Employer Payroll Compliance in the UK: Complete Guide to HMRC PAYE, National Insurance, and Auto-Enrolment
Emmanuel Amegah
April 27, 2026
UK payroll compliance sits under a single authority, HMRC, and runs on a real-time reporting framework called RTI (Real Time Information). Every time an employer pays an employee, a Full Payment Submission (FPS) must reach HMRC on or before the payment date. There is no monthly return to file after the fact; compliance is built into the pay run itself.
Three obligations flow through RTI: PAYE income tax withholding, employer and employee National Insurance Contributions (NICs), and the reporting of statutory payments. A fourth obligation, workplace pension auto-enrolment, sits outside HMRC and is governed by The Pensions Regulator (TPR), but integrates directly with payroll.
The most operationally significant recent change is the employer NIC rate increase from 13.8% to 15%, effective April 2025, alongside a reduction in the Secondary Threshold from £9,100 to £5,000 per year. For employers with lower-wage workforces, the threshold change is more consequential than the rate increase.
UK Payroll Authorities at a Glance
| Authority | Obligation | System |
|---|---|---|
| HMRC | PAYE, NICs, statutory payments | RTI (FPS, EPS), PAYE Online |
| The Pensions Regulator (TPR) | Auto-enrolment compliance | TPR online portal |
| Pension schemes | Contribution receipt and management | Employer-chosen qualifying scheme |
PAYE — Income Tax Withholding
How it works
Employers deduct income tax from each employee's gross pay using a tax code issued by HMRC. The tax code determines each employee's personal allowance and any adjustments for benefits in kind, prior underpayments, or multiple employments. HMRC issues tax codes via P9 coding notices; for new employees, the starter declaration on the new starter checklist determines the initial code.
2026/27 income tax rates (England, Wales, Northern Ireland)
The UK tax year runs 6 April to 5 April.
| Taxable income | Rate | Band name |
|---|---|---|
| Up to £12,570 | 0% | Personal allowance |
| £12,571 to £50,270 | 20% | Basic rate |
| £50,271 to £125,140 | 40% | Higher rate |
| Over £125,140 | 45% | Additional rate |
The personal allowance (£12,570) and basic rate band (£37,700) have been frozen since 2021/22 and remain frozen through 2027/28 under current government policy. Verify the Spring Budget 2026 for any changes.
Scotland: Scottish income tax rates and bands differ. Scottish taxpayers have an S prefix on their tax code. In 2025/26, Scotland has six bands including a 19% starter rate and a 42% higher rate. Verify 2026/27 Scottish rates via the Scottish Government budget.
High income child benefit charge
Employees earning over £60,000 who or whose partner receive child benefit face a tax charge. This is handled through the employee's self-assessment return, not employer withholding, but employees may request an adjustment via their tax code.
RTI — Real Time Information
RTI is the reporting infrastructure that makes UK payroll compliance a per-pay-run obligation rather than a monthly filing.
Full Payment Submission (FPS)
An FPS must be submitted to HMRC on or before the date employees are paid. It contains, for each employee paid in the period: gross pay, tax deducted, NIC category and amounts, year-to-date figures, and any statutory payments. There is no grace period — an FPS submitted after the payment date is late, even by one day.
Employer Payment Summary (EPS)
An EPS is submitted when there is nothing to pay HMRC in a given month (nil return), or to reclaim statutory payments (SMP, SSP, etc.) that reduce the employer's PAYE liability. It must be submitted by the 19th of the following tax month.
Payment deadline
PAYE and NIC payments are due to HMRC by the 19th of the following month for cheque or postal payment, and the 22nd of the following month for electronic payment. The tax month runs from the 6th to the 5th, so the April payment covers 6 April to 5 May and is due by 22 May.
National Insurance Contributions (NICs)
NICs are the most complex element of UK payroll, involving both an employer contribution and an employee deduction, each with their own thresholds and rates.
Employer NICs (Class 1 Secondary) — 2025/26 and 2026/27
| Earnings band | Rate |
|---|---|
| Below £5,000/year (Secondary Threshold) | 0% |
| Above £5,000/year | 15% |
The 15% rate and £5,000 Secondary Threshold took effect 6 April 2025 and are expected to carry into 2026/27. Verify the Spring Budget 2026 for any changes.
