Running PAYE Payroll: The Complete Employer Checklist

HMRC's Real Time Information system tracked 30.2 million payrolled employees in April 2026, with each one connected to an active FPS submission sent on or before their payday [1]. For the employer behind those payrolls, running PAYE is a repeating compliance sequence: calculate deductions, produce payslips, file the Full Payment Submission, submit the Employer Payment Summary where required, and pay HMRC by the 22nd of the following month [2].

Missing any step creates the kind of gap that HMRC's RTI systems flag automatically, often before the employer is aware of it. This checklist covers every obligation from the first income tax calculation through to the year-end P60.

Key takeaways

• The PAYE tax month runs from the 6th of one month to the 5th of the next; the FPS is due on or before every payday within that window.
• Employer National Insurance is charged at 15% on earnings above the Secondary Threshold of £5,000 per year from 6 April 2026.
• The EPS must be submitted by the 19th of the following month to claim statutory pay recoveries or Employment Allowance.
• PAYE payments must reach HMRC by the 22nd each month (19th by post).
• Every employee still on payroll on 5 April must receive a P60 by 31 May.

The monthly PAYE calendar

The PAYE tax month does not align with the calendar month. It runs from the 6th of one month to the 5th of the next [3]. Every deadline in payroll management flows from this cycle, so understanding it prevents the most common timing errors.

Employers whose average monthly PAYE liability is consistently below £1,500 may apply to HMRC to pay quarterly rather than monthly. The FPS obligation remains monthly regardless of the payment frequency [2].

Step 1: Calculate income tax deductions

Income tax is deducted from each employee's gross pay using the tax code HMRC has issued for that individual. The standard tax code for the 2026-27 tax year is `1257L`, which gives the employee a Personal Allowance of £12,570 before any income tax applies [4].

England and Northern Ireland tax bands

The Higher Rate threshold is £50,270 (Personal Allowance of £12,570 plus the £37,700 Basic Rate band) [4].

Scotland

Scottish employees are identified by an `S` prefix on their tax code, such as `S1257L`. Scotland operates six income tax bands in the 2026-27 tax year [4].

A Scottish employee earning £75,000 pays the Higher Rate of 42% on income above £43,662, compared with 40% for an equivalent English employee. Payroll software must apply Scottish rates automatically when an `S` prefix code is present [4].

Income tax is normally calculated on a cumulative basis, meaning the total for the tax year to date is recalculated each pay period and any over- or under-deduction from prior periods is corrected automatically [3]. Week 1/Month 1 basis is used when HMRC instructs it, or when an employee joins and no cumulative code has yet been received.

One important limit applies regardless of the tax code: no single PAYE deduction may exceed 50% of the employee's gross pay in any pay period [3]. If the calculated tax exceeds that cap, the employer deducts the capped amount and carries the remainder forward.

Step 2: Calculate National Insurance contributions

National Insurance is calculated on a per-period basis rather than cumulatively (directors are the main exception, assessed on an annual basis) [5]. Both the employer and the employee pay separate contributions on earnings within defined bands.

NI thresholds for 2026-27

Source: HMRC NI Guidance for Software Developers 2026-27 [5].

NI rates for 2026-27

The employer rate rose from 13.8% to 15% on 6 April 2026 [5]. The full breakdown of reliefs and thresholds is covered in the guide to employer National Insurance. An employer with a worker earning £30,000 per year pays 15% on £25,000 (the portion above £5,000), equalling £3,750 per year in employer NI on that one worker alone.

NI category letters and zero-rate reliefs

Every employee must be assigned an NI category letter, which determines which rate table applies. The standard category is `A`. Two categories attract a zero employer NI rate on earnings up to £50,270 per year [5].

Category `C` employees (those above State Pension age) pay no employee NI but the employer still pays the standard 15% employer rate on their earnings. HMRC-recognised payroll software for SMEs calculates NI by category automatically and applies the directors' annual NI method without manual intervention.

Step 3: Student loan and postgraduate loan deductions

When an employee has a student loan, the employer must deduct repayments through the payroll once earnings exceed the plan threshold. HMRC issues a Start Notice (SL1) to instruct the employer to begin deductions, and a Stop Notice (SL2) to end them [6].

Student loan thresholds and rates for 2026-27

Source: HMRC Student Loans guidance 2026-27 [6].

