for small businesses is NEST (National Employment Savings Trust), which is free to set up and accepts all employers. Alternatives include NOW: Pensions, The People's Pension, and Smart Pension. We help our clients select the most appropriate scheme based on workforce size, contribution levels, and administrative requirements.
Statutory Pay Obligations
As an employer, you are legally required to pay statutory amounts to employees in certain circumstances. These are calculated through payroll and partially recoverable from HMRC:
Statutory Sick Pay (SSP)
Payable from the 4th consecutive day of sickness at £116.75/week (2026/27) for up to 28 weeks. The employee must earn at least the Lower Earnings Limit. SSP is not recoverable from HMRC, it is a pure employer cost.
Statutory Maternity Pay (SMP)
Paid for up to 39 weeks: 90% of average weekly earnings for the first 6 weeks, then £187.18/week (or 90% of earnings if lower) for the remaining 33 weeks. Small employers (annual NI liability under £45,000) can recover 103% of SMP paid; larger employers recover 92%.
Statutory Paternity Pay (SPP)
Paid for up to 2 weeks at £187.18/week (or 90% of average earnings if lower). The same recovery rates as SMP apply.
Statutory pay recoveries are claimed through your EPS submission. We calculate these automatically within each pay run and offset them against your PAYE liability, so you are never out of pocket longer than necessary.
Year-End Reporting & P11D
After the tax year ends on 5 April, you must complete several year-end tasks:
Final FPS Submission
Your final FPS of the tax year must include a "this is your final submission" indicator. This tells HMRC you have finished reporting for the year. Deadline: 19 April.
P60 Certificates
Every employee on your payroll at 5 April must receive a P60 showing their total pay and deductions for the year. Deadline: 31 May. We generate these automatically through BrightPay and make them available via the employee self-service portal.
P11D: Benefits in Kind
If you provide employees or directors with benefits (company cars, private medical insurance, interest-free loans above £10,000), these must be reported on form P11D. Deadline: 6 July. The associated Class 1A NI is due by 22 July. Many businesses now "payroll" benefits in kind instead, reporting them through the FPS and avoiding P11D entirely.
Penalties & Enforcement
Payroll penalties are among the most aggressive in the UK tax system because they are largely automatic, there is no human review before the charge is issued.
HMRC Penalties (RTI & PAYE)
| Number of Employees | Monthly Late Filing Penalty |
|---|---|
| 1 - 9 | £100 |
| 10 - 49 | £200 |
| 50 - 249 | £300 |
| 250+ | £400 |
Late payment of PAYE attracts additional penalties of 1-4% of the amount outstanding, depending on how many times you have paid late in the tax year. Interest is charged on top.
Pensions Regulator Penalties
The Pensions Regulator (TPR) has separate enforcement powers for auto-enrolment non-compliance:
- -Compliance Notice, a formal instruction to take specific action within a deadline.
- -Fixed Penalty Notice, £400 if the compliance notice is not met.
- -Escalating Penalty Notice, daily fines ranging from £50/day (1-4 staff) to £10,000/day (500+ staff) until you comply.
- -Criminal prosecution, for wilfully failing to comply or for inducing employees to opt out.
Keep reading
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Related reading
Director-Only Payroll Guide
How director-only payroll works for UK companies, including annual schemes, Real Time Information submissions and salary planning.
Read the guide GuideReal Time Information Payroll Penalties
How Real Time Information payroll penalties arise, what HMRC checks and how small employers can keep submissions on time.
Read the guide GuideStatutory Pay Guide for Small Employers
A guide to statutory pay for small employers, including sick pay, maternity pay, paternity pay, recovery rules and payroll records.
Read the guideFrequently Asked Questions
What are the penalties for late RTI submissions?
HMRC charges automatic penalties for late Full Payment Submissions (FPS). The penalty ranges from £100 per month for 1-9 employees to £400 per month for 250+ employees. These penalties accrue monthly until the submission is made. Interest is also charged on any late PAYE payments.
Do I need to auto-enrol a director with no employment contract?
A sole director with no employment contract is not a "worker" for auto-enrolment purposes and does not need to be enrolled. However, if a director has an employment contract, or if there are two or more directors (even without contracts), the auto-enrolment duties apply to those who meet the age and earnings criteria.
Can an employee opt out of auto-enrolment?
Yes. An employee can opt out within one month of being enrolled. If they opt out, you must refund any contributions already deducted. However, you must re-enrol them every three years (on your re-enrolment date) if they still meet the eligibility criteria. You cannot encourage or incentivise employees to opt out, this is a criminal offence.
What is the difference between an FPS and an EPS?
A Full Payment Submission (FPS) reports what you have paid each employee and the deductions made (PAYE, NI, student loans). It must be submitted on or before each payday. An Employer Payment Summary (EPS) reports adjustments, such as statutory pay recoveries, Employment Allowance claims, or months where no employees were paid. An EPS is submitted by the 19th of the following month.