Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
HMRC recognises more than 180 commercial payroll products, yet its own free tool stops at nine employees and produces no payslips [1][2]. The employer rate of National Insurance rose to 15% on 6 April 2026 [3], which makes the accuracy of payroll software a direct cost question rather than an administrative afterthought.
Choosing payroll software is one of the few operational decisions a UK business makes that carries a statutory penalty for getting it wrong. The wrong choice does not simply cost a licence fee. It leaves the employer exposed to late filing penalties, manual auto-enrolment errors and statutory pay miscalculations that surface months later.
This guide sets out what UK payroll software is legally required to do, why HMRC recognition is a floor rather than a feature, the capabilities that actually separate one product from another, how pricing models change the maths, and how to decide between running payroll in-house, handing it to a bureau, or embedding a payroll engine in another platform.
Key takeaways
- HMRC recognition confirms a product can file Real Time Information correctly, but every serious UK payroll product holds the badge, so it is a baseline rather than a differentiator.
- Free HMRC-recognised payroll software is capped at fewer than 10 employees and often omits payslips and auto-enrolment assessment.
- Late Full Payment Submissions carry monthly penalties from £100 to £400 depending on headcount.
- The features that separate payroll products are statutory pay automation, auto-enrolment assessment on every payrun, payslip delivery and how quickly the software reflects new HMRC rates.
- Pricing models matter: a per-payslip model scales with payroll activity, while a per-employee licence scales with headcount whether or not everyone is paid.
Why payroll software is a legal necessity, not a convenience
Running payroll in the UK is not a bookkeeping nicety. It is a statutory reporting obligation enforced in real time by HMRC. Any business paying an employee above the Lower Earnings Limit, or anyone with a second job or a pension, must operate PAYE and report it electronically [4]. The practical effect is that almost every employer needs software capable of submitting to HMRC on the day wages are paid.
Real Time Information has been mandatory across the UK since 2013, and it reshaped payroll from an annual reconciliation into a per-payday event [5]. Software that holds the HMRC Recognised badge is built to meet HMRC's specifications for sending those submissions, which is why recognition is the first filter any buyer applies.
What the law requires every payday
Each time an employer pays staff, the software must record the pay, calculate income tax and National Insurance deductions, calculate employer National Insurance on earnings above the Secondary Threshold, produce a payslip and submit a Full Payment Submission to HMRC on or before payday [6]. The on-or-before rule is the single most important deadline in UK payroll, because it is tested on every single payrun rather than once a year.
Alongside the payday cycle, the employer pays the PAYE bill to HMRC by the 22nd of the following tax month when paying electronically, or by the 19th when paying by post [7]. Payroll software that reconciles what is owed and prepares the Employer Payment Summary where needed removes a recurring source of month-end error. An employer evaluating UK payroll software should confirm that both the FPS and the EPS are handled automatically, not just the headline tax calculation.
The penalties for getting it wrong
Late reporting is penalised on a sliding scale tied to the number of employees. An employer with 1 to 9 employees faces a £100 monthly penalty, 10 to 49 employees £200, 50 to 249 employees £300, and 250 or more employees £400 [8]. These penalties accrue per month of default, so a persistent reporting failure compounds quickly.
HMRC applies two concessions that payroll software should be built to exploit. The first failure to file on time in a tax year does not attract a penalty, and there is a three-day grace period where all payments on a late FPS fall within three days of payday [9]. Software that flags an at-risk submission before the deadline is worth more than software that simply records the failure afterwards. The penalty structure is the clearest evidence that payroll software is a compliance tool first and a convenience second.
HMRC recognition: the baseline, not the differentiator
A buyer who treats HMRC recognition as a selling point has misread the market. HMRC publishes a list of software that can report PAYE information online, but it is explicit that it cannot recommend one product over another and is not responsible for problems with any product an employer chooses [10]. Recognition confirms a tool can file correctly. It says nothing about whether the tool covers the rest of an employer's duties.
Every product that submits Real Time Information at scale carries the badge. The phrase to look for is HMRC-recognised, not HMRC-approved or HMRC-certified, because only the first is accurate [11]. The badge specifically certifies that the software meets HMRC's specifications for sending Full Payment Submissions, Employer Payment Summaries and other RTI submissions.
The free tier is where recognition and capability diverge most sharply. HMRC lists free payroll software, but it is recognised only for businesses with fewer than 10 employees, and several of the free options omit payslip production and auto-enrolment assessment entirely [12]. The government's own free tool calculates PAYE and National Insurance and files the required reports, but it does not generate payslips and is not designed for agents running payroll for clients [13]. For a single-director company that pattern can be adequate. For a growing employer it is a filing utility, not a payroll system.
The features that actually separate payroll software
Once recognition is taken as given, the buying decision comes down to what the software does beyond the core filing. Three capabilities carry the most weight, because each one maps to a statutory duty that the employer retains regardless of which tool they use.
