How to Do Payroll Yourself: A UK Guide

Every UK employer must send a Full Payment Submission to HMRC on or before each payday, and late filing draws monthly penalties from £100 to £400 depending on headcount ^[9]. Registration must happen before the first payday, and an employer cannot register more than two months in advance ^[1]. Those deadlines set the shape of doing payroll in-house: it is a repeatable monthly process governed by fixed rules and hard dates.

Running payroll yourself is entirely achievable for a small business, and for many microbusinesses it saves money and keeps control of the data in-house. The work divides into three phases: a one-off setup with HMRC, the recurring pay-period cycle, and the compliance obligations that sit around both. Get the structure right once and each subsequent run becomes routine.

This guide walks through the whole process in order, from registering as an employer to filing the year-end P60. It uses the 2026-27 tax year figures throughout and points to the official HMRC pages an employer needs at each step.

Key takeaways

• An employer must register with HMRC before the first payday and choose HMRC-recognised payroll software before running the first payroll ^[1].
• Each pay period follows the same cycle: calculate gross pay, apply deductions, file a Full Payment Submission, pay staff, and remit tax and National Insurance to HMRC ^[7].
• Employer National Insurance is charged at 15% above £5,000 a year in 2026-27, and income tax at 20% above the £12,570 Personal Allowance ^[11].
• Payroll records must be kept for three years from the end of the tax year, or HMRC may estimate the bill and charge a penalty of up to £3,000 ^[10].
• The free HMRC tool is capped at nine employees and produces no payslips, so most businesses use commercial software.

Before running payroll: register and set up

The setup phase happens once, and getting it right removes most of the friction from every later payroll run. Two tasks matter: registering as an employer with HMRC, and choosing the software that will do the calculations and filing.

Registering as an employer with HMRC

An employer must register for PAYE before paying anyone for the first time, and registration cannot be done more than two months before the first payday ^[1]. HMRC issues an Employer PAYE Reference and an Accounts Office Reference, which the payroll software needs before it can file ^[2]. The reference numbers arrive by post, so the timing matters: registering too late means missing the first filing deadline.

After registering, HMRC sends an activation code for PAYE Online within about ten days, and the account must be activated within 28 days of the date on the letter ^[19]. PAYE Online is where the employer views what is owed, sees late-filing notices and manages the scheme. A fuller explanation of the scheme itself, including what the two reference numbers mean, sits in the guide to what a PAYE scheme is. Registration is required even for a single-director company paying one salary, because the moment a business pays anyone above the reporting threshold it falls inside PAYE ^[4].

Choosing payroll software

Payroll software records employee details, calculates pay and deductions, and files with HMRC ^[3]. It must be HMRC Recognised to submit Real Time Information, which is the baseline requirement rather than a premium feature ^[7]. Doing payroll "yourself" in 2026-27 does not mean doing the arithmetic by hand; it means operating recognised software rather than outsourcing the whole function.

The free HMRC tool exists, but it is capped at nine employees, produces no payslips and handles no automatic auto-enrolment assessment, so it sets a floor rather than a solution ^[3]. Most businesses choose commercial software that produces payslips, assesses pensions and files RTI automatically. A business comparing options can review dedicated UK payroll software built for exactly this in-house use, and weigh the cost against the time saved on the pricing page covering per-payslip pricing.

Gathering employee information

Payroll cannot run without accurate data on each worker. Missing or wrong information at this stage produces the wrong tax code, the wrong deduction, and a correction later. The employer collects a defined set of details for every new starter before their first pay ^[5].

The starter checklist and P45

When an employee joins, the employer needs their full name, address, date of birth, National Insurance number, and their tax code ^[5]. The tax code comes from one of two sources: a P45 from the employee's previous job, or, if they have no P45, the HMRC starter checklist ^[6]. The starter checklist replaced the old P46 form and asks the employee to pick one of three statements about their circumstances, which determines the starting tax code ^[6].

If an employee provides neither a P45 nor a completed starter checklist, the employer must apply an emergency tax code until HMRC issues the correct one ^[5]. The information from the starter checklist must be kept for the current tax year and the following three ^[6]. A detailed walk-through of the leaving side of this process is available in the article on what a P45 is.

