Uk Payroll

UK payroll — small Ltd

For a small company, typically with directors and a handful of employees. Rates and thresholds are not repeated here — see accounting-uk-ltd/references/rates-2026-27.md.

1. RTI — the deadline that catches people

An FPS must reach HMRC on or before every payday. Not after. Late FPS filings trigger penalties, and "we paid on time but filed the next day" is still late.

File an EPS for a nil-payment month. Without it HMRC expects a payment that is not coming and raises a specified charge.

PAYE/NIC payment: the 22nd electronically. The 19th is the postal deadline — using it for an electronic payment date makes the payment late.

2. Directors' NI is not calculated like employees' NI

Directors use an annual (cumulative) earnings period, regardless of how often they are paid. An employee's NI is worked out each pay period in isolation; a director's is worked out on cumulative earnings for the year.

This matters practically: a director paid irregularly, or taking a large one-off payment, gets a very different NI result from an employee on the same total. Payroll software has a specific director setting — if it is not switched on, the NI is wrong all year and only surfaces at year end.

There is also an alternative method that smooths the deductions and trues up at year end. Either is acceptable; using neither, by treating a director as an ordinary employee, is not.

3. Employment Allowance — and the single-director restriction

The Employment Allowance reduces employer's secondary Class 1 NIC liability, claimed via EPS.

A company whose only employee paid above the secondary threshold is a single director cannot claim. This is the most common misclaim in small companies, it is recoverable by HMRC with interest, and it is easy to trip into when a second employee leaves mid-year.

Check eligibility at the point of claim and again when the workforce changes — not once at incorporation.

4. The payroll journal and the wages control proof

Every payroll run posts:

Dr  Gross wages (expense)
Dr  Employer's NI (expense)
Dr  Employer's pension (expense)
    Cr  Net pay              (bank, when paid)
    Cr  PAYE/NIC control     (HMRC, when paid)
    Cr  Pension control      (provider, when paid)

The wages control account must clear to nil once net pay, PAYE/NIC and pension have been paid. A residual balance means something was not paid, was paid twice, or was posted wrong — see bookkeeping-double-entry §3.

Employer's NI and employer's pension are company costs, not deductions from the employee. Posting them as if deducted understates the true cost of employment and misstates the P&L.

5. Auto-enrolment

Every employer has duties. In outline: assess each worker at each pay period against the earnings trigger and age criteria, enrol those who qualify, deduct and pay contributions on qualifying earnings, allow opt-outs within the window and refund promptly, re-enrol roughly every three years, and complete the declaration of compliance.

Directors with no employment contract can be exempt — but that is a specific test, not an assumption, and a company with any non-director employee almost certainly has duties.

6. Year-end and statutory pay

Statutory pay to know exists and to check current rates for: SSP, SMP/SPP/ShPP/SAP, and statutory redundancy. Some are recoverable via EPS — small employers can often reclaim a higher percentage of statutory parental payments, which is money frequently left unclaimed.

Benefits in kind worth flagging in a small company: company cars, private medical, beneficial loans (including an overdrawn director's loan), and assets made available for private use.

7. Before each run

• Starters have a P45 or starter declaration; leavers processed and given a P45
• Tax codes match the latest HMRC notices — not last year's
• Director setting on for directors
• National Living/Minimum Wage checked for anyone near it, including after salary sacrifice, which can push pay below the legal minimum
• Employment Allowance eligibility still true
• Auto-enrolment assessed this period
• FPS submitted on or before payday
• Journal posted; wages control proves to nil

8. Anti-patterns

• Filing the FPS after payday.
• Not filing an EPS for a nil month — HMRC raises a charge that was never due.
• Paying PAYE by the 19th electronically when the electronic deadline is the 22nd.
• Treating a director as an ordinary employee for NI.
• Claiming the Employment Allowance as a single-director company.
• Leaving a residual in wages control and calling payroll reconciled.
• Posting employer's NI as an employee deduction.
• Ignoring NMW after salary sacrifice.
• Missing an overdrawn director's loan as a benefit in kind.