UK Payroll Taxes: A Comprehensive Guide to PAYE, National Insurance, and Employer Payroll Obligations

Introduction

Payroll in the United Kingdom is much more than paying an employee a salary.

When a business employs people, it generally becomes responsible for calculating deductions from their pay, withholding certain taxes, paying employer National Insurance, reporting payroll information to HM Revenue and Customs (HMRC), dealing with statutory payments, operating workplace pension arrangements, and complying with a range of related employment and tax obligations.

The central system is PAYE — Pay As You Earn.

PAYE is the mechanism through which employers generally collect Income Tax and employee National Insurance from employment income and account for those amounts to HMRC. But PAYE is only one part of the wider payroll system.

A modern UK payroll may also involve:

• employer National Insurance;
• employee National Insurance;
• statutory payments;
• workplace pension contributions;
• student and postgraduate loan deductions;
• taxable benefits;
• expenses;
• Construction Industry Scheme deductions;
• Apprenticeship Levy;
• PAYE Settlement Agreements;
• reporting through Real Time Information (RTI); and
• annual reporting requirements.

The system also contains an important geographical distinction. Income Tax rates on employment income differ in Scotland, while England, Wales and Northern Ireland currently operate under the same main employment-income Income Tax rates. The National Insurance system, by contrast, is generally UK-wide.

This article explains the principal UK payroll taxes and obligations using the 2026–27 tax year, which runs from 6 April 2026 to 5 April 2027.

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Facts About UK Payroll Taxes

Before examining the system in detail, several basic facts should be understood:

• Employers normally operate PAYE when they employ workers.
• PAYE allows HMRC to collect Income Tax and National Insurance through payroll.
• Employees normally pay Income Tax through deductions from their wages rather than making separate payments to HMRC for ordinary employment income.
• Employees may also pay Class 1 National Insurance through payroll.
• Employers normally pay a separate secondary Class 1 National Insurance contribution.
• For 2026–27, the standard employer Class 1 National Insurance rate is 15% above the secondary threshold.
• For 2026–27, the standard employee Class 1 National Insurance rate is generally 8% between the primary threshold and upper earnings limit and 2% above the upper earnings limit.
• The standard employee Personal Allowance for 2026–27 is £12,570, subject to the rules affecting individual entitlement.
• England, Wales and Northern Ireland currently use the same principal employment-income Income Tax rates, while Scotland has its own Income Tax bands and rates.
• Employers normally report employees’ pay and deductions to HMRC through Real Time Information (RTI).
• A Full Payment Submission (FPS) is generally sent to HMRC on or before payday.
• Employers generally pay their PAYE bill to HMRC by the 22nd of the following tax month when paying electronically, or by the 19th when paying by post.
• Employers have obligations concerning workplace pensions and eligible employees.
• Some employers can claim Employment Allowance, reducing their employer National Insurance liability by up to £10,500 for 2026–27, subject to the eligibility rules.
• Larger employers may have to pay the Apprenticeship Levy.
• Benefits and expenses can create additional tax and National Insurance obligations.
• Payroll records and reporting must be maintained accurately.

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1. What Is Payroll Tax?

“Payroll tax” is not the name of one single UK tax.

Instead, the expression is commonly used to describe taxes and deductions associated with employing people.

The principal payroll-related taxes are:

1. Income Tax collected through PAYE;
2. employee National Insurance contributions;
3. employer National Insurance contributions; and
4. certain additional National Insurance liabilities on benefits and other payments.

There are also payroll-related deductions that are not technically taxes, such as:

• workplace pension contributions;
• student loan repayments;
• postgraduate loan repayments; and
• certain court-ordered or other statutory deductions.

This distinction matters because an employer’s payroll bill may contain several different legal obligations that ultimately reach different institutions or serve different purposes.

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2. PAYE: The Foundation of the Payroll System

PAYE stands for Pay As You Earn.

The basic idea is straightforward.

Instead of requiring an employee to calculate and pay ordinary employment Income Tax personally after receiving their entire salary, the employer deducts the appropriate amount from the employee’s pay before paying the employee.

The employer then accounts for the deductions to HMRC.

For example, suppose an employee is entitled to gross monthly pay.

