Running Payroll in the United Kingdom

The United Kingdom remains a key hiring destination for international employers, offering a highly skilled workforce and a well-established regulatory framework. However, employing workers in the UK requires navigating a complex payroll system with strict compliance requirements.

Employers must adhere to ongoing obligations related to payroll tax filings and payments, ensuring timely submissions to avoid significant penalties for non-compliance. This guide provides an overview of the essential payroll requirements that foreign companies should be aware of when hiring in the UK.

While there is no formal requirement to establish a local legal entity to hire employees in the UK, employers must register with HMRC (Her Majesty’s Revenue and Customs) for the Pay As You Earn (PAYE) system. This registration should be completed before the first payday and can be done up to two months in advance. It may take up to 20 working days to receive the employer PAYE reference number from HMRC.

Upon successful registration, HMRC will issue an employer PAYE reference number and provide access to the PAYE Online system for electronic filings. Employers are required to inform HMRC about new hires. Typically, new employees will present a P45 form from their previous employer, containing essential tax codes and payroll information. For employees without prior employment, HMRC offers a starter checklist to gather the necessary details.

Employers intending to hire workers aged between 22 and the state pension age, who earn more than £10,000 annually, must enroll them into a qualifying workplace pension scheme under the automatic enrolment regulations. This process involves registering with a pension provider and enrolling eligible employees accordingly.

There is no legal requirement to establish a local bank account for payroll purposes; payroll-related payments can be made from overseas accounts. When making such payments, employers should use the specific HMRC account details designated for international transactions and ensure that payments are made in sterling to avoid additional charges.

The UK’s National Insurance system is funded by contributions made by both employees and employers. In addition, employees need to be registered with a separate pension fund. The tax system is progressive with a 45% top rate.

Tax Considerations

UK tax residents are taxed on their worldwide income while non-residents only have to pay tax on income sourced in the UK.

The tax system is progressive. The basic rate is 20%, the higher rate is 40%, and the additional tax rate is 45%. There is a standard employee personal allowance of GBP 12,570 per year (valid for the 2025/2026 tax year).

The tax year in the UK runs from 6 April to 5 April of the following year.

* Please note: Different tax bands and rates apply to employees in Scotland. 

Tax Withholding and Reporting

Employers in the UK are obligated to deduct and remit employees' income tax to HMRC through the Pay As You Earn (PAYE) system. This process entails several ongoing filing requirements within each tax month.

On or before each payday, employers must submit the Full Payment Submission (FPS) to HMRC. This submission details all payments made to employees and the corresponding deductions.

To claim reductions on the amount owed to HMRC, such as reimbursements for statutory payments (e.g., maternity or paternity pay), employers further need to submit an Employer Payment Summary (EPS). The EPS must be submitted by the 19th of the following tax month to ensure HMRC applies any reductions appropriately.

Employers must remit the amounts due to HMRC by the 22nd of the month following the payroll period when paying electronically. For non-electronic payments, the deadline is the 19th.

Late payments or missed filing deadlines may result in penalties. Employers with average monthly PAYE liabilities that don’t surpass a specific threshold may be eligible to arrange for quarterly payments instead of monthly.

Social Security Contributions

The UK's National Insurance system is funded by contributions from both employees and employers. Employees' contributions are deducted directly from their wages, while employers pay additional contributions on behalf of their employees. These contributions help fund various state benefits, including the State Pension and unemployment benefits.

As of 6 April 2025, the National Insurance Contribution (NIC) rates are set at 15% for employers and 8% for employees on earnings up to the Upper Earnings Limit, with an additional 2% charged on earnings above this limit. These are the general rates applicable to most employees. However, different National Insurance classes are assigned to employees based on their employment status and earnings.

Employers are also liable to pay NICs on their employees’ expenses and benefits. The Class 1A NIC rate on expenses and benefits is 15% for the 2025 to 2026 tax year. National Insurance payments are made alongside PAYE payments for income tax., i.e. by the 22nd of the next month.

Additionally, employers are required to enroll eligible employees into a qualifying pension scheme under the automatic enrolment regulations. The minimum contribution for employers is 3% of the employee's qualifying earnings, while employees contribute a minimum of 5%, bringing the total minimum contribution to 8%.

Employees have the option to opt out, but if they remain enrolled, these contributions are mandatory. The payment and filing requirements depend on the chosen pension scheme.

The table below shows an overview of the different contributions (rates valid as of 6 April 2025).

Employees in the United Kingdom are entitled to various benefits. These include:

• Annual leave and public holidays: 28 days of paid annual leave, including 8 public holidays

• Maternity leave: up to 52 weeks, split between 26 weeks of ordinary leave and 26 weeks of additional leave

• Paternity leave: up to 2 weeks of paid leave during which employees receive Statutory Paternity Pay (SPP)

• Parental leave: up to 50 weeks shared between both parents (up to 37 weeks can be paid)

• Sick leave: up to 28 weeks; starting with the 4th sick day, employees receive Statutory Sick Pay (SSP)

For more information on employee benefits and other employment requirements in the United Kingdom (including severance pay and termination procedures), check out our Global Hiring Guide.

In the UK, the minimum wage varies based on an employee's age and apprenticeship status. The Government has announced new National Minimum Wage (NMW) and National Living Wage (NLW) rates, effective from 1 April 2025:​

• Apprentices and employees under 18: £7.55 per hour​

• Employees aged 18 to 20: £10.00 per hour​

• Employees aged 21 and over (National Living Wage): £12.21 per hour​

These rates are adjusted annually to reflect economic conditions.

While there is no legal obligation for employers to provide additional pay for overtime, an employee's average hourly earnings, including any overtime, must not fall below the applicable minimum wage. Overtime pay rates, if offered, are typically specified in collective bargaining agreements or individual employment contracts.

It is neither customary nor mandatory in the UK to pay a 13th or 14th salary.

In the UK, payroll frequencies vary and may be processed on a weekly, bi-weekly, semi-monthly, or monthly basis. However, according to the Chartered Institute of Payroll Professionals (CIPP), monthly pay remains the most common pay frequency in the UK.

The most popular pay day across weekly-based pay frequencies is Friday. For monthly payrolls, the preferred pay day is the last working day of the month. Employers can pay salaries using different methods, as long as they comply with legal and contractual obligations.

The most popular payment method is Bacs (Bankers' Automated Clearing Services) which takes 3 working days to process. There is no need to open a local bank account, since both authorities and salary payments can be issued from a foreign bank account.

Any payment of wages or salary must be accompanied by a payslip, which can be provided either electronically or in paper form. Payslips must contain different items, including:

• Gross amount of the wages or salary,

• Any variable and fixed deductions made from the employee’s gross pay,

• Net amount of wages or salary payable,

• Total number of hours worked (if relevant to the pay calculation), and

• Amount and method of payment of each part-payment (if parts of the net amount are paid in different ways)

In addition, employers are legally required to provide an End of Year Certificate (P60) to their employees. The P60 form must be issued by 31 May following the end of the tax year.

Payroll records must be kept for at least 3 years from the end of the tax year they relate to. Employers failing to do so risk fines of up to GBP 3,000.