Payroll in the UK
Even if you have some experience of running a global payroll, a payroll in the UK can be a daunting prospect, especially if you don’t have a comprehensive understanding of UK tax laws, HMRC regulations, and payroll software. We’ve set out below all the crucial information you need to know.
UK Taxation
The PAYE system in the UK is a way for the government to collect income tax from employees. It stands for Pay As You Earn and is the system used by employers to deduct taxes and make National Insurance contributions from their employees’ salaries.
When an employee starts a job, they fill out a PAYE form which has their personal details such as name, address, National Insurance Number and the tax code they should be using. The employer then uses this information to deduct the correct amount of tax from the employee’s salary. This is done either through a monthly pay slip or a direct debit.
At the end of the tax year, employees receive a P60 form which shows how much tax and National Insurance has been deducted from their salary over the year. This is used to calculate whether the employee owes any more tax or is due a refund.
Overall, the PAYE system helps to ensure employees pay the correct amount of tax on their income, and is a simple and efficient way of collecting taxes from the public. The 2022-2023 PAYE tax rates in the UK are as follows:
* Basic rate: 20% (on income up to £50,270)
* Higher rate: 40% (on income between £50,271 and £150,000)
* Additional rate: 45% (on income over £150,000)
National Insurance in the UK
National Insurance Rates in the UK can be a bit of a head-scratcher and understanding it can be a difficult element of running a payroll in the UK. The rates vary depending on how much you earn and are subject to change each year. Generally, if you earn up to £8,632 per year, you don’t need to pay any National Insurance at all. If you earn between £8,632 and £50,000 a year, you’ll need to pay 12% of your earnings as National Insurance contributions. On anything over £50,000, you’ll need to pay 2% of your earnings as National Insurance contributions.
Payslips
You need to provide a payslip which must include a breakdown of the amount of pay, any deductions, and the net pay. This must be done on or before the payday. The payslip must also include the name of the employer/ business and the employee, the pay period, the employee’s National Insurance Number, and the amount of any statutory payments like Statutory Sick Pay, Statutory Maternity Pay etc… When running a payroll in the UK, employees must be given a payslip each time they get paid.
Minimum Wage
The National Minimum Wage Act 1998 sets the UK minimum wage. It is the legal minimum that employers must pay their staff and is reviewed each year to make sure it’s keeping up with the cost of living. It’s designed to protect employees from being exploited and ensure they are paid a fair wage. The current rates are:
| Rate from April 2023 | Current rate |
National Living Wage | £10.42 | £9.50 |
21-22 Year Old Rate | £10.18 | £9.18 |
18-20 Year Old Rate | £7.49 | £6.83 |
16-17 Year Old Rate | £5.28 | £4.81 |
Apprentice Rate | £5.28 | £4.81 |
Pensions
Employers also have the statutory requirement to include an auto enrolment pension for their employees. These are a type of workplace pension scheme where employers are automatically enrolled onto the scheme and have to contribute a certain amount towards their employees’ pension savings.
Employees are also required to make contributions towards their pensions, although they can opt out if they wish. The scheme is designed to help people save more for their retirement and to ensure that everyone has access to a workplace pension.
The current contribution rates is 8% total contributions, of which at least 3% is from the employer.
Statutory Sick Pay (SSP)
Statutory Sick Pay (SSP) is a statutory benefit paid by employers to employees in the United Kingdom when they are off work due to illness or injury. It is paid for up to 28 weeks and is currently set at a weekly rate of £99.35. Employees must have been employed for at least four days out of the last eight days before their illness in order to qualify for Statutory Sick Pay.
Employees must also earn more than the lower earnings limit to qualify for Statutory Sick Pay. Employers generally cover the cost of Statutory Sick Pay, although in some cases the government provides a subsidy. Employers may also offer more generous sick pay arrangements than the statutory minimum.
Agility EOR are based in the UK and are the UK payroll experts. Get in touch if you want to find out how we can help take the hassle out of running your UK payroll.
Scott Winter
HR Director
