How to Manage Payroll for Your Small Business
“David is exceptional. Over my years in business I have worked with several accountants for different projects. David is quick, efficient & his price is excellent value for money. I highly recommend him.”
Payroll is one of the most compliance-heavy tasks a small business owner handles, and the rules change every April. This guide covers what you need to know about RTI submissions, wage rates, and HMRC obligations so you can run payroll correctly and avoid penalties.
Why payroll compliance matters for your business right now
Payroll in the UK is governed by Real-Time Information rules, which require every employer to report PAYE details to HMRC electronically on or before the date employees are paid. According to guidance on RTI obligations, this means filing a Full Payment Submission before each payroll run, with penalties applying for late or incorrect reports. For small business owners running payroll themselves, a single missed submission can trigger an HMRC penalty notice.
The rules changed again in April 2026. HMRC’s April 2026 Employer Bulletin confirms that new National Minimum Wage and National Living Wage rates apply from the first pay period starting on or after 1 April 2026, and that employers must now register to payroll Benefits in Kind for the 2026-27 tax year. Missing these changes is not treated as an innocent oversight by HMRC.
From 6 April 2026, tax relief for non-reimbursed homeworking expenses is removed. At the same time, new National Insurance exemptions apply for reimbursed eye tests, flu vaccinations, and homeworking equipment. If you run payroll yourself, both changes need to be applied correctly from the first affected pay period. Source: HMRC Employer Bulletin, April 2026.
Where most small businesses go wrong with payroll
Research from a 2025 analysis of UK SME payroll practices found that 84% of small businesses admit to making payroll errors, with nearly half of those involving incorrect wage calculations. Around 40% of UK SMEs have already paid fines linked to payroll problems such as underpayment or late reporting. These are not edge cases.
Relying on spreadsheets and manual calculations
Approximately 31% of UK SMEs still use manual methods such as spreadsheets or pen and paper for payroll. Manual calculations leave no audit trail, do not update automatically when wage rates change, and are difficult to reconcile against HMRC records. A single formula error can produce incorrect payslips and trigger an RTI discrepancy.
Using a payroll company that does not respond when things go wrong
Data from a survey of businesses using payroll providers found that 60% report long wait times, 72% are frustrated by having to repeat information to multiple representatives, and 64% are concerned that payroll companies cannot resolve issues when they arise. When a payroll error affects someone’s pay, your employees feel it before your provider does.
“Most payroll errors I see are not from carelessness. They come from owners who are doing their best with outdated information. The rules change every April and nobody sends a reminder. By the time the penalty notice arrives, the deadline to avoid it has already passed.”
What to do: payroll step by step
Whether you are setting up payroll for the first time or reviewing a process that has grown messy, the steps below cover the core obligations every UK employer needs to meet. These apply to sole traders taking on their first employee, limited company directors running a director-only payroll, and businesses with a small team.
- Register as an employer with HMRC before your first payday. You will receive a PAYE reference number, which you need before you can file any RTI submissions. Allow up to five working days for registration to process.
- Calculate gross pay, apply the correct tax code for each employee, deduct income tax and National Insurance at the right rates, and account for any pension contributions required under auto-enrolment. Confirm you are using the current National Minimum Wage or National Living Wage rate, which changed from the first pay period on or after 1 April 2026.
- File a Full Payment Submission to HMRC on or before the date you pay your employees. If you have made no payments in a tax month, file an Employer Payment Summary instead. Keep copies of payslips and all RTI submissions for your records.
If you also pay employees benefits such as a company car, private health cover, or homeworking equipment, you need to report those separately or register to payroll them directly through PAYE. HMRC now requires employers to register to payroll Benefits in Kind for the 2026-27 tax year. Getting this wrong after the deadline creates additional filing obligations.
Costs and what to expect
The real cost of DIY payroll is not just the time spent calculating figures each month. It includes the cost of errors, the risk of late RTI submissions, and the management time spent dealing with HMRC if something goes wrong. At STZ Accounting, payroll is included within the fixed monthly packages for limited companies, starting from £215 per month for up to five employees, rising to £340 per month for up to twelve employees. There are no hidden fees added for filing submissions or issuing payslips.
| Option | Pros | Cons |
|---|---|---|
| DIY payroll (manual or software) | No monthly fee for basic tools | High error rate; requires you to track every rule change; 40% of SMEs have already paid fines |
| Payroll bureau or large provider | Outsourced administration | Often difficult to reach; 60% of businesses report long wait times; no single point of contact |
How to get your payroll sorted today
If payroll is currently taking more time than it should, or you have received an HMRC notice you are not sure how to respond to, the starting point is a short conversation. David works remotely with businesses across Scotland and the UK, and same-day responses are standard. You do not need to have everything in order before you call.
- Gather your current payroll records, including employee details, tax codes, and any recent RTI submissions, so David can assess your current position quickly.
- Book a free call at stzaccounting.co.uk/discovery-call/ to talk through what you need. David will give you a fixed price quote before any work begins.
Ready to sort your payroll?
David handles payroll for sole traders, limited companies, and contractors across the UK, including RTI submissions, payslips, and pension deductions, all for a fixed monthly fee. There is no tie-in contract, and you deal with David directly every time.
Is your payroll set up correctly for the 2026-27 tax year?
Answer five quick questions and get a personalised next step based on your current payroll setup.
AAT qualified accountant based in Strathaven. Personal, one-to-one accounting for small businesses and sole traders across the UK.