The payroll calculation may determine:

Gross pay

minus

Income Tax

minus

employee National Insurance

minus

pension contribution

minus

other applicable deductions

equals

net pay.

The employee receives the net amount.

The employer separately accounts to HMRC and other relevant bodies for the amounts deducted or payable.

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3. Income Tax Through PAYE

Income Tax is normally the largest tax deduction encountered in ordinary employee payroll.

The amount deducted depends on factors including:

• the employee’s taxable earnings;
• Personal Allowance;
• tax code;
• tax residence;
• benefits and other taxable amounts; and
• whether the employee is subject to Scottish Income Tax.

For 2026–27, the standard Personal Allowance is £12,570.

The employee’s tax code communicates important information to the employer about how PAYE should be calculated.

Consequently, payroll software does not simply apply a single percentage to every employee’s salary.

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4. Income Tax Rates in England, Wales, and Northern Ireland

For 2026–27, the main employment-income rates for England and Northern Ireland are:

Tax rate	Rate
Basic rate	20%
Higher rate	40%
Additional rate	45%

The standard Personal Allowance is £12,570.

The basic-rate band generally covers taxable income up to £37,700 above the Personal Allowance, while the higher-rate band extends to £125,140. Income above that level is generally subject to the additional rate.

Wales currently uses the same principal rates for employment income.

However, this should not be confused with the tax system being completely identical across the UK.

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5. Scottish Income Tax

Scotland has its own Income Tax rates and bands for certain income, including employment income.

For 2026–27, the Scottish rates are:

Scottish rate	Rate
Starter	19%
Basic	20%
Intermediate	21%
Higher	42%
Advanced	45%
Top	48%

The Scottish bands and thresholds differ from those applying in England, Wales and Northern Ireland.

This is one of the most important geographical distinctions in UK payroll.

An employer therefore needs the correct information about an employee’s tax status and must use the appropriate tax code and payroll rules.

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6. What Is a Tax Code?

A tax code tells an employer how much Income Tax should generally be deducted from an employee’s pay through PAYE.

The most familiar standard code is 1257L for many employees entitled to the standard Personal Allowance.

But tax codes can differ.

HMRC may issue a different code because of:

• multiple jobs;
• taxable benefits;
• previous underpayments or overpayments;
• pension income;
• adjustments to allowances; or
• other individual circumstances.

Scottish taxpayers normally have tax codes beginning with S, while Welsh taxpayers generally have codes beginning with C.

Employers should use the tax code supplied through HMRC’s payroll system rather than attempting to create an employee’s tax code independently.

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7. National Insurance Contributions

National Insurance is separate from Income Tax.

Employees and employers can both have National Insurance liabilities.

For employees, the relevant contribution is generally Class 1 National Insurance.

The employee’s contribution is deducted from wages by the employer.

The employer also normally pays a separate secondary Class 1 contribution.

This means that a £40,000 salary, for example, does not necessarily cost an employer only £40,000.

The employer may also have to pay:

• employer National Insurance;
• pension contributions;
• statutory payments;
• Apprenticeship Levy where applicable; and
• other employment-related costs.

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8. Employee National Insurance in 2026–27

For a standard Category A employee in 2026–27:

• the employee generally pays 8% on earnings between the Primary Threshold and Upper Earnings Limit;
• the rate above the Upper Earnings Limit is generally 2%;
• earnings below the Primary Threshold do not generally attract the standard employee contribution.

The 2026–27 Primary Threshold is £12,570 per year.

The Upper Earnings Limit is £50,270 per year.

The system contains different National Insurance categories for particular groups of employees.

Examples include:

• workers under 21;
• apprentices under 25;
• veterans;
• employees in Freeports;
• employees in Investment Zones; and
• certain employees entitled to reduced rates.

Therefore, the standard Category A rates should not be assumed to apply to every worker.

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9. Employer National Insurance

Employer National Insurance is different from employee National Insurance.

The employer does not normally deduct the employer contribution from the employee’s salary.

Instead, it is an additional cost to the employer.

For 2026–27, the standard employer Class 1 National Insurance rate is 15%.

The standard Secondary Threshold is £5,000 per year.

