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UK Payroll & Tax

UK Payroll & Tax

The UK payroll and tax process can be complex for foreign businesses who are not familiar with the country’s payroll regulations and mandatory contributions. When running payroll in the UK, there are a number of things to be aware of to make sure your business is compliant with regulations. As a global PEO and payroll provider, INS Global can take care of all aspects of payroll on your behalf. Below you will find a summary of everything you need to know about payroll in the United Kingdom. 

PAYE (Pay As You Earn)

Employers in the United Kingdom usually operate PAYE as part of their payroll, with the payroll period typically running on a monthly basis. In simplest terms, if you’re an employer in the UK, it’s your responsibility to calculate how much tax, national insurance and other contributions your employees owe before sending them onto HM Revenue and Customs (HMRC). These are collectively known as ‘payroll taxes’ and also includes withholding contributions for items such as student loan repayments and pensions. In this way, amounts will vary a great deal depending on government policy, your company and its employees’ situation. 

As with operating payroll in all countries, it’s vital that you keep your accounts up to date. In addition to ensuring your employees are paid correctly and on time, you also need to send pay deductions to HMRC after the 6th but before the 22nd of the month following the payroll period. There are two key deductions that employers need to consider: Income Tax and National Insurance.

UK Income Tax

If you are working in the UK, you won’t usually have to pay income tax on all your income as you will be entitled to a certain amount tax-free. The current standard tax-free Personal Allowance is £12,500, which is the amount of income that is not taxed. Income earned over this amount is taxed progressively in line with the following bands:

Tax BandTaxable incomeTax rate
Personal AllowanceUp to £12,5000%
Basic rate£12,501 – £50,00020%
Higher rate£50,001 – £150,00040%
Additional rateover £150,00045%

Income tax rates are different in Scotland:

Tax bandTaxable incomeScottish tax rate
Personal AllowanceUp to £12,5000%
Starter rate£12,501 to £14,58519%
Basic rate£14,586 to £25,15820%
Intermediate rate£25,159 to £43,43021%
Higher rate£43,431 to £150,00041%
Top rateover £150,00046%

Rates of the personal allowance and income tax change regularly in the U.K. and are typically announced in the annual budget announcements. 

National Insurance

In addition to income tax, the one other payroll tax deduction that applies to most employees is National Insurance, which is paid by both workers and employers to fund social security benefits including the State Pension and Job Seekers Allowance. As an employer, you pay National Insurance Contributions (NICs) not only on cash earnings but also on benefits such as providing company cars. 

Most employees also pay NICs on their earnings, in addition to Income Tax. NICs build up an employee’s entitlement to the social security benefits mentioned above.

As with income tax, NICs are deducted by the employer and paid to HMRC through the PAYE system. It is worth noting that NICs begin at a far lower level than regular UK income tax, so that ‘tax-free allowance’ isn’t entirely free.

Work-based pension

The UK government has legislation in place that requires employers to automatically enrol their workers into a work-based pension scheme, if they are not already in one. This means that the onus is on employers to act in compliance with the UK Pension’s Regulator so it’s vital that companies employing in the UK are familiar with this mandatory scheme. Both employer and employee contribute towards a work-based pension, with auto-enrolment applying to employees aged 22 or over. As with PAYE, the employer will deduct pension scheme contributions directly from the employees’ earnings.

Year-End Reporting

As an employer running payroll in the UK, you must make sure provide your employees with a year-end Form P60, which summarises their earnings and deductions in the previous tax year. As part of your year-end reporting, you must also inform HMRC about any expenses and benefits and prepare for the new tax year by updating any employee payroll records and payroll software you use.

Outsource your UK Payroll

At INS Global, we can simplify your payroll management in the UK with our payroll management solution. When you outsource your payroll to us, our team process payroll taxes and calculate payroll deductions on your behalf, remitting them to HMRC on a monthly basis.

As your payroll provider in the UK, we take into account:

  • Latest changes to tax regulations
  • Social security deductions
  • Annual leave management
  • Expenses and benefits

At the end of every payroll period, we issue payslips and send an invoice consisting of the total cost of employment and management fees. It’s that simple.

Simplify your UK Payroll & Tax management

Setting up your operations in the UK can be a challenge without the professional support in place. Outsourcing back-office administration like payroll allows your company to apply its focus on operations, while we ensure you remain compliant with the United Kingdom’s tax reporting requirements and regulations. Contact us today to learn more. 

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