Tax codes and what they mean

The tax code tells the software how much of an employee's pay is tax-free and at what rate the rest is taxed ^[12]. Reading it correctly is essential, because an incorrect code either over-deducts or under-deducts tax and generates a query. The most common codes in the 2026-27 tax year are set out below.

The standard code of 1257L reflects the Personal Allowance of £12,570 ^[12]. Scottish and Welsh taxpayers carry an S or C prefix because their income tax bands differ from those in England and Northern Ireland ^[11]. The employer applies whatever code HMRC or the starter process provides and does not change it independently.

Running a payroll each pay period

With setup complete and employee data in place, each pay period follows the same repeatable sequence. The cycle is identical whether the business pays weekly, fortnightly or monthly, and the discipline of following it in order is what keeps payroll accurate.

Calculating gross pay

The first step each period is to establish gross pay: the total each employee has earned before any deductions ^[4]. For salaried staff this is the monthly or weekly salary. For hourly staff it means gathering hours worked, overtime, and any bonuses or commission, then multiplying by the rate. Statutory payments such as Statutory Sick Pay or Statutory Maternity Pay are added at this stage where an employee qualifies ^[16].

Getting gross pay right is the foundation of everything that follows, because every deduction is calculated from it ^[7]. Any variable input, hours, overtime, absence, must be collected before the run rather than corrected after it. From 6 April 2026, Statutory Sick Pay is due from the first day of sickness at £123.25 a week or 80% of average weekly earnings if lower, so absence now feeds into gross pay earlier than under the old rules ^[16].

Calculating deductions

Once gross pay is set, the software applies the statutory deductions in order. The main deductions and their 2026-27 rates are shown below. Every figure here is fixed by HMRC and encoded in recognised software, so the employer's job is to confirm the inputs rather than to calculate by hand ^[11].

Employer National Insurance is an employer cost on top of gross pay, not a deduction from the employee, and it is charged at 15% above the Secondary Threshold of £5,000 a year ^[11]. The mechanics of that cost are explained in the guide to employer National Insurance. Student loan deductions apply the right plan threshold and rate, and a postgraduate loan is always deducted before an ordinary plan ^[17]. Where the business runs a workplace pension, contributions are deducted here too, assessed under auto-enrolment each period ^[14].

Reporting and paying HMRC

Calculating pay is only half the job. The employer must also report the run to HMRC and then pay over the tax and National Insurance collected. These are two separate obligations with two separate deadlines, and both carry penalties for lateness.

Filing the FPS and EPS

The Full Payment Submission is the core Real Time Information return, filed on or before every payday ^[7]. It reports each employee's gross pay, income tax, National Insurance, student loan deductions and any statutory payments. The software generates and submits it directly to HMRC using the employer's PAYE reference ^[7]. Filing on time is not optional: the first late submission in a tax year is usually ignored, but repeated lateness attracts the monthly penalties set out earlier ^[9].

The Employer Payment Summary is a supplementary return, filed by the 19th of the following tax month when the employer needs to reclaim statutory pay, claim the Employment Allowance, or tell HMRC that no employees were paid ^[8]. An employer that pays nobody in a month must still send a nil EPS, or HMRC may assume an FPS is missing and estimate the liability ^[8]. The Employment Allowance itself, claimed through the EPS, reduces the employer National Insurance bill and is worth checking eligibility for ^[15]. A complete filing calendar sits in the running PAYE payroll checklist.

Paying HMRC and deadlines

After filing, the employer pays HMRC the income tax and National Insurance collected, plus employer National Insurance. The PAYE tax month runs from the 6th of one month to the 5th of the next, and the deadlines for paying depend on the payment method ^[13].

Businesses paying less than £1,500 a month on average can arrange to pay HMRC quarterly rather than monthly, but the FPS must still be filed on or before every payday regardless of how often the tax is paid ^[13]. Paying late incurs interest, so the electronic deadline of the 22nd is the one most employers work to ^[13].