Employment Allowance: Eligible employers can reduce their annual employer NIC liability by up to £10,500 (increased from £5,000 in April 2025). The allowance is claimed via EPS and applies to the first £10,500 of the employer's Class 1 NIC liability in the tax year. Employers whose total employer NIC liability in the prior year exceeded £100,000 are not eligible.
Employee NICs (Class 1 Primary) — 2026/27
| Earnings band | Rate |
|---|---|
| Up to £12,570/year (Primary Threshold) | 0% |
| £12,571 to £50,270/year | 8% |
| Over £50,270/year | 2% |
The employee rate was reduced from 12% to 10% in January 2024, then to 8% in April 2024. Verify whether any further change was announced in the Spring Budget 2026.
NIC categories
The NIC category letter applied to each employee determines which rates apply. The most common categories:
| Category | Applies to |
|---|---|
| A | Standard employees |
| B | Married women with valid reduced-rate election |
| C | Employees over State Pension age (no employee NIC; employer NIC still due) |
| H | Apprentices under 25 (0% employer NIC up to Upper Secondary Threshold of £50,270) |
| M | Employees under 21 (0% employer NIC up to Upper Secondary Threshold of £50,270) |
The under-21 (M) and apprentice (H) zero-rate employer NIC bands are frequently missed by international operators. For employers with young workforces, the saving is material.
Auto-Enrolment
The obligation
Employers must automatically enrol eligible workers into a qualifying workplace pension scheme and make minimum contributions. The obligation applies from the first eligible employee and there is no opt-out for employers.
Eligibility
| Worker type | Age | Earnings | Employer action |
|---|---|---|---|
| Eligible jobholder | 22 to State Pension age | Over £10,000/year | Must auto-enrol |
| Non-eligible jobholder | 16 to 21 or SP age to 74, or 22 to SP age earning £6,240 to £10,000 | Must enrol if requested | |
| Entitled worker | 16 to 74 | Under £6,240 | Must enrol if requested; no employer contribution required |
Minimum contribution rates (2026/27)
| Party | Minimum rate | Base |
|---|---|---|
| Employer | 3% | Qualifying earnings |
| Employee | 5% | Qualifying earnings |
| Total | 8% |
Qualifying earnings are earnings between the lower (£6,240/year) and upper (£50,270/year) earnings limits. Employers may use alternative certification bases — total earnings, basic pay, or pensionable pay — if the scheme meets minimum standards.
Cyclical re-enrolment
Every three years, employers must re-enrol eligible workers who have previously opted out. The re-enrolment date is tied to the employer's original staging date. Missing cyclical re-enrolment is a TPR compliance failure. TPR issues fixed penalty notices of £400 for initial breach, escalating to daily penalties thereafter.
TPR registration
Employers must declare compliance with TPR within 5 months of their duties start date. For new employers, this means registering with TPR promptly after taking on the first eligible employee.
Statutory Payments
Employers administer and fund statutory payments, which are reclaimed from HMRC via EPS.
| Payment | Weekly rate (2026/27) | Duration |
|---|---|---|
| Statutory Maternity Pay (SMP) | 90% of AWE for 6 weeks, then £187.18/week (or 90% AWE if lower) | Up to 39 weeks |
| Statutory Paternity Pay (SPP) | £187.18/week | 1 to 2 weeks |
| Statutory Sick Pay (SSP) | £116.75/week | Up to 28 weeks |
| Statutory Shared Parental Pay | £187.18/week | Up to 37 weeks |
Verify 2026/27 statutory payment rates — HMRC announces uprated rates each April.
Small employers (annual NIC liability under £45,000) can recover 103% of SMP paid. All employers recover 92%.
