Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
Every UK employer must report each payment to staff to HMRC on or before payday [1], and a late report can cost between £100 and £400 a month depending on how many people the scheme employs [2]. Both rules apply in the same way whether the business runs payroll itself, uses a bureau or asks its accountant.
HMRC describes two broad routes: running payroll in-house with software, or paying a payroll provider such as a bureau or an accountant [3]. In practice, SMEs choose between three models, each with its own cost, control and workload. What does not move between models is legal responsibility: the employer remains responsible for every PAYE task, even when someone else carries it out [3].
This guide compares the three models and their costs, lists the duties that stay with the employer, sets out the penalties, explains how to switch provider cleanly and closes with a decision checklist.
Key takeaways
- UK SMEs run payroll in-house with HMRC-recognised software, through a payroll bureau, or through their accountant.
- The employer stays legally responsible for PAYE, RTI, auto-enrolment, payslips, minimum wage and statutory pay under all three models.
- A Full Payment Submission is due on or before every payday, and late filing penalties run from £100 to £400 a month by headcount.
- Payroll records must be kept for 3 years from the end of the tax year they relate to, and minimum wage records for at least 6 years.
- A mid-year switch is possible, but year-to-date figures must carry across exactly and payroll IDs must be handled correctly to avoid duplicate employments.
The three ways to run UK payroll
"Payroll services" covers anything from a software subscription to a fully managed service. HMRC does not rank or endorse providers and states that it cannot recommend one software product or service over another [4]. The table below summarises how the three models divide the work.
| Model | Who runs each pay run | Who files RTI | Typical fit |
|---|---|---|---|
| In-house with software | An owner, office manager or payroll administrator | The employer, through its own software | Businesses that want control and have someone to own payroll |
| Outsourced payroll bureau | The bureau's payroll team | The bureau, as an authorised agent | Businesses with no in-house payroll skills or with complex pay |
| Accountant-run payroll | The accountant or practice payroll team | The accountant, as an authorised agent | Businesses that already use an accountant for bookkeeping and tax |
In-house with payroll software
Running payroll in-house means the employer buys or subscribes to payroll software, enters pay and starter or leaver details, and submits RTI directly. Employers must use software that reports PAYE information to HMRC online unless they are exempt, and HMRC suggests checking that a product also produces payslips, records pension deductions and sends Employer Payment Summary reports [4]. HMRC keeps a list of recognised products, including free options for businesses with fewer than 10 employees [5].
The trade-off is time and expertise: someone must apply new rates each April, process starters and leavers, assess auto-enrolment and correct errors, all tasks HMRC's further guide for employers sets out for each tax year [6]. With a stable salaried team, software automates most of this; with shifts, overtime and frequent joiners, the workload grows quickly.
Outsourced payroll bureau
A payroll bureau runs the pay calculation, files with HMRC and usually distributes payslips, and may also keep employee records or pay HMRC for the employer [3]. A bureau files through HMRC's PAYE for Agents online service, which lets an agent or payroll bureau file online for the employer [6].
To act, the bureau needs authorisation as the employer's agent, either through an online service, the employer's business tax account or, failing that, form 64-8 [7]. HMRC is explicit that authorising an agent does not move responsibility: the business remains legally responsible for its own tax [7]. The bureau can only process the hours, starters and leavers it receives on time.
Accountant-run payroll
Many small employers already use an accountant for bookkeeping or year-end accounts and add payroll to the same relationship. HMRC treats an accountant running payroll in the same way as a bureau: both are payroll providers paid to complete PAYE tasks, and the employer stays legally responsible [3]. The accountant files RTI under the same agent arrangements, so the authorisation steps are identical [7].
The advantage is joined-up records, since the payroll journal feeds the accounts the same practice prepares. The limit is turnaround: a practice works to its own cut-off dates, so late changes may wait for the next run. Practices that run payroll at scale tend to use a multi-client payroll dashboard to manage approvals and deadlines across schemes.
What each payroll model costs
Published market surveys put a managed payroll service at around £4 to £12 per employee each month, with very small teams often charged a fixed fee of roughly £25 to £60 a month instead [8]. Another survey puts entry-level payroll software at under £10 per user each month, and notes that HMRC's free options are aimed at businesses with fewer than 10 employees [9].
The table below shows how cost is usually built under each model; the total depends heavily on pay frequency and headcount [8].
| Cost element | In-house with software | Payroll bureau | Accountant-run |
|---|---|---|---|
| Main charge | Software subscription, often per employee or per payslip | Per employee or per payslip, sometimes plus a base fee | Per payslip or bundled into a monthly retainer |
| Set-up | Usually low or nil | Onboarding and data migration fee is common | Often included for existing clients |
| Year-end (P60, P11D) | Included in most software | Sometimes billed separately | Sometimes billed separately |
| Internal time | Highest: someone owns every pay run | Lowest: the employer supplies data | Low: the employer supplies data |
| Control over timing | Full | Bound by the bureau's cut-off | Bound by the practice's cut-off |
A fuller breakdown of bureau pricing, including the add-ons that appear on invoices, is covered in the guide to how much it costs to outsource payroll.
