Payroll in the UK 2026-27: PAYE, National Insurance and payslips

In the UK the employer runs PAYE: it deducts Income Tax and employee National Insurance (8% between £12,570 and £50,270 a year, 2% above) from each payment, reports to HMRC on or before payday and pays by the 22nd of the next tax month. The employer adds 15% National Insurance above £5,000 a year and at least 3% pension.

UK payroll at a glance

National Insurance contributions

Class 1 National Insurance is calculated on each payment of earnings, using the thresholds for the pay period. For employees under category letter A, the most common one, the 2026-27 figures are:

Points to watch:

• Earnings between the LEL and the PT are charged at 0% for the employee.
• Relief for young people, apprentices and veterans. For employees under 21 (letter M), apprentices under 25 (letter H) and eligible veterans (letter V), the employer pays 0% up to £50,270 a year. Freeport and Investment Zone employers pay 0% up to £25,000 a year for qualifying staff.
• Employment Allowance. Eligible employers can reduce their annual employer National Insurance by up to £10,500. It cannot be claimed by a company whose only employee paying secondary Class 1 National Insurance is its sole director, and only one company in a group can claim it.
• Apprenticeship Levy. Employers with an annual pay bill of more than £3 million pay 0.5% of it, less an allowance of £15,000.

Income Tax through PAYE

The employer deducts Income Tax with the tax code HMRC gives each employee; 1257L means the standard Personal Allowance of £12,570, or £1,048 a month. The 2026-27 bands for taxpayers in England, Wales and Northern Ireland:

• The Personal Allowance goes down by £1 for every £2 of adjusted net income above £100,000, and is zero from £125,140.
• Scotland sets its own rates for residents: 19% starter, 20% basic, 21% intermediate, 42% higher, 45% advanced and 48% top rate, with the same £12,570 allowance; it applies to employees who live in Scotland. Wales uses the same rates as England.
• Emergency tax codes for 2026-27 are 1257L W1, 1257L M1 and 1257L X.
• Student loans are also collected through payroll: 9% of earnings above the plan threshold (for example £29,385 a year for Plan 2) and 6% for postgraduate loans above £21,000.

Minimum wage, working time and mandatory pay

• National Living Wage (aged 21 and over): £12.71 an hour from 1 April 2026, up from £12.21. Other rates: £10.85 for ages 18 to 20, £8.00 for under-18s and for apprentices under 19 or in their first year. The rates change every 1 April.
• No 13th salary. There is no statutory 13th month or holiday bonus in the UK.
• Overtime. Employers do not have to pay a premium for overtime, but average pay for all hours worked must not fall below the National Minimum Wage.
• Holiday. Most workers on a 5-day week are entitled to at least 28 days (5.6 weeks) of paid leave a year, and bank holidays can be counted within it.
• Statutory Sick Pay is £123.25 a week, or 80% of average weekly earnings if that is lower. Statutory Maternity Pay is 90% of average weekly earnings for 6 weeks, then £194.32 a week or 90% if lower.

Monthly payroll calendar and filings

1. 1Before the first payday: register as an employer with HMRC to get your employer PAYE reference. You cannot register more than 2 months before you start paying people.
2. 2Every payday: record pay, calculate tax, National Insurance and other deductions, give every employee a payslip and send a Full Payment Submission (FPS) to HMRC on or before payday.
3. 3By the 19th of the next tax month: send an Employer Payment Summary (EPS) to claim reductions in what you owe, for example for statutory pay.
4. 4By the 22nd of the next tax month: pay HMRC electronically (by the 19th if paying by post). Quarterly payers pay by the 22nd after the quarter ends, for example 22 July for the 6 April to 5 July quarter.
5. 5After the tax year: give each employee a P60 by 31 May and report expenses and benefits by 6 July.

Auto-enrolment. Employers must automatically enrol staff aged between 22 and State Pension age who earn at least £10,000 a year and usually work in the UK into a workplace pension, and pay at least the minimum contributions.

Payslips. Employees and workers must get a payslip showing pay before and after deductions, the amount of each deduction that varies (such as tax and National Insurance) and, where pay varies with time worked, the number of hours paid.

Records. Keep payroll records, reports and payments to HMRC, leave and sickness absence for 3 years from the end of the tax year they relate to.

Worked example: £3,000 a month in England

An employee in England on £36,000 a year, paid £3,000 a month, tax code 1257L, category letter A, auto-enrolled in a relief-at-source pension at the minimum rates:

Over the year, Income Tax is 20% of £23,430 (£36,000 − £12,570), so £4,686, or £390.50 a month. Payroll software working month by month with code 1257L can differ by a few pence because of rounding. In a relief-at-source scheme the employee's 5% is £124.00: £99.20 comes from pay and HMRC adds £24.80 of tax relief. If the business claims the Employment Allowance, the employer National Insurance of £4,649.40 a year for this employee is covered by the £10,500 allowance.

Common mistakes

1. 1Sending the FPS after payday. It is due on or before the day employees are paid, even if you pay HMRC quarterly.
2. 2Using the employee threshold for employer National Insurance. Employers pay 15% from £5,000 a year (£417 a month), not from £12,570.
3. 3Applying the England rates to an employee who lives in Scotland, where Scottish Income Tax applies.
4. 4Paying below the National Living Wage once unpaid overtime or deductions are averaged over the hours worked.
5. 5Missing the auto-enrolment duty for a member of staff aged 22 or over who reaches £10,000 a year.
6. 6Claiming the Employment Allowance for a company whose only employee on payroll is its sole director.
7. 7Paying HMRC late by sending a cheque that arrives after the 19th.

How Clientlly helps

Clientlly ships a built-in payroll profile for the United Kingdom: the income-tax bands and Personal Allowance as modelled, the employee and employer National Insurance rates and thresholds, and the National Living Wage, checked against official sources on 1 October 2026. It calculates gross to net and the employer contributions, produces payslips, and supports recurring payroll adjustments and imports of employees and payroll data; an administrator can adjust the rates in the payroll tax settings.

The profile models one employee in a primary job, single, without dependants, at the rates for England, Wales and Northern Ireland, so Scottish Income Tax, workplace pension contributions, student loans, the Employment Allowance and personal tax codes must be checked separately.

Alongside payroll, the human resources module handles leave requests and approvals with a leave calendar and HR documents, and attendance and time tracking records working hours and overtime. To close the books after the payroll run, see our month-end close checklist.