This means that the employer’s National Insurance burden begins at a much lower earnings level than the employee’s standard primary contribution threshold.

There are special thresholds for categories such as:

• workers under 21;
• apprentices under 25;
• veterans;
• Freeport employees; and
• Investment Zone employees.

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10. Why Employer National Insurance Matters

Employer National Insurance is sometimes overlooked when people calculate the cost of hiring an employee.

Suppose a business agrees to pay an employee a salary.

The employer’s actual employment cost may include:

Gross salary

Employer National Insurance

Employer pension contribution

Statutory payments or benefits

Other employment costs

The employer therefore needs to distinguish between:

employee gross pay

and

total employer employment cost.

This distinction is important when businesses prepare budgets, employment contracts, and financial forecasts.

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11. Employment Allowance

The Employment Allowance can reduce the amount of employer Class 1 National Insurance that an eligible employer has to pay.

For 2026–27, the maximum allowance is £10,500.

Eligibility is subject to conditions.

For example, the rules include restrictions involving:

• public-sector work;
• connected companies;
• companies with only one director;
• certain employees; and
• the employer’s previous National Insurance liability.

Since April 2025, the £100,000 employer National Insurance liability restriction that previously limited access to the allowance has been removed, subject to the other eligibility rules.

The allowance is therefore an important consideration when calculating the real payroll cost of employees.

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12. Class 1A National Insurance

Not all employer National Insurance is collected through ordinary employee wages.

Employers can also owe Class 1A National Insurance on certain taxable benefits and expenses provided to employees.

For 2026–27, the Class 1A rate is 15%.

Examples of benefits that can potentially create Class 1A liability include certain:

• company cars;
• private medical benefits;
• employer-provided assets; and
• other taxable benefits.

The precise treatment depends on the nature of the benefit and the applicable tax rules.

Class 1A is therefore an important part of payroll-related taxation even though it is not simply deducted from ordinary monthly wages.

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13. Class 1B National Insurance

Class 1B National Insurance can arise where an employer uses a PAYE Settlement Agreement (PSA).

A PSA allows an employer to settle certain tax and National Insurance liabilities on behalf of employees for specified minor, irregular, or impracticable-to-tax expenses and benefits.

For 2026–27, the Class 1B rate is 15%.

The PSA system can therefore simplify the treatment of certain employee benefits.

It should not, however, be used as a general alternative to ordinary payroll withholding.

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14. National Minimum Wage Is Not a Tax

An important distinction is necessary here.

The National Minimum Wage and National Living Wage are not payroll taxes.

They are legal minimum pay requirements.

Nevertheless, they are closely connected with payroll because employers must ensure that workers receive at least the legally required amount.

From 1 April 2026, the National Living Wage for workers aged 21 and over is £12.71 per hour. Different rates apply to younger workers and apprentices.

Payroll systems must therefore account for minimum-wage requirements when calculating employee pay.

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15. Real Time Information: Reporting Payroll to HMRC

Modern payroll is based heavily on Real Time Information (RTI).

Employers generally report information about employees’ pay and deductions to HMRC electronically.

The principal report is the Full Payment Submission (FPS).

The FPS contains information such as:

• employee identity;
• pay;
• Income Tax;
• National Insurance;
• tax code;
• National Insurance category;
• pension information; and
• other relevant payroll data.

The general rule is that an FPS must be sent on or before payday.

This is why payroll reporting is called “real time.”

The employer is not simply preparing one annual tax statement after the year has ended.

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16. The Employer Payment Summary

An employer may also need to submit an Employer Payment Summary (EPS).

The EPS is used for information that is not necessarily included in the ordinary FPS and can be relevant where the employer is claiming reductions or reporting periods in which no employees were paid.

For example, an EPS may be required to claim certain statutory-payment recoveries or Employment Allowance.

HMRC states that an EPS is generally due by the 19th of the following tax month where it is required.

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17. Paying HMRC

After payroll has been processed and reported, the employer normally owes HMRC the relevant PAYE amount.

This can include:

• employee Income Tax;
• employee National Insurance;
• employer National Insurance;
• certain Class 1B amounts;
• Construction Industry Scheme deductions;
• student loan deductions; and
• Apprenticeship Levy where applicable.