Visible fees and hidden costs
The headline price is rarely the whole cost. Market surveys list year-end P60 and P11D work, Construction Industry Scheme processing and per-payment charges above an included allowance as common extras on outsourced invoices [8]. Pension administration is often priced as a separate line, and integrations with HR or accounting tools can add a further monthly charge per employee [9].
On the in-house side, the hidden cost is time and error. Late or wrong payroll creates penalty exposure, and each correction means a further submission with revised year-to-date figures, as the guide to correcting payroll errors explains [10]. Employers can also reduce their overall bill through reliefs the payroll must apply correctly: Employment Allowance lets an eligible employer reduce its annual National Insurance liability by up to £10,500 [11].
What a single pay run has to calculate
Whatever the model, every pay run applies the same rules. For the 2026-27 tax year, employer National Insurance is charged at 15% above the Secondary Threshold of £5,000 a year (£417 a month), and the National Living Wage is £12.71 an hour for workers aged 21 and over [12]. A pay run also applies the employee's tax code, any student loan plan and pension deductions.
The worked example below shows one employee on tax code 1257L and National Insurance category A, paid £2,500 a month in England, before pension contributions. The figures follow the 2026-27 thresholds published by HMRC [12].
| Item (monthly) | Amount |
|---|---|
| Gross pay | £2,500.00 |
| Income tax | £290.20 |
| Employee National Insurance | £116.16 |
| Take-home pay before pension | £2,093.64 |
| Employer National Insurance | £312.45 |
Every payroll service, of any kind, repeats this calculation for each employee and each pay period.
Duties that stay with the employer under every model
HMRC's position is simple: an employer is legally responsible for completing all PAYE tasks, even when it pays someone else to do them [3]. The same principle runs through pensions law, where The Pensions Regulator states that the employer's legal duties begin on the day the first member of staff starts work [13]. The table below lists the core duties and their timing.
| Duty | Rule or deadline | Source |
|---|---|---|
| Full Payment Submission | On or before each payday | HMRC [1] |
| Employer Payment Summary | By the 19th of the following tax month | HMRC [1] |
| Pay PAYE and National Insurance | By the 22nd of the next tax month (19th by post) | HMRC [14] |
| Auto-enrolment declaration | Within 5 months of the duties start date | TPR [15] |
| Payslips | On or before payday | GOV.UK [16] |
| P60 to employees | By 31 May after the tax year ends | HMRC [17] |
| PAYE records | Kept 3 years from the end of the tax year | HMRC [18] |
Reporting through RTI on or before payday
The Full Payment Submission tells HMRC about payments to employees and the deductions taken from them, and it must be sent on or before payday, even for employers that pay HMRC quarterly [1]. Where a report goes in late, the employer must give a late reporting reason on the FPS; without a valid reason, a warning or a penalty can follow [19]. The Employer Payment Summary, used to claim reductions such as recovered statutory pay, is due by the 19th of the following tax month [1].
A new employee must be registered with HMRC through an FPS on or before their first payday, using details from their P45 or, where there is none, from HMRC's starter checklist [20]. The new starter checklist explains how each answer drives the starting tax code. When an employee leaves, the employer must give them a P45 and report the leaving date on the final FPS [21].
Paying PAYE and National Insurance on time
Reporting and paying are separate obligations. Employers must pay what they owe by the 22nd of the month, or by the 19th when paying by post [14]. A small employer that usually pays less than £1,500 a month may be able to pay quarterly instead, after checking eligibility with HMRC's payment helpline [14].
Paying quarterly does not change the reporting cycle: the FPS is still due on every payday [1].
Auto-enrolment duties
Employers must enrol staff aged between 22 and State Pension age who earn at least £10,000 a year and usually work in the UK, and must write to staff who become eligible within 6 weeks of the day they meet the criteria [22]. The employer pays at least 3% of qualifying earnings, and contributions must reach the scheme by the 22nd of the next month, or the 19th by cheque [23].
The declaration of compliance must be completed within 5 months of the duties start date. A person who helped with the duties may complete it, but The Pensions Regulator is clear that it remains the employer's legal duty to make sure it is done on time and correctly [15]. Every three years the employer must re-enrol certain staff who have left the scheme and complete a re-declaration, even where nobody needs re-enrolling [24]. The process is covered step by step in the guide to the declaration of compliance.
Keeping payroll records
PAYE records, including pay and deductions, reports and payments to HMRC, leave and sickness absence, tax code notices and taxable benefits, must be kept for 3 years from the end of the tax year they relate to [18]. Where records are incomplete, HMRC may estimate what is owed and charge a penalty of up to £3,000 [18].