Where an employee holds both a student loan and a postgraduate loan, the PGL deduction is calculated first. Student loan deductions are reported separately in the FPS and must appear on the employee's payslip. There is no Plan 3; this gap in the numbering is a frequent source of confusion in payroll software configuration.

Step 4: Statutory pay obligations

If an employee qualifies for a statutory payment in a pay period, the employer calculates and pays it alongside or instead of regular pay. The flat weekly rate for most statutory family payments in the 2026-27 tax year is £194.32, or 90% of average weekly earnings if that figure is lower [7].

Statutory pay rates 2026-27

Source: HMRC SP and SSP guidance 2026-27 [7].

Statutory Sick Pay was fundamentally reformed by the Employment Rights Act 2025, taking effect on 6 April 2026. SSP is now payable from day one of absence, with no waiting days [8]. The rate is £123.25 per week, or 80% of average weekly earnings, whichever is lower. An estimated 1.3 million low-paid workers gained SSP entitlement for the first time under the reformed rules. The full detail of what changed is covered in the article on the SSP reform from 6 April 2026. Unlike family statutory payments, SSP cannot be recovered from HMRC; the employer absorbs the full cost.

Family statutory payments are recoverable through the EPS. Standard employers recover 92%; employers whose NI liability in the prior tax year was £45,000 or less recover 109% under Small Employers' Relief [7].

Step 5: Produce compliant payslips

Every employee, including casual workers, agency workers and those on zero-hours contracts, has a statutory right to receive a payslip on or before payday [9]. The payslip must show gross pay, each deduction with its name and amount, and the net amount paid. Where a deduction varies because of hours worked, the payslip must also show the number of hours to which that variable deduction applies.

Digital payslips are fully compliant in the UK, provided the employee can access and save the document. For workers who need a one-off compliant payslip, Moonworkers provides an instant payslip generator that meets HMRC payslip requirements without requiring a full payroll subscription.

Step 6: Submit the Full Payment Submission

The FPS must reach HMRC on or before the payday for each pay period [10]. A late FPS without a valid reason code triggers an automated warning on the first occurrence in a tax month, followed by a financial penalty for any further late submissions in the same month. Penalty bands are fixed by employee count:

Source: HMRC guidance on PAYE reporting [10].

The FPS carries the following data for every employee paid in the period: gross pay for the period and year to date, income tax deducted, employee and employer NI contributions by category letter, student loan deductions, statutory payments made, and indicator fields for new starters and leavers. All employees paid in the period must be included, even those earning below the Lower Earnings Limit of £129 per week [10].

HMRC permits late FPS submission in a defined set of circumstances, including same-day calculation for casual workers, submissions delayed by a bank holiday, and new employers awaiting their PAYE reference. Every late FPS must include the appropriate reason code; an unexplained late submission incurs the penalty regardless of the reason.

Late FPS returns also affect the employees being reported. Universal Credit claims are calibrated to RTI data, and a late or incorrect FPS can delay or distort a claimant's benefit payment. For any employer running payroll through a REST API for UK payroll, the FPS is transmitted automatically after each payrun without a manual export step, removing the single most common source of late submission.

Step 7: Submit the Employer Payment Summary when required

The EPS is not submitted every month by every employer. It is required only in specific circumstances [11].

The EPS must reach HMRC by the 19th of the tax month following the period it covers [11]. An EPS received after the 19th is applied to the following month rather than the current one, leaving the employer with a higher balance shown as due than expected. Payroll software for accountants handling multiple client schemes typically includes an automated month-end close that files EPS returns across all schemes before the 19th deadline.

Step 8: Pay HMRC

The net PAYE payment to HMRC covers income tax, employer and employee NI, student loan deductions and Apprenticeship Levy, reduced by any statutory pay recovered through the EPS. The payment must reach HMRC by the 22nd of the tax month for online or telephone banking, or by the 19th for cheque and postal orders [12].

Every payment must include the Accounts Office Reference (13 characters, format 123PA00012345) [12]. Without this reference, HMRC cannot match the payment to the correct employer account and the scheme will show an artificial balance outstanding. Interest runs from the due date on any unpaid PAYE, and persistent late payment attracts a surcharge applied at the end of the tax year.