For employers paying monthly, the ordinary electronic payment deadline is generally the 22nd of the following tax month.

For employers paying quarterly, the deadline is the 22nd after the end of the relevant quarter.

Payment by post has an earlier deadline, generally the 19th.

Late payment can result in interest and penalties.

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18. Student Loan Repayments

Student loan repayments are not a tax in the strict legal sense.

Nevertheless, they are commonly processed through payroll.

Where HMRC or the relevant authority instructs an employer to make deductions, the employer must calculate and withhold the appropriate amount.

There are different repayment plans and postgraduate loan arrangements.

The amount deducted therefore depends on the employee’s applicable plan and earnings.

The employer is responsible for making the payroll deduction and reporting it appropriately.

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19. Workplace Pensions

Workplace pensions are another major component of modern payroll.

Employers generally have automatic-enrolment duties for eligible employees.

For example, under the current automatic-enrolment framework, an employer generally has to enrol an eligible worker who:

• is aged between 22 and State Pension age;
• normally works in the UK; and
• earns at least £10,000 per year.

The employer must also make the required contribution.

Pension contributions are not taxes, but they directly affect payroll calculations and employees’ net pay.

They also involve detailed rules concerning tax relief, pensionable earnings, contribution levels, and payment deadlines.

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20. Statutory Payments

Payroll can include payments that employers are required to make under employment legislation.

Examples include:

• Statutory Sick Pay;
• Statutory Maternity Pay;
• Statutory Paternity Pay;
• Statutory Adoption Pay;
• Statutory Shared Parental Pay;
• Statutory Parental Bereavement Pay; and
• Statutory Neonatal Care Pay.

These payments interact with payroll because the employer must calculate them, report them, and in some circumstances recover part of the cost through the PAYE system.

The precise eligibility requirements differ for each payment.

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21. Expenses and Benefits

Employees can receive more than salary.

They may also receive:

• company cars;
• medical insurance;
• accommodation;
• vouchers;
• employer-provided assets;
• loans;
• travel benefits; or
• reimbursed expenses.

Some payments are tax-free if the relevant conditions are satisfied.

Others are taxable benefits.

The distinction can be legally important.

For taxable benefits, the employer may have to:

• report the benefit to HMRC;
• calculate the relevant tax;
• operate payroll on the benefit; or
• pay Class 1A National Insurance.

Annual reporting obligations can also arise.

For example, employers generally report taxable benefits and expenses through the relevant end-of-year process, with the ordinary deadline for reporting benefits being 6 July following the end of the tax year. Class 1A National Insurance is generally payable by 22 July when paid electronically.

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22. PAYE Settlement Agreements

A PAYE Settlement Agreement allows an employer to settle certain tax and National Insurance liabilities on behalf of employees.

It can apply to particular:

• minor benefits;
• irregular benefits; and
• benefits that are impractical to tax through ordinary payroll.

The employer pays the tax and employer National Insurance associated with the PSA rather than passing the Income Tax liability directly to the employee through ordinary payroll.

This can be useful in appropriate circumstances but is not intended to replace ordinary PAYE.

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23. Apprenticeship Levy

The Apprenticeship Levy is another payroll-related charge affecting certain larger employers.

For 2026–27, employers and connected companies with a total annual pay bill of more than £3 million are generally within the levy system.

The levy rate is 0.5% of the relevant annual pay bill, subject to the applicable allowance.

The Apprenticeship Levy allowance for 2026–27 is £15,000.

This is not an ordinary employee payroll deduction.

It is an employer liability connected with the size of the employer’s payroll.

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24. The Construction Industry Scheme

Businesses operating in the construction sector may also encounter the Construction Industry Scheme (CIS).

CIS governs certain payments made by contractors to subcontractors.

The contractor may have to deduct money from a subcontractor’s payment and send it to HMRC.

The system is designed to address tax and National Insurance obligations in the construction industry.

CIS should not be confused with ordinary PAYE.

A business may have both employees subject to PAYE and subcontractors whose payments are governed by CIS.

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25. Directors and Payroll

Company directors require particular attention in payroll.

Directors are office holders and have special National Insurance calculation rules.

