Payroll for small businesses in the UK covers three jobs: running PAYE and reporting to HMRC on or before each payday, enrolling eligible staff into a workplace pension, and claiming Employment Allowance if you qualify.
Getting payroll right is an essential part of being an employer. You need to calculate pay and deductions accurately, report to HMRC, meet your pension duties and claim any allowance you are entitled to.
Payroll can quickly become an administrative burden. Understanding the key responsibilities makes it far easier to manage and helps you avoid costly mistakes.
At R&R Chartered Certified Accountants, we support small business owners across Blackburn and the North West with payroll and wider accounting. This guide looks at PAYE, workplace pensions and Employment Allowance.
What Do Small Business Employers Need to Know About PAYE?
PAYE, or Pay As You Earn, is the system employers use to collect Income Tax and National Insurance from employees’ pay.
When you run payroll, you calculate Income Tax and employee National Insurance, along with the employer’s National Insurance. You also give employees payslips and report payroll information to HMRC.
For each pay period, you normally submit a Full Payment Submission (FPS) on or before payday. It reports the payments and deductions made through payroll.
Your records may also need to cover:
- salary and wages
- Income Tax and National Insurance
- workplace pension contributions
- student or postgraduate loan deductions
- statutory payments
- certain taxable benefits and expenses
For the 2026/27 tax year, the secondary Class 1 National Insurance threshold is £96 a week, £417 a month or £5,000 a year. The exact calculation depends on each employee’s circumstances and category, so accuracy matters.
Recommended action: keep your payroll software and employee records up to date, especially when someone joins, leaves, gets a pay rise or has a change of tax code or circumstances.
What Are Your Workplace Pension Duties?
Payroll is not just about paying staff and reporting to HMRC. Your workplace pension duties begin as soon as you take on staff.
They can start from the day your first employee starts work. Even if nobody needs to be automatically enrolled yet, you may still have duties to fulfil.
Eligible employees generally need to be automatically enrolled into a qualifying scheme. For 2026/27, that means being aged 22 to State Pension age and earning at least £10,000 a year, £833 a month or £192 a week.
On qualifying earnings, the minimum total contribution is generally 8%, with at least 3% from the employer. The qualifying earnings band is £6,240 to £50,270. Check your own scheme’s rules, because contribution arrangements vary.
Automatic enrolment is ongoing, not a one-off task. You need to:
- monitor employees’ ages and earnings
- pay the required contributions
- handle opt-in and opt-out requests
- keep accurate records
- complete re-enrolment when it is due
Recommended action: review your pension processes every time you run payroll. Check new starters and changes in earnings so you don’t miss an enrolment duty.
Can Employment Allowance Cut Your Employer National Insurance?
Employment Allowance can reduce an eligible employer’s Class 1 National Insurance bill, so it is worth checking whether you qualify.
For 2026/27 it is worth up to £10,500. It only works against employer Class 1 contributions, not Class 1A or Class 1B.
Most businesses and charities can qualify. Public bodies, and businesses doing more than half their work in the public sector, cannot claim (charities aside).
A company with one director cannot claim if that director is the only employee liable for secondary Class 1 National Insurance. From April 2025, employers with more than £100,000 of Class 1 liabilities can also apply, subject to the other conditions.
You normally claim through payroll by sending an Employer Payment Summary (EPS), and HMRC says the claim is made once each tax year.
Recommended action: check your eligibility at the start of every tax year rather than assuming you don’t qualify. Our Employment Allowance 2026/27 guide covers the rules in more detail.
Frequently Asked Questions
PAYE (Pay As You Earn) is the system employers use to collect Income Tax and National Insurance from employees’ pay. If you employ staff, you generally need to operate PAYE, provide payslips and report payments and deductions to HMRC.
An FPS normally needs to be submitted on or before your employees’ payday for each pay period. It reports the payments made and the deductions taken through payroll.
For 2026/27 the Employment Allowance is up to £10,500 against employer Class 1 National Insurance contributions. It cannot be used against Class 1A or Class 1B liabilities, and eligibility depends on your circumstances, including the single director restriction.
For qualifying earnings, the minimum total contribution is generally 8%, with at least 3% paid by the employer. The qualifying earnings band is currently £6,240 to £50,270, though individual scheme rules can differ.
Employees aged between 22 and State Pension age who earn at least £10,000 a year (£833 a month or £192 a week) generally need to be automatically enrolled into a qualifying scheme. Employers must monitor ages and earnings on an ongoing basis.
The Bottom Line
PAYE, workplace pensions and Employment Allowance are closely linked parts of payroll for small businesses. Getting the basics right in each saves time and cuts the risk of avoidable errors.
Watch for the common pitfalls: late FPS submissions, wrong tax codes, missed pension contributions and year-end reporting mistakes. Keep reliable procedures, keep employee information up to date, and review your duties whenever circumstances change.
If payroll is taking time away from running your business, R&R Chartered Certified Accountants can handle the administration and keep it organised and compliant.
Tax figures checked by Rehan Razzaq FCCA on 8 October 2026 for the 2026/27 tax year.
This article is general guidance for UK businesses and individuals and does not constitute personal financial or tax advice. Rules, thresholds and individual circumstances vary — always confirm your specific position with a qualified accountant before acting.
Rehan Razzaq, FCCA
Founder, R&R Chartered Certified Accountants
ACCA Chartered Certified and Xero Certified Advisor, helping UK small businesses and landlords with accounts, tax and financial planning since 2021.
We work with clients right across Lancashire and the North West. If you are looking for accountants in Blackburn, or a local accountant in Burnley or accountant in Accrington, our team is a short drive away.
Want Payroll Taken Off Your Plate?
Book a meeting and we will review your PAYE, pension and Employment Allowance position, then handle the payroll administration for you.
For the official position, see HMRC’s guidance on claiming the Employment Allowance on GOV.UK.