The table below sets out the capabilities an SME employer should confirm before committing to a product.
| Capability | Why it matters | What a thin tool leaves to manual work |
|---|---|---|
| Statutory pay automation | SSP, SMP and the wider family of payments change by reform and by rate | Hand-calculating entitlement and recovery each period |
| Auto-enrolment assessment | Every worker must be assessed on each payrun | Checking eligibility by hand against the qualifying earnings band |
| Payslip delivery | Every employee has a legal right to an itemised payslip | Producing and distributing payslips outside the software |
| RTI error handling | A rejected submission must be corrected and resent | Diagnosing HMRC error codes without guidance |
| Rate updates | Thresholds change every April | Reconfiguring the software by hand each tax year |
Statutory pay automation
Statutory payments are where payroll software earns its keep, because the rules change and the arithmetic is unforgiving. Statutory Sick Pay was reformed on 6 April 2026: the Lower Earnings Limit qualifying condition was removed and the waiting-day rule was abolished, so SSP is now due from day one of sickness and is paid at £123.25 per week or 80% of average weekly earnings, whichever is lower [14]. Software that still applies the old three-day wait will underpay every short-term sickness absence.
Family-related statutory payments follow a separate pattern. Statutory Maternity Pay runs at 90% of average weekly earnings for the first six weeks, then at £194.32 per week or 90% of earnings if lower [15]. Statutory Paternity, Adoption, Shared Parental, Parental Bereavement and the newer Neonatal Care payments share the £194.32 flat rate. A product that automates statutory pay, including the post-reform SSP position, removes a recurring source of error that a generic calculator cannot match.
Auto-enrolment assessment on every payrun
Automatic enrolment is a per-pay-period duty, not a one-off setup task. The employer must assess every worker on each payrun to decide who becomes an eligible jobholder, and contributions are based on qualifying earnings in the band from £6,240 to £50,270 for the 2026-27 tax year [16]. The minimum total contribution is 8% of qualifying earnings, of which the employer must pay at least 3% [17]. Payroll software that assesses eligibility automatically, and that connects to the chosen pension scheme, turns a monthly compliance exercise into a background process. Software built for small business payroll typically supports NEST, Smart Pension and The People's Pension natively, which matters because scheme integration is where manual auto-enrolment most often breaks down.
Payslips and employee access
Every UK employee has a statutory right to an itemised payslip, and the payslip must show gross pay, deductions and net pay. Free filing tools frequently omit payslip generation, which pushes the employer into producing them by hand or through a second product [18]. A payroll product that generates compliant payslips and makes them available to employees closes a gap that a filing-only tool leaves open, and it is one of the clearest dividing lines between a filing utility and a complete payroll system.
How payroll software handles the 2026-27 numbers
A payroll product is only as good as its grasp of the current figures. The 2026-27 tax year carries several changes that a buyer should expect the software to reflect automatically. The table below summarises the headline figures a UK payroll product must apply correctly.
| Figure | 2026-27 value | Source |
|---|---|---|
| Employer National Insurance rate | 15% above £5,000 | [[19]](https://www.gov.uk/national-insurance-rates-letters) |
| Employee National Insurance (main band) | 8% between £12,570 and £50,270 | [[20]](https://www.gov.uk/national-insurance-rates-letters) |
| Personal Allowance | £12,570 (code 1257L) | [[21]](https://www.gov.uk/income-tax-rates) |
| Basic rate income tax | 20% up to £50,270 | [[22]](https://www.gov.uk/income-tax-rates) |
| Statutory Sick Pay | £123.25 per week or 80% of AWE | [[23]](https://www.gov.uk/employers-sick-pay) |
| Plan 2 student loan threshold | £29,385 at 9% | [[24]](https://www.gov.uk/repaying-your-student-loan/what-you-pay) |
The employer National Insurance rise is the figure with the sharpest cost impact. The rate moved from 13.8% to 15% on 6 April 2026, and the Secondary Threshold at which employer National Insurance starts sits at £5,000 a year [25]. For an SME running tight margins, a product that applies the wrong rate or misses an available relief changes the real cost of employment. Readers weighing the impact on hiring can work through the detail in a dedicated guide to employer National Insurance.
Student loan deductions are a second area where a lagging product causes quiet errors. There are five plans, each with its own threshold and a common 9% rate, and the postgraduate loan is always deducted before a plan-type loan [26]. A product that has not been updated for the current thresholds will over or under-deduct on every affected employee, and the employee is the one who notices first.
Pricing models: per-employee licence versus per-payslip
Price is rarely the licence headline. It is the model behind the headline. Most UK payroll platforms charge a fixed monthly licence per employee, which means the cost scales with headcount whether or not every person is paid in a given period. A business with seasonal or variable staff pays for seats that sit idle.