Unlike an ordinary employee, a director’s National Insurance is generally calculated on an annual basis, although payroll systems can operate different calculation methods during the year.

The result is that a director’s National Insurance deductions can behave differently from those of an ordinary employee receiving the same monthly salary.

This is particularly relevant for owner-directors of small companies.

A director who is also a shareholder may receive:

• salary;
• benefits;
• dividends; or
• a combination of these.

Each payment can have different tax consequences.

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26. Salary and Dividends Are Not the Same

A shareholder-director of a limited company may receive both salary and dividends.

These should not be confused.

Salary

Salary is employment income.

It is generally processed through PAYE and can create:

• employee Income Tax;
• employee National Insurance; and
• employer National Insurance.

Dividends

Dividends are distributions made to shareholders from company profits.

They are not normally processed as employment salary.

They are subject to a separate personal tax regime for shareholders and are paid out of distributable profits.

The distinction is particularly important for owner-managed companies.

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27. Payroll for Remote and International Workers

Modern payroll increasingly involves employees who:

• work remotely;
• live in another country;
• travel internationally;
• work for multinational businesses; or
• are employed by overseas companies.

This can create complex questions concerning:

• UK tax residence;
• National Insurance;
• social-security agreements;
• permanent establishments;
• PAYE obligations;
• foreign payroll;
• double taxation;
• treaty rules; and
• employer reporting.

An employee physically working outside the UK is not automatically subject to the same payroll treatment as an employee working in Britain.

International payroll therefore requires a separate analysis of the employee’s circumstances and the applicable international rules.

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28. Employment Status Matters

Payroll rules depend fundamentally on the worker’s legal status.

A person may be:

• an employee;
• a worker;
• self-employed;
• a contractor;
• an agency worker;
• a director; or
• engaged through another business structure.

Calling someone an “independent contractor” does not necessarily settle the legal question.

The actual relationship between the parties matters.

This is particularly important because incorrectly treating an employee as self-employed can result in unpaid tax, National Insurance, interest, penalties, and other liabilities.

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29. Off-Payroll Working and IR35

The off-payroll working rules, commonly known as IR35, address certain arrangements in which an individual provides services through an intermediary, often a personal service company.

The rules are designed to determine whether the individual would have been an employee for tax purposes if the intermediary had not been used.

For qualifying engagements, responsibility for determining the worker’s status can fall on the client rather than the intermediary.

The rules are particularly significant for:

• contractors;
• consultants;
• public-sector organisations;
• medium and large private-sector businesses; and
• personal service companies.

IR35 is therefore an important part of the wider payroll and employment-tax landscape.

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30. Payroll Records

Employers must maintain appropriate payroll records.

Records can include information about:

• employees;
• pay;
• tax;
• National Insurance;
• tax codes;
• statutory payments;
• benefits;
• pension contributions;
• student loans;
• payroll submissions; and
• payments to HMRC.

Accurate records are essential because HMRC may need to verify whether the employer has correctly operated PAYE.

Payroll records also provide the evidence necessary to correct mistakes.

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31. What Happens When Payroll Is Outsourced?

A business may choose to use:

• payroll software;
• an accountant;
• a payroll bureau; or
• another payroll service.

Outsourcing can reduce administrative work.

But it does not necessarily eliminate the employer’s legal responsibilities.

The employer remains responsible for ensuring that payroll is operated correctly and that required information reaches HMRC.

HMRC’s guidance therefore makes an important distinction between using a payroll provider and transferring legal responsibility.

A business should not assume that an error made by its payroll provider automatically eliminates the employer’s liability.

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32. Payroll Deadlines

The UK payroll system contains multiple deadlines.

The most important recurring deadlines include:

Obligation	General deadline
FPS	On or before payday
EPS, where required	Generally by 19th of following tax month
PAYE payment electronically	Generally by 22nd of following tax month
PAYE payment by post	Generally by 19th
Benefits reporting	Generally by 6 July after tax year
Class 1A NIC	Generally by 22 July electronically
Employee pension contributions	Generally by 22nd of following month when paid electronically

These are general rules rather than a substitute for checking the specific deadline applicable to a particular payment or reporting arrangement.