Staying compliant: records, year-end and penalties

Two compliance duties sit around the pay-period cycle: keeping records throughout the year, and completing the year-end process each April. Neither is optional, and both carry penalties for failure.

Keeping payroll records

An employer must keep payroll records for three years from the end of the tax year they relate to ^[10]. The records must show what was paid, what was deducted, and the reports made to HMRC, and they can be kept on paper or digitally ^[10]. If an employer fails to keep adequate records, HMRC may estimate what is owed and charge a penalty of up to £3,000 ^[10].

Good records also protect the employer in a National Minimum Wage check, because payroll records are the standard evidence of total pay and hours worked ^[10]. Recognised payroll software keeps these records automatically, which is one of the practical reasons the free tool is a poor fit for most businesses: it produces no payslips to retain ^[3].

Year-end and the P60

At the end of the tax year, the employer runs a final payroll and completes the year-end process. Every employee still on the payroll on 5 April must receive a P60 by 31 May, summarising their pay, tax, National Insurance and any statutory payments for the year ^[18]. Employees rely on the P60 for self-assessment, mortgage applications and benefit claims, so issuing it on time matters beyond mere compliance ^[18].

The year-end run also updates tax codes for the new tax year and closes off the old one in the software ^[19]. A one-off employer or sole trader who only needs to produce the occasional document rather than run a full year can use an instant payslip generator instead of maintaining a full scheme.

When to automate or hand payroll over

Doing payroll yourself makes sense while the workforce is small and the pay structure simple. As headcount grows, pay frequencies multiply, or auto-enrolment and statutory pay become regular features, the time cost of running each element by hand rises and so does the risk of a filing error ^[7]. The decision point is usually less about ability than about time: at some volume, the hours spent on payroll outweigh the cost of automating it.

The middle path most businesses take is recognised software that automates the calculations, the RTI filing and the auto-enrolment assessment while leaving the employer in control of the data and the approvals ^[3]. That keeps payroll in-house, which is the point of doing it yourself, without exposing the business to the manual errors that draw HMRC penalties ^[9].

Conclusion

Doing payroll yourself is a matter of following a fixed sequence: register once, gather accurate employee data, then repeat the calculate-file-pay cycle every period and complete the year-end each April. None of the individual steps is complicated, but each has a deadline attached, and the penalties for missing one are real. The structure is what makes it manageable.

For most small businesses the sensible reading of "doing it yourself" is running recognised software rather than performing the arithmetic by hand. The software encodes the rates, files the returns and keeps the records, while the employer keeps ownership of the data and the decisions. As payroll grows in size and complexity, that same principle scales: more of the mechanical work moves to the engine, and the employer's role narrows to supplying inputs and approving outputs.

FAQs

Can I run payroll myself without an accountant in the UK?

Yes. Any employer can run payroll in-house by registering with HMRC, using HMRC-recognised software, and filing a Full Payment Submission on or before each payday. An accountant is not required, though many small businesses use one for advice. What is required is recognised software, because Real Time Information cannot be filed without it and the free HMRC tool is capped at nine employees with no payslips.

What do I need before I can run my first payroll?

An employer needs an Employer PAYE Reference and Accounts Office Reference from HMRC, an activated PAYE Online account, and HMRC-recognised payroll software. For each employee, the employer needs their full name, address, date of birth, National Insurance number and tax code, taken from a P45 or a completed starter checklist. Registration must be done before the first payday and cannot be started more than two months ahead.

How much does it cost to do payroll yourself?

The main cost is the software. The free HMRC tool costs nothing but is limited to nine employees and produces no payslips, so most businesses use commercial software priced either per payslip or per employee per month. Running payroll in-house avoids bureau processing fees, so for a small, stable workforce it is usually the cheapest compliant option once the software cost is accounted for.

What happens if I file my payroll late?

HMRC charges monthly late-filing penalties for a late Full Payment Submission, ranging from £100 for one to nine employees up to £400 for 250 or more. The first late submission in a tax year is usually ignored, and there is a short grace period, but habitual lateness is penalised. Paying the tax itself late incurs interest, so employers generally work to the electronic payment deadline of the 22nd of the following tax month.