Payroll services provide employers with outsourced PAYE calculations, Real Time Information submissions, payslips and payroll records for each agreed pay period. A managed service can reduce the administrative burden on the business while helping ensure employees are paid accurately and HMRC receives the required information on time.
Payroll involves more than calculating net wages. The process can include tax codes, National Insurance categories, student loans, workplace pensions, statutory payments, starters, leavers and payments to HMRC. Each pay run must also be reflected correctly in the bookkeeping records.
Bookkeeping Packages Ltd provides outsourced payroll support for UK businesses as part of an agreed monthly service. The precise scope depends on the number of employees, pay frequency, pension arrangements and complexity of the payroll.
What outsourced payroll services include
Outsourced payroll services transfer agreed payroll-processing tasks to an external provider. The employer supplies authorised employee and pay information, and the provider uses payroll software to calculate deductions and produce the required reports.
A regular service can include gross-to-net calculations, PAYE Income Tax, employee and employer National Insurance, student loan deductions, pension contributions, payslips and Real Time Information submissions.
The service may also process statutory payments, starters, leavers, changes to tax codes and payroll journals for the accounting system.
The engagement should state clearly which responsibilities are included. Pension-provider uploads, employee queries, benefits reporting and payments to HMRC should not be assumed unless they form part of the agreed scope.
Registering as an employer
A business will normally need to register with HMRC as an employer before its first payday. This can apply even where the only person being paid is a company director.
Registration provides the employer PAYE reference and Accounts Office reference needed for payroll submissions and payments.
The employer should allow sufficient time for the references to arrive before the first payroll is due. Paying employees before establishing the PAYE scheme can make timely reporting more difficult.
HMRC’s employer registration guidance explains when a business needs to register and how to begin the process.
PAYE calculations
PAYE is the system employers use to deduct Income Tax from employees’ pay. The calculation depends on taxable earnings, pay frequency, tax code and the basis attached to that code.
The employer should use the tax code supplied through the employee’s P45, starter declaration or an HMRC notification. A code should not be altered merely because an employee believes their deduction is incorrect.
Where an employee disputes a tax code, they should normally contact HMRC. The payroll provider can apply the authorised code but cannot independently rewrite an employee’s tax position.
Payroll software performs the calculation, but accurate results still depend on correct employee records, pay dates and year-to-date information.
National Insurance processing
National Insurance is calculated separately from PAYE Income Tax. The amount depends on earnings, pay frequency and the employee’s National Insurance category.
For 2026/27, most category A employees pay National Insurance at 8 per cent on earnings above the Primary Threshold and up to the Upper Earnings Limit, with 2 per cent applying above that limit. The standard employer contribution is generally 15 per cent on earnings above the applicable Secondary Threshold. :contentReference[oaicite:0]{index=0}
Different employer reliefs and category letters can apply to younger employees, qualifying apprentices, veterans and employees working within relevant Freeport or Investment Zone arrangements.
HMRC publishes the current figures in its rates and thresholds for employers.
Full Payment Submissions
A Full Payment Submission, usually called an FPS, reports employee pay and deductions to HMRC. It should normally be submitted on or before the date the employee is paid.
The FPS can include gross pay, taxable pay, Income Tax, National Insurance, student loans, statutory payments and pension-related information.
It also reports starters, leavers and the payment date used for the payroll. Incorrect dates can place pay within the wrong tax period and affect the employee’s HMRC record.
Submitting a payroll calculation without sending the FPS does not complete the reporting obligation. The payroll provider should retain confirmation that HMRC accepted the submission.
Employer Payment Summaries
An Employer Payment Summary, or EPS, reports information that is not included in the ordinary FPS.
It can be used to claim Employment Allowance, report statutory-payment recovery and tell HMRC that no employees were paid during a tax month.
Where no FPS is due because nobody was paid, the EPS should generally be submitted by the nineteenth day following the tax month. Failing to report the position can cause HMRC to estimate a PAYE liability. :contentReference[oaicite:1]{index=1}
The EPS can change the amount payable to HMRC, so the payroll reports and bookkeeping records should reflect valid adjustments consistently.