Year-end obligations

At the end of each tax year on 5 April, every PAYE scheme carries three closing obligations.

P60 for every employee on payroll at 5 April

Every employee still employed on 5 April must receive a P60 by 31 May following the tax year end [13]. The P60 summarises the employee's total pay, income tax deducted, NI contributions by category, student loan and postgraduate loan deductions, and all six statutory payments received during the year: SMP, SPP, SAP, ShPP, SPBP and SNCP. Employees use the P60 for self-assessment filings, mortgage applications and state benefit verification. Digital P60s are accepted by HMRC provided the employee can access and store them.

Final FPS of the tax year

The last FPS of the tax year must be marked as the final submission for the year. This flag closes the year in HMRC's records and confirms that all RTI data has been received. A missing final-FPS indicator leaves the employer's account open for the year and may result in HMRC issuing a chase for outstanding returns [10].

P11D for unprocessed benefits in kind

Where taxable benefits in kind have been provided to employees during the year and have not been payrolled through the software, the employer must submit a P11D for each affected employee by 6 July [14]. The associated Class 1A National Insurance, charged at 15% on the value of those benefits in the 2026-27 tax year, is due to HMRC by 22 July. HMRC is phasing in mandatory payrolling of benefits in kind from April 2026, which will eventually eliminate the separate P11D cycle for most benefits.

Common payroll errors to avoid

The steps above cover the core PAYE cycle. The following table summarises the errors that most commonly lead to HMRC notices or employee complaints:

Conclusion

Running PAYE payroll is a disciplined monthly cycle rather than a complex calculation problem. The calculations themselves, income tax on the right code, NI on the right category, student loans on the right plan, are mechanical once the inputs are correct. The compliance risk lives in the timing: the FPS must go before payday, the EPS by the 19th, and the payment by the 22nd. The employer NI rate change to 15% on 6 April 2026 and the extension of day-one Statutory Sick Pay under the Employment Rights Act 2025 are the two material changes to the cycle this tax year. Both require software that holds the current 2026-27 rates and applies them automatically.

For any employer reviewing a payroll process that has grown inconsistent, or taking on payroll for the first time, the checklist above provides the full structure of obligations across the monthly cycle and at year end. The tools exist to make every step systematic. The responsibility for filing correctly and on time remains with the employer regardless of who operates the software.

Frequently asked questions

When does the Full Payment Submission need to be filed each pay period?

The FPS must be submitted on or before the payday for that pay period [10]. For a weekly payroll, a new FPS is due every week. For a monthly payroll, the FPS is due on or before the monthly payday. The submission must reach HMRC before the money reaches the employee; filing after payday without a valid reason code triggers an automated warning or financial penalty depending on whether it is the first late submission in that tax month.

What is the difference between the FPS and the EPS in PAYE?

The Full Payment Submission is the primary RTI document, filed on or before every payday, reporting gross pay and all deductions made for each employee paid in the period [10]. The Employer Payment Summary is a supplementary return filed by the 19th of the following month to claim reductions on the PAYE liability, such as statutory pay recoveries or Employment Allowance, or to confirm that no employees were paid in a nil-pay month [11]. Most employers file an FPS every pay period but only file an EPS in months when they have a specific recovery to claim or a nil period to declare.

How much employer National Insurance does a UK employer pay in 2026-27?

Employer National Insurance in the 2026-27 tax year is charged at 15% on each employee's earnings above the Secondary Threshold of £5,000 per year [5]. The rate rose from 13.8% on 6 April 2026. For an employee earning £30,000 per year, the employer NI is 15% of £25,000, equalling £3,750 per year. Employees under 21 (NI category M) and apprentices under 25 (category H) attract zero employer NI on earnings up to £50,270, a relief that reduces the employer cost of those workers significantly.

Is Statutory Sick Pay still paid from day four of absence?

No. The Employment Rights Act 2025 removed the three-day waiting period for Statutory Sick Pay, and the change took effect on 6 April 2026 [8]. SSP is now payable from the first day of sickness absence. The rate is £123.25 per week, or 80% of average weekly earnings, whichever is lower. Employees on zero-hours contracts and those earning below the former Lower Earnings Limit now qualify for SSP for the first time under the reformed rules. SSP cannot be recovered from HMRC; employers absorb the full cost.