A per-payslip model inverts that logic. The cost scales with payroll activity rather than with the number of people on the books, so an employer with a fluctuating workforce pays for what the payroll actually processes. For businesses with irregular pay patterns, the per-payslip pricing approach can be materially cheaper than a seat licence, because a dormant employee record costs nothing until it generates a payslip. The right question for a buyer is not what the monthly figure is, but what drives it.
The free tier sets the price floor, and it is worth naming honestly. The free HMRC tool costs nothing and files correctly for a payroll under 10 employees, so any paid product has to justify its cost over that baseline [27]. The justification is rarely the filing itself. It is the payslips, the auto-enrolment, the statutory pay and the time not spent on manual workarounds.
In-house software, bureau service or an embedded engine
The final decision is structural: who actually runs the payroll. There are three broad answers, and the right one depends on the business.
An owner-managed business running its own payroll needs software that handles the full statutory cycle without specialist knowledge. The priority is automation of the parts that are easy to get wrong, namely RTI submission, auto-enrolment and statutory pay. Most UK payroll products are built UI-first, as a website or desktop tool with the filing engine behind it, which suits a business that wants to log in and run a payrun.
An accountant or payroll bureau running payroll for many clients needs a different shape of product. The priority there is managing tens or hundreds of schemes from a single view, with approval workflow and delivery built in. A payroll bureau platform designed for multi-client work, billed per payslip, scales in a way that a single-employer tool does not, because the cost tracks the volume of payslips rather than a licence per client.
A software platform that wants to offer UK payroll inside its own product faces a third decision entirely. An integration API that lets a customer sync data between an existing payroll product and surrounding tools is not the same as an embeddable engine. An HMRC-recognised payroll API is the payroll product itself, exposed for another platform to call from inside its own interface, so the end user never leaves the host product. A market event in early 2025 removed a popular UK payroll automation product from the standalone market, and the gap it left has not been filled by mainstream players, which is why API-first payroll engines have gained ground among HR platforms and ERPs entering the UK.
Work out the true cost of a hire
Before committing to any payroll product, an employer can size the real cost of employment with the Moonworkers UK salary calculator, which applies the 2026-27 PAYE and National Insurance rules to any gross salary and shows the employer National Insurance on top.
£ per month
e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
Enter a salary or hourly rate above
About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category — if in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
Conclusion
Choosing UK payroll software is a compliance decision dressed as a software decision. HMRC recognition narrows the field to products that can file correctly, but it does nothing to separate them, because every serious product holds the badge. The real decision rests on the capabilities that map to the duties an employer keeps whatever software they run: statutory pay, auto-enrolment on every payrun, compliant payslips and a product that reflects each April's new figures without manual reconfiguration.
The direction of the market is towards more automation and more embedding, with payroll compliance increasingly delivered inside platforms that are not themselves payroll products. The 2026 changes to employer National Insurance and statutory sick pay make the cost of a lagging or incomplete tool more visible than it has been in years, and that visibility is likely to keep pushing employers towards software built to scale rather than software built to cost nothing.
Frequently asked questions
Does a UK business legally need payroll software?
An employer operating PAYE must report payroll information to HMRC electronically on or before each payday, which in practice requires software that can submit Real Time Information [28]. The only exception is a small group of employers who are exempt from online filing. For almost every UK employer, HMRC-recognised payroll software is the practical route to meeting the on-or-before reporting duty.
What is the difference between HMRC-recognised and HMRC-approved software?
HMRC-recognised is the correct term and HMRC-approved is not. HMRC recognises software that meets its specifications for sending Full Payment Submissions and other RTI submissions, but it does not approve, endorse or recommend any product over another [29]. Recognition confirms the software can file correctly; it is a baseline every serious product meets.
Is free payroll software good enough for a small business?
Free HMRC-recognised payroll software is limited to businesses with fewer than 10 employees, and several free options do not produce payslips or assess auto-enrolment [30]. For a single-director company with no extras it can be adequate. For an employer with staff, auto-enrolment duties and statutory pay, the manual workarounds a free tool forces usually outweigh the saved licence fee.
What happens if payroll is filed late?
Late Full Payment Submissions attract a monthly penalty from £100 for 1 to 9 employees up to £400 for 250 or more employees [31]. The first late filing in a tax year is not penalised, and there is a three-day grace period, but repeated late filing compounds month by month, which is why timely RTI submission is the core job of any payroll product.
Image prompt for Imagen (also in frontmatter)
Documentary-style wide shot, a UK SME owner at a busy desk in a converted brick office comparing two printed payroll reports, a laptop open beside them showing a spreadsheet (screen content blurred but legible), soft daylight from a north-facing window, mid-morning, muted palette of warm grey, oak, paper white, a red-brick city building visible through the window, off-centre composition with the owner in the right two-thirds, shot on a Sony A7 IV at 35mm f/2.8, photojournalism, 35mm film grain, no AI artefacts, no warped hands, no warped text on screens, landscape orientation 16:9.