Minimum wage records carry a longer period. They must be kept for at least 6 years, and it is the employer's responsibility to keep records proving that the minimum wage has been paid [25]. After a switch, the outgoing provider's records must stay accessible.
Payslips
Under section 8 of the Employment Rights Act 1996, a worker is entitled to a written itemised pay statement at or before each payment, showing gross pay, deductions and their purposes, net pay and, where pay varies with time worked, the hours worked [26]. GOV.UK confirms that payslips must be provided on or before payday and that fixed deductions can be explained in a separate statement updated each year [16].
National Minimum Wage
Pay must meet the rate for each worker's age band, which a payroll service checks on every run. The rates below apply from 1 April 2026 [27].
| Age band | Hourly rate |
|---|---|
| 21 and over (National Living Wage) | £12.71 |
| 18 to 20 | £10.85 |
| Under 18 | £8.00 |
| Apprentice | £8.00 |
Underpayment is costly. Under a notice of underpayment, the penalty can reach 200% of the arrears, up to £20,000 per worker, halved if the employer complies in full within 14 days [28].
Statutory payments
Statutory Sick Pay is £123.25 a week or 80% of average weekly earnings, whichever is lower, for up to 28 weeks [29]. Statutory Maternity Pay is paid for up to 39 weeks: 90% of average weekly earnings for the first 6 weeks, then £194.32 or 90% of average weekly earnings, whichever is lower, for the remaining 33 weeks [30].
Employers can usually recover 92% of statutory family payments through the EPS, or 109% under Small Employers' Relief where Class 1 National Insurance in the last complete tax year was £45,000 or less [31]. A payroll service calculates these amounts, but the employer must keep the underlying records of leave and sickness absence for each claim [18].
Risks and penalties when payroll goes wrong
Penalties attach to the employer's PAYE scheme, not to the provider; a contract may shift the cost of a provider's error, but not the legal liability [3].
Late Full Payment Submission penalties
HMRC charges a monthly late filing penalty based on the number of employees in the scheme [2].
| Employees in the PAYE scheme | Monthly penalty |
|---|---|
| 1 to 9 | £100 |
| 10 to 49 | £200 |
| 50 to 249 | £300 |
| 250 or more | £400 |
No penalty applies where all payments on a late FPS fall within 3 days of payday, where a new employer sends its first FPS within 30 days of paying an employee, or for the first late report in a tax year (except for annual schemes) [2]. Employers running more than one PAYE scheme can be charged penalties for each one, and paying a penalty within 30 days of the notice avoids interest [2]. The guide to late payroll submission penalties covers appeals in more detail.
Late payment and pension penalties
Late payment of PAYE and National Insurance is penalised separately. The penalty is a percentage of the late amount, set by the number of defaults in the tax year, and the first late payment does not count as a default [32].
| Defaults in the tax year | Penalty on the late amount |
|---|---|
| 1 to 3 | 1% |
| 4 to 6 | 2% |
| 7 to 9 | 3% |
| 10 or more | 4% |
Amounts still unpaid after 6 months attract an additional 5% penalty, and a further 5% applies after 12 months, with daily interest throughout [32]. Pension failures carry their own fines: The Pensions Regulator can issue a £400 fixed penalty and a daily escalating penalty of £50 to £10,000 [33].
Data protection when payroll is outsourced
A bureau or accountant handles salary, bank and National Insurance details on the employer's behalf. Under Article 28 of the UK GDPR, the employer must only use a processor that gives sufficient guarantees of appropriate technical and organisational measures [34]. The processing must sit under a binding contract requiring the processor to act only on the employer's documented instructions and, at the end of the service, to delete or return the personal data at the employer's choice [34]. That return clause matters most at the point of switching provider.
How to switch payroll provider
Changing payroll provider, or moving from a provider to in-house software, is routine, but it touches the record HMRC holds for every employee. Because year-to-date figures on each FPS cumulate from the previous submission, the new system must start exactly where the old one stopped [10].
Choosing the switch date
The cleanest point is the start of a tax year, after the outgoing provider has sent the final FPS for the old year and issued P60s, which are due to employees by 31 May [17]. A switch on 6 April means the new system starts every employee at zero, with no year-to-date figures to migrate [10].
A mid-year switch is also possible. In that case, the new software must take on each employee's cumulative pay, tax, National Insurance, student loan and statutory pay figures, because each FPS reports year-to-date values that build on the last one [10]. The employer should agree a final pay period with the old provider and a first pay period with the new one, with no gap and no overlap.
Carrying year-to-date figures across
Continuing employees have not left, so no P45 is issued and no leaving date is reported [21]. Instead, the new system imports the year-to-date totals from the last FPS the old provider submitted. HMRC's guidance notes that year-to-date tax should exclude tax from any previous employment, and that where an employee is not paid in a period the year-to-date NI figures should match the last FPS [10].