RTI late-filing penalties
HMRC can charge penalties where an employer repeatedly fails to submit required RTI reports on time.
The penalty is not calculated separately for every employee and every late submission. An employer is normally liable for no more than one fixed late-filing penalty for each tax month under each PAYE scheme.
The amount is determined by the number of employees within the PAYE scheme. The current penalty bands begin at £100 for schemes with one to nine employees and increase for larger payrolls. :contentReference[oaicite:2]{index=2}
HMRC generally allows one unpenalised late filing during a tax year, subject to the detailed rules and exceptions. Additional penalties may arise where an FPS remains outstanding for three months.
A payroll provider can manage submissions, but the employer must still supply complete pay information before the agreed processing deadline.
Paying PAYE and National Insurance to HMRC
The employer’s PAYE liability can include Income Tax deducted from employees, employee National Insurance, employer National Insurance and student loan deductions.
Monthly electronic payments are normally due by the twenty-second day following the end of the tax month. Employers authorised to pay quarterly may have different payment dates.
The payment should use the correct Accounts Office reference and period suffix where required. An incorrect reference can cause HMRC to allocate the money to the wrong period.
The employer normally remains responsible for making the payment unless the payroll agreement explicitly provides otherwise. The payroll provider can supply the amount and payment reference required.
Employment Allowance
Employment Allowance can reduce eligible employer Class 1 National Insurance liabilities. The maximum allowance for 2026/27 is £10,500. :contentReference[oaicite:3]{index=3}
A company where the only employee liable for employer National Insurance is also the sole director cannot generally claim.
Eligibility should be checked each tax year, particularly where connected companies, public-sector work or changes in staffing are involved.
The claim is normally made through payroll software using an EPS. The bookkeeping should record the employer National Insurance cost, allowance claimed and remaining liability separately.
Workplace pension administration
Employers must assess workers for automatic enrolment and enrol eligible employees into a qualifying workplace pension scheme.
For a typical qualifying defined-contribution scheme, minimum total contributions are generally 8 per cent of qualifying earnings, including a minimum employer contribution of 3 per cent. :contentReference[oaicite:4]{index=4}
The payroll process can calculate employee and employer contributions and prepare information for the pension provider. The employer remains responsible for selecting a suitable pension scheme and meeting its statutory duties.
The service agreement should confirm whether the payroll provider uploads contribution schedules or supplies a file for the employer to upload.
Opt-outs, postponement, re-enrolment and employee communications also need to be managed according to The Pensions Regulator’s requirements.
Starters and payroll information
A new employee should normally provide a P45 from their previous employment. Where no P45 is available, the employee should complete HMRC’s starter checklist.
The employer also needs the employee’s full name, address, date of birth, start date, National Insurance number where available and bank details for payment.
Incorrect starter information can lead to the wrong tax code, duplicate HMRC employment records or delayed pension assessment.
The information should reach the payroll provider before the agreed cut-off date. Sending incomplete details shortly before payday can delay processing or require a later correction.
Processing employee leavers
When an employee leaves, the final payroll should include outstanding salary, holiday pay and any other authorised amounts.
The leaving date is reported through the FPS, and the employee should receive a P45 showing taxable pay and tax deducted during the employment.
The employer should also notify the pension provider and remove access to internal systems where appropriate.
A former employee should not remain active in payroll merely because a final expense reimbursement or adjustment may be required later. The correct treatment depends on the nature and timing of that payment.
Payroll for company directors
Company directors are employees for PAYE purposes, but National Insurance is normally calculated using an annual earnings period.
Payroll software may use the standard annual method or an alternative method that performs a final adjustment later in the tax year.
The director’s appointment date, National Insurance category and pay pattern must be entered correctly. Processing a director as an ordinary monthly employee can produce the wrong contribution pattern.
Our guide to director salary and dividends explains why salary must be processed through payroll while dividends require distributable profits and separate company records.
Payroll for small teams
A small payroll can still include varied hours, overtime, bonuses, pensions, student loans and statutory leave.