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33. What Happens If an Employer Makes a Payroll Error?

Payroll mistakes can occur.

Examples include:

• incorrect tax code;
• incorrect National Insurance category;
• underpayment of tax;
• overpayment of tax;
• incorrect pension deductions;
• late RTI reporting;
• incorrect employee information;
• failure to report benefits; or
• incorrect statutory payments.

Many errors can be corrected through later payroll submissions.

The appropriate correction depends on the nature and timing of the error.

Employers should correct errors promptly rather than allowing incorrect information to remain in the payroll system.

HMRC’s current guidance expressly provides for corrected FPS submissions where an error is discovered.

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34. Payroll Penalties

Failure to comply with payroll obligations can result in:

• penalties;
• interest;
• additional tax liabilities;
• National Insurance arrears;
• compliance investigations; and
• other enforcement measures.

The consequences depend on the type of failure.

Late RTI reporting, late payment, incorrect returns, and failures involving employee records can each be treated differently.

The employer’s intention and whether there was a reasonable excuse can also be relevant to certain penalties.

Payroll compliance should therefore be treated as an ongoing legal responsibility rather than merely an accounting task.

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35. Payroll and Employee Payslips

Employees should normally receive a payslip showing how their pay has been calculated.

A payslip generally identifies:

• gross pay;
• deductions;
• net pay;
• variable or fixed pay where relevant; and
• other information required by law.

The payslip is therefore more than a payment receipt.

It provides employees with a record of the payroll calculation.

Discrepancies between the payslip and the actual payment can be evidence of a payroll problem requiring investigation.

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36. The Difference Between Gross Pay and Net Pay

Two concepts are fundamental:

Gross pay

The amount earned before relevant deductions.

Net pay

The amount actually received after deductions.

For example:

Gross salary

£3,500

minus Income Tax

minus employee National Insurance

minus pension contribution

minus other applicable deductions

equals

net salary.

Employer National Insurance is normally not deducted from the employee’s gross pay.

It is an additional employer liability.

This distinction is essential when explaining payroll to employees and business owners.

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37. A Simple Example of UK Payroll

Imagine an employee in England receives a monthly salary.

The payroll system may have to determine:

1. the employee’s tax code;
2. taxable pay;
3. Income Tax;
4. employee National Insurance;
5. pension contributions;
6. student loan deductions if applicable;
7. net pay;
8. employer National Insurance;
9. employer pension contribution;
10. any taxable benefits;
11. any statutory payments; and
12. the amount to report and pay to HMRC.

The calculation is therefore not simply:

Salary × tax rate.

It is a multi-stage legal and accounting process.

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38. Why Payroll Is Both a Tax and Employment Function

Payroll sits at the intersection of several areas of law.

It involves:

• tax law;
• National Insurance legislation;
• employment law;
• pension law;
• social-security rules;
• immigration law in some circumstances;
• company law;
• data protection;
• insolvency law; and
• accounting.

This explains why payroll mistakes can have consequences beyond the tax calculation itself.

For example, a payroll failure might simultaneously produce:

• an incorrect employee payment;
• an incorrect HMRC return;
• an incorrect pension contribution; and
• an employment-law dispute.

Payroll should therefore be regarded as part of an employer’s overall legal compliance system.

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39. UK Payroll Is Not Exactly the Same Everywhere in the UK

The phrase “UK payroll” can create the impression that every payroll tax operates identically in England, Wales, Scotland and Northern Ireland.

That is not quite correct.

The most important distinction is Income Tax.

For employment income:

• England uses the UK-wide main rates applicable there;
• Wales currently uses the same main rates;
• Northern Ireland currently uses the same main rates; and
• Scotland has its own Income Tax rates and bands.

National Insurance is a separate UK-wide system and is not devolved in the same way as Scottish Income Tax.

Employers therefore need to use the appropriate payroll information for each employee.

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40. Payroll and the Tax Year

The UK tax year runs from:

6 April to 5 April of the following year.

For example:

2026–27 tax year:
6 April 2026 – 5 April 2027.

Payroll thresholds and rates can change from one tax year to another.

This is why an article containing payroll rates should always identify the relevant tax year.