Running one pay period in parallel on both systems is the most reliable way to confirm the migration before the first live FPS. Any difference left uncorrected will show in the employee's record and in the employer's PAYE bill [10].
Payroll IDs and duplicate employments
Each employee needs a unique payroll ID. When new software issues different IDs, the employer must set the payroll ID changed indicator and enter both the old and new IDs on the FPS [10]. The Chartered Institute of Payroll Professionals reports HMRC guidance that duplicate employment records commonly arise when the indicator is not set, when the old ID is missing, or when a start date or new starter declaration is submitted for a continuing employee [35].
Duplicates produce wrong year-to-date figures and HMRC queries, so the first FPS from the new system deserves a careful review [35].
Agent access and data handover
If the new provider is an agent, it needs authorisation before it can file, using an online service, the business tax account or form 64-8 [7]. The outgoing provider's authorisation should be removed once its final submission has been accepted, and the employer should request a full export of payroll records under the return clause of the processing contract [34].
The handover pack should include employee data, year-to-date figures, pension references, auto-enrolment status and any open statutory payments or court orders. The employer keeps responsibility for the records across both providers for the full retention period [18].
A decision checklist for choosing a payroll model
The questions below help an employer match its situation to a model; the pattern of answers usually decides.
| Question | Points towards in-house software | Points towards a bureau or accountant |
|---|---|---|
| Is there someone who can own payroll every period? | Yes, with cover for absence | No, or only part-time |
| How complex is pay? | Salaried, monthly, few changes | Shifts, overtime, commission, weekly pay |
| How often do people join and leave? | Rarely | Frequently |
| Does the business want same-day control over pay changes? | Yes | Fixed cut-offs are acceptable |
| Does an accountant already handle the books? | Not relevant | Yes, and wants joined-up records |
| Is payroll data needed in other systems? | Yes, through software integrations or an API | Exports are enough |
Before signing, an employer should confirm that the software or provider is on HMRC's recognised list [5], that the contract covers penalty liability for provider errors, and that the processing terms meet Article 28 [34]. It should also confirm who completes the auto-enrolment declaration and re-declaration, since the legal duty stays with the employer [15].
Where Moonworkers fits
Moonworkers, an HMRC-recognised UK payroll platform, sits on the software side of the choice, not the managed-service side. HMRC recognition is the baseline for any product filing RTI, and HMRC does not recommend one product over another [5]. The guide to HMRC-recognised payroll software explains what the recognition covers.
For employers running payroll in-house, Moonworkers offers HMRC-recognised payroll software for SMEs with RTI submissions, payslips and auto-enrolment handled on each pay run, priced per payslip. For platforms that want to offer payroll inside their own product, the HMRC-recognised payroll API exposes the same calculation and filing engine, so the employer keeps control of its data while the compliance plumbing runs underneath. The employer's legal duties described above remain with the employer under every option [3].
Work out the cost of a hire before choosing a model
Before comparing providers, an employer can size the underlying payroll cost of each role with the Moonworkers UK salary calculator, which applies the 2026-27 PAYE and National Insurance rules to any gross salary.
£ 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 a payroll service is a choice about where the work, the control and the data sit, not about who carries the legal duty. RTI on or before payday, payment by the 22nd, auto-enrolment, payslips, minimum wage, statutory pay and record keeping stay with the employer under every model. What changes is how much of that work the business does itself and how quickly it can act on its own pay data.
The direction of travel is towards payroll that runs inside the systems a business already uses, with filing and calculation handled by an engine underneath. Employers that keep year-to-date records clean and provider contracts clear will find any future switch a routine change rather than a risk.
Frequently asked questions
Is the employer still responsible if a payroll bureau makes a mistake?
Yes. HMRC states that the employer is legally responsible for all PAYE tasks even when it pays someone else to do them [3]. Penalties are charged to the employer's PAYE scheme, so any recovery from the bureau depends on the contract between them [2].
Can a small business run payroll for free?
HMRC lists free payroll software recognised for businesses with fewer than 10 employees [5]. Free tools still require the employer to submit RTI on or before each payday and to meet auto-enrolment duties separately, which is why many small employers move to paid software as they grow [1].
Can an employer change payroll provider in the middle of the tax year?
Yes. The new system must carry forward each employee's year-to-date figures, because each FPS builds on the previous submission [10]. Where payroll IDs change, the payroll ID changed indicator and both IDs must be reported to avoid duplicate employments [35].
How long must payroll records be kept after switching provider?
PAYE records must be kept for 3 years from the end of the tax year they relate to [18]. Minimum wage records must be kept for at least 6 years, so the employer should secure a full export from the outgoing provider before access ends [25].