The number of employees alone does not determine complexity. A monthly payroll for ten salaried employees may be simpler than a weekly payroll for three employees with changing hours and deductions.
The provider should understand when information becomes final and who within the business has authority to approve it.
A documented payroll calendar helps prevent delays by setting cut-off dates for hours, starters, leavers and changes.
Statutory Sick Pay
Employers may need to administer Statutory Sick Pay where an employee satisfies the relevant conditions.
The employer must maintain absence information, determine qualifying days and apply the current statutory rules and rate.
Payroll software can calculate payments, but it depends on the employer supplying accurate dates and details of linked periods of sickness.
The employee may also have a contractual entitlement exceeding the statutory amount. The payroll provider needs to know whether occupational sick pay applies.
Family-related statutory payments
Payroll may also need to administer Statutory Maternity Pay, Statutory Paternity Pay, Statutory Adoption Pay, Shared Parental Pay, Parental Bereavement Pay and Statutory Neonatal Care Pay.
Each scheme has qualifying conditions, evidence requirements and payment periods. The employer should provide the relevant dates and documentation before the payment begins.
Eligible employers can recover specified statutory payments through the PAYE system. Small employers meeting the relevant National Insurance test may qualify for enhanced recovery.
HMRC’s current employer rates and thresholds guidance includes the statutory-payment rates and recovery provisions for 2026/27. :contentReference[oaicite:5]{index=5}
Student and postgraduate loan deductions
Student loan and postgraduate loan deductions may begin when HMRC issues a start notice or the employee provides the required starter information.
The correct loan plan must be selected because different thresholds apply. The provider should not guess the plan from the employee’s age or current address.
Deductions are reported through the FPS and included within the payment made to HMRC.
When HMRC issues a stop notice, it should be applied promptly. Refunds should not be processed outside the permitted payroll rules.
Attachment orders and other deductions
An employer may receive an attachment of earnings order or another formal instruction requiring deductions from an employee’s pay.
The payroll provider needs the complete order, protected earnings information and effective date before processing begins.
Deductions should be shown on the payslip and paid to the appropriate authority according to the instructions received.
Voluntary deductions, such as salary advances or charitable giving, should also be supported by suitable authorisation.
National Minimum Wage checks
Payroll calculations should be reviewed for compliance with the National Minimum Wage and National Living Wage.
The applicable rate depends on the employee’s age and apprenticeship status. From 1 April 2026, the National Living Wage for workers aged 21 and over is £12.71 per hour. :contentReference[oaicite:6]{index=6}
Salary sacrifice, unpaid working time, uniform costs and deductions can affect minimum-wage compliance even where the headline hourly rate appears sufficient.
The employer remains responsible for recording all working time and confirming which payments and deductions form part of the minimum-wage calculation.
Payroll journals and bookkeeping
Payroll should be reflected in the accounts using a complete payroll journal rather than recording only the net wages paid.
The journal should show gross wages, employee deductions, employer National Insurance, employer pension contributions, net pay and liabilities owed to HMRC and pension providers.
Payments to employees should be matched against the net-pay liability. Payments to HMRC and pension providers should then reduce the corresponding control accounts.
Our guide to PAYE and National Insurance explains how payroll calculations and bookkeeping records work together.
Reconciling payroll records
The gross and net payroll totals should agree with payroll reports, bank payments and the accounting system.
The PAYE control account should agree with the amount reported to HMRC after allowing for valid EPS adjustments.
Pension contributions should agree with the pension-provider schedule and amounts paid.
Regular bank reconciliation helps identify missed wage payments, duplicate transfers and PAYE payments allocated incorrectly.
Correcting payroll errors
Where an employee’s pay or an FPS is incorrect, the correction should normally be made through payroll software and reported to HMRC.
Changing only the bank transfer or bookkeeping journal does not correct the employee’s payroll record.
The correct process depends on whether the error relates to the current tax year, an earlier year, an overpayment or an underpayment.