A statement such as “the National Insurance rate is 15%” is incomplete without specifying which rate, which category, and which tax year.

The same principle applies to:

• Income Tax thresholds;
• National Insurance thresholds;
• minimum wage rates;
• pension thresholds;
• statutory payments; and
• employer allowances.

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41. The Legal Architecture of Payroll

The UK payroll system can be understood as a chain:

Employment relationship

↓

Gross pay and benefits

↓

Taxable pay calculation

↓

PAYE Income Tax

↓

Employee National Insurance

↓

Other deductions

↓

Net employee pay

At the same time:

Gross employment cost

↓

Employer National Insurance

↓

Employer pension contribution

↓

Other employer liabilities

↓

Total employment cost

And alongside both:

RTI reporting → HMRC

This structure explains why payroll involves two different perspectives.

The employee wants to know:

“How much will I receive?”

The employer must also ask:

“How much will employing this person actually cost, and what must I report and pay to the authorities?”

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Key Takeaways

1. UK payroll tax is not one single tax. It is a system involving PAYE Income Tax, National Insurance and several related obligations.
2. PAYE is the central mechanism through which employers normally collect employee Income Tax and National Insurance.
3. Employees and employers can both pay National Insurance, but their contributions are legally distinct.
4. For 2026–27, standard employee Class 1 National Insurance is generally 8% between the Primary Threshold and Upper Earnings Limit and 2% above the Upper Earnings Limit.
5. For 2026–27, the standard employer Class 1 National Insurance rate is 15% above the £5,000 Secondary Threshold.
6. The standard Personal Allowance for 2026–27 is £12,570.
7. Scotland has different Income Tax rates and bands from England, Wales and Northern Ireland.
8. Employers generally submit an FPS on or before payday under the Real Time Information system.
9. Employers generally pay their PAYE bill to HMRC by the 22nd of the following tax month when paying electronically.
10. Employment Allowance can reduce eligible employers’ Class 1 National Insurance liability by up to £10,500 in 2026–27.
11. Benefits and expenses can create additional tax and Class 1A National Insurance liabilities.
12. Workplace pensions are an important part of payroll administration even though pension contributions are not taxes.
13. Larger employers may be liable for the Apprenticeship Levy, currently charged at 0.5% of the relevant pay bill above the applicable threshold.
14. Student loan repayments and some other deductions can be collected through payroll even though they are not technically payroll taxes.
15. Gross pay is not the same as total employment cost. Employer National Insurance and other employer liabilities may exist in addition to salary.
16. Payroll compliance is an ongoing legal responsibility involving tax, employment, pension, reporting and record-keeping rules.

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Frequently Asked Questions

What is payroll tax in the UK?

“Payroll tax” is a general expression rather than the name of one UK tax. It commonly refers to Income Tax collected through PAYE, National Insurance contributions, and other employment-related tax obligations.

What is PAYE?

PAYE stands for Pay As You Earn. It is the system through which employers generally deduct Income Tax and employee National Insurance from employees’ pay and account for those amounts to HMRC.

Who pays payroll tax in the UK?

Both employees and employers can have payroll-related tax liabilities.

Employees normally have Income Tax and employee National Insurance deducted from their wages. Employers normally pay their own employer National Insurance contribution in addition to the employee’s gross salary.

How much National Insurance does an employee pay in 2026–27?

For a standard Category A employee, the rate is generally 8% between the Primary Threshold and Upper Earnings Limit and 2% above the Upper Earnings Limit. Different rates and categories apply in particular circumstances.

How much National Insurance does an employer pay?

For 2026–27, the standard employer Class 1 National Insurance rate is 15% above the £5,000 Secondary Threshold. Special categories and thresholds can produce different results.

Does an employer deduct employer National Insurance from an employee’s salary?

Generally, no.

Employer National Insurance is normally an additional employer liability rather than a deduction from the employee’s gross salary.

What is the PAYE tax code?

A PAYE tax code tells the employer how to calculate the employee’s Income Tax deduction.

HMRC normally provides the relevant code.

Do Scotland and England have the same payroll tax rates?

Not completely.

The principal employment-income Income Tax rates and bands in Scotland differ from those in England, Wales and Northern Ireland.