Consolidated Compliance Calendar
| Deadline | Obligation |
|---|---|
| On or before each pay date | FPS submission to HMRC |
| 19th of tax month | EPS (if nil payment or reclaiming statutory payments) |
| 22nd of tax month | PAYE and NIC payment to HMRC |
| 19 April | Final FPS or EPS for the tax year |
| 31 May | P60 issued to all current employees |
| 6 July | P11D (benefits in kind) submitted to HMRC; copies to employees |
| 22 July | Class 1A NIC payment on benefits in kind |
| Every 3 years from staging date | TPR cyclical re-enrolment |
Penalties
| Failure | Penalty |
|---|---|
| Late FPS | £100 to £400/month depending on number of employees |
| Late PAYE payment | 1% to 4% of annual PAYE depending on number of late payments in the year |
| Interest on late payment | Bank of England base rate + 2.5% |
| P11D late filing | £300/return + £60/day |
| TPR auto-enrolment breach | £400 fixed penalty; £50 to £10,000/day escalating |
| Failure to re-enrol | £400 fixed penalty escalating |
Common Mistakes
UK payroll failures for international operators tend to cluster around RTI timing, NIC category errors, and auto-enrolment gaps rather than rate miscalculations. Cadana's global payroll tax engine handles FPS submission timing, NIC category logic, and auto-enrolment triggers at the API layer, but knowing where the failures occur is the starting point.
1. Submitting FPS after pay date. RTI requires the FPS on or before the payment date, not by the 22nd. Payroll operators who treat the 22nd as the FPS deadline are systematically late on every pay run. HMRC's generic notification service flags late FPS submissions automatically.
2. Not claiming Employment Allowance via EPS. The £10,500 Employment Allowance must be claimed each tax year. It does not roll over automatically. Eligible employers who do not submit the EPS claim forfeit the allowance for that year.
3. Missing NIC categories M and H. Employees under 21 and apprentices under 25 qualify for 0% employer NIC up to the Upper Secondary Threshold. For employers with significant numbers of young workers, this is a material saving. Defaulting all employees to Category A leaves it on the table.
4. Auto-enrolment for the first employee. International operators who hire their first UK employee often focus on HMRC PAYE registration and miss the TPR auto-enrolment obligation entirely. The duties start date is the day the first eligible worker is paid. The 5-month declaration window starts then, not when the employer decides to set up a pension scheme.
5. Using the wrong Secondary Threshold post-April 2025. The threshold dropped from £9,100 to £5,000 in April 2025. Payroll engines that have not been updated continue to calculate employer NIC from £9,100, systematically underpaying by 15% x £4,100 = £615 per employee per year. For employers with large lower-wage workforces, this is a significant and growing liability.
2027 Outlook
NIC threshold freeze: The £5,000 Secondary Threshold and £12,570 Primary Threshold are both frozen under current policy. No changes are expected before 2028, but verify the Spring Budget 2027.
Auto-enrolment expansion: The Pensions (Extension of Automatic Enrolment) Act 2023 enables the government to reduce the minimum auto-enrolment age from 22 to 18 and remove the lower earnings limit, meaning contributions would apply from the first pound earned. Implementation regulations have not been published as of April 2026. This is the most significant pending change to UK payroll compliance for employers with young or lower-wage workforces.
Making Tax Digital for PAYE: HMRC's MTD programme may eventually extend to PAYE reporting. No firm timeline has been announced, but the direction of travel is toward tighter real-time data integration. Employers should ensure payroll software has API-based HMRC connectivity rather than manual file uploads.
How Cadana Handles UK Payroll Compliance
Filing FPS submissions on or before each pay date, calculating employer NIC correctly post the April 2025 threshold change, applying category M and H exemptions, managing auto-enrolment enrolment and re-enrolment cycles, and reclaiming statutory payments via EPS — Cadana handles the full UK payroll compliance stack via its global payroll tax engine, so platforms and multinationals employing workers in the UK do not have to build or maintain the compliance logic themselves.
Book a demo at cadanapay.com/book-demo to see how Cadana's UK compliance rails work in practice.
Sources and References
- HMRC — RTI: Full Payment Submission guidance
- HMRC — Rates and thresholds for employers 2025 to 2026
- The Pensions Regulator — Auto-enrolment employer guide
- HMRC — Employment Allowance
- HM Treasury — Autumn Budget 2024 (NIC rate and threshold changes effective April 2025)
- Pensions (Extension of Automatic Enrolment) Act 2023
- Scottish Government — Scottish Budget 2025/26 (Scottish income tax rates)
Rates current as of April 2026. Verify 2026/27 NIC rates, statutory payment rates, and auto-enrolment thresholds against HMRC's April 2026 announcements.
Emmanuel Amegah