Recovering an overpayment from an employee may also involve employment-law and minimum-wage considerations. Material cases should be reviewed with an appropriately qualified professional.
Payroll records and data security
Payroll records contain confidential personal and financial information. Access should be limited to people who require the information for their work.
The provider and employer should use secure document and communication systems rather than exchanging sensitive employee data through unprotected channels.
Separate user accounts should be used for payroll software and HMRC access. Shared personal passwords should be avoided.
The employer should retain control over employee bank payments and primary system administration wherever practical.
What the employer needs to provide
The payroll provider needs complete and authorised information by the agreed cut-off date.
This can include hours, salaries, bonuses, overtime, deductions, absence dates, pension changes, starters and leavers.
The employer should review the payroll summary before finalisation and confirm that the information supplied is complete.
Late changes may require the payroll to be rerun and could jeopardise the ordinary pay date or FPS deadline.
What remains the employer’s responsibility?
Outsourcing payroll processing does not transfer every legal responsibility away from the employer.
The employer remains responsible for employment contracts, working-time records, pay decisions, minimum-wage compliance and supplying correct information.
It also normally retains responsibility for funding employee payments, PAYE liabilities and pension contributions by the relevant deadlines.
The service agreement should identify who submits reports, communicates with HMRC and handles employee queries.
Payroll pricing
Payroll prices can depend on the number of employees, pay frequency and complexity of the calculations.
Weekly or variable payrolls generally require more processing than a straightforward monthly salaried payroll.
Additional work can arise from pensions, statutory payments, attachment orders, multiple pay schedules and frequent starters or leavers.
The quotation should confirm whether setup, year-end work, pension uploads and employee changes are included or charged separately.
Combining payroll with outsourced bookkeeping
Managing payroll and bookkeeping together can make the monthly financial records more consistent.
The payroll reports can be posted promptly, with net wages, HMRC payments and pension contributions reconciled against the bank.
Bookkeeping Packages Ltd can provide payroll alongside its wider outsourced bookkeeping service, subject to the agreed scope.
Businesses using Xero can also review our guide to setting up payroll in Xero before the first pay run is processed.
Payroll services for new businesses
A startup taking on its first employee needs to register with HMRC, establish payroll software and understand its pension duties.
The employer should also create a process for timesheets, absence information, starter documents and payroll approval.
Our guide to bookkeeping for startups explains how new businesses can organise their financial records before payroll and other filing requirements become established.
Correct setup is generally easier than correcting several months of missing or inaccurate RTI submissions later.
Choosing an outsourced payroll provider
A prospective provider should explain which payroll tasks are included, how information is collected and when changes must be supplied.
The employer should ask who reviews the payroll, how staff absence is covered and how confidential employee information is protected.
The provider should also clarify responsibility for pension uploads, PAYE payments, employee enquiries and HMRC correspondence.
A low fee may exclude work the employer assumed was included. Providers should therefore be compared using the complete service scope rather than the headline price alone.
Starting with outsourced payroll services
The onboarding process normally begins with a review of the current PAYE scheme, employee records, year-to-date figures, pension arrangements and payroll calendar.
Where payroll transfers during the tax year, opening figures must agree with the previous provider’s reports and HMRC submissions.
The regular cut-off, approval and payment process is then agreed before the first live payroll is completed.
Bookkeeping Packages Ltd provides payroll services for UK employers according to an agreed frequency and scope.
To discuss your number of employees, pay schedule and current payroll arrangements, use the Bookkeeping Packages enquiry form or call 0161 531 0087.
About the Author
Stuart Kerr is Managing Director of Bookkeeping Packages Ltd, an outsourced bookkeeping service supporting UK small businesses and accountancy practices. With over 20 years of bookkeeping experience, Stuart specialises in helping businesses maintain reliable financial records and useful management information.
This article is provided for general information only. Stuart Kerr is a professional bookkeeper, not an employment lawyer, tax adviser or regulated financial adviser. Nothing in this article constitutes tax, legal, employment or financial advice. Advice specific to your circumstances should be obtained from an appropriately qualified professional.