National Insurance is a separate system and generally operates UK-wide.

When must an employer report payroll to HMRC?

An employer generally sends an FPS to HMRC on or before the day employees are paid. There are limited exceptions for particular circumstances.

When does an employer pay PAYE to HMRC?

Employers generally pay electronically by the 22nd of the following tax month when using monthly payments. Different deadlines apply to quarterly payments and payments made by post.

Is National Minimum Wage a payroll tax?

No.

The National Minimum Wage and National Living Wage are legal minimum pay requirements, not taxes.

They nevertheless form an important part of payroll compliance.

Are pension contributions payroll taxes?

No.

Workplace pension contributions are not taxes, but they are commonly deducted or paid through payroll and therefore form an important part of payroll administration.

What is Employment Allowance?

Employment Allowance allows eligible employers to reduce their employer Class 1 National Insurance liability. For 2026–27, the maximum allowance is £10,500.

What is Class 1A National Insurance?

Class 1A National Insurance is generally paid by employers on certain taxable benefits and expenses provided to employees. The rate for 2026–27 is 15%.

What is the Apprenticeship Levy?

The Apprenticeship Levy is an employer charge affecting employers and connected companies whose annual pay bill exceeds the relevant threshold. For 2026–27, the charge is 0.5%, with a £15,000 annual allowance.

Do employers have to provide workplace pensions?

Employers have automatic-enrolment duties concerning eligible workers and must make the required employer contributions.

Are student loan repayments taxes?

No.

They are repayments of student or postgraduate loans. However, employers may be required to collect them through payroll.

Can payroll be outsourced?

Yes.

An employer can use an accountant, payroll bureau, or payroll software. Outsourcing the administration does not necessarily remove the employer’s underlying legal responsibilities.

What happens if payroll is wrong?

The appropriate response depends on the error. Many payroll errors can be corrected through subsequent RTI submissions, but underpayments, overpayments, incorrect deductions, and late reporting can create tax, employment, pension, or penalty consequences.

Does every worker have to be put through PAYE?

Not necessarily.

The correct treatment depends on the person’s legal and tax status. Employees are generally subject to PAYE, while genuinely self-employed people normally deal with their own tax affairs. The distinction must be determined from the actual circumstances rather than merely the label used by the parties.

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Conclusion

UK payroll is a sophisticated legal system rather than a simple calculation performed at the end of each month.

At its centre is PAYE, through which employers normally collect Income Tax and employee National Insurance. Around PAYE sits a much wider framework involving employer National Insurance, statutory payments, workplace pensions, student loans, taxable benefits, Apprenticeship Levy, Construction Industry Scheme deductions, Real Time Information reporting, and record-keeping.

The distinction between employee and employer liabilities is particularly important.

An employee may see Income Tax, National Insurance, pension contributions and other deductions taken from gross pay. The employer, meanwhile, may have to pay employer National Insurance, pension contributions and other employment-related charges on top of the employee’s salary.

The figures themselves also change.

For 2026–27, the standard employer Class 1 National Insurance rate is 15%, the employee’s standard Class 1 rate is generally 8% between the main thresholds and 2% above the Upper Earnings Limit, and the standard Personal Allowance is £12,570.

The geographical structure of the UK also matters. Scotland operates different Income Tax rates and bands from England, Wales and Northern Ireland, meaning that “UK payroll” cannot always be reduced to a single set of Income Tax calculations.

For employers, payroll is ultimately an exercise in legal compliance as much as accounting.

The employer must calculate correctly, deduct correctly, report correctly, pay HMRC on time, maintain records, respect employee rights, operate pension arrangements, and respond appropriately when circumstances change.

For employees, understanding payroll provides an equally important insight: the amount appearing in a bank account is the result of a legal calculation involving gross earnings, tax, National Insurance, pensions and other deductions.

Payroll therefore sits at a fascinating intersection of taxation and employment law.

It is the point at which the abstract rules of the tax system become a concrete monthly relationship between worker, employer, and the state.

For current rates and thresholds, employers should always consult the latest HMRC guidance because payroll figures and statutory requirements can change between tax years. The official 2026–27 employer rates and thresholds are published by HMRC on GOV.UK.