HMRC Payroll Compliance Guide 2025/26

UK employers must meet HMRC payroll obligations every pay period – submit RTI on or before payday, pay PAYE and NIC by the 22nd of the following month, and manage auto-enrolment pensions. Getting any of these wrong triggers automatic penalties starting at £100/month. This guide covers every compliance requirement for the 2025/26 tax year.

Whether you run payroll in-house or use a bureau, understanding your HMRC obligations protects your business from penalties, interest charges, and enquiries. All rates, thresholds, and deadlines are current for the 2025/26 tax year (6 April 2025 to 5 April 2026).

2025/26 Tax Year: Key Changes

The 2025/26 tax year brought major employer NIC changes – the rate rose from 13.8% to 15% and the secondary threshold dropped from £9,100 to £5,000, significantly increasing employer costs.

The 2025/26 tax year introduced the most significant payroll cost increase in years. Here are the changes every employer must account for:

Employer National Insurance:

• Rate increased from 13.8% to 15%
• Secondary threshold (the point at which employer NIC starts) dropped from £9,100/year to £5,000/year
• Combined effect: employers pay more NIC, starting from a lower earnings point. For a £30,000/year employee, employer NIC rose from approximately £2,884 to £3,750 – an increase of £866/year

Employment Allowance:

• Increased from £5,000 to £10,500
• The £100,000 NIC eligibility cap was removed – all employers can now claim
• This offsets much of the NIC increase for small employers. A business with employer NIC under £10,500/year pays zero employer NIC after the allowance

National Minimum Wage (from April 2025):

• 21 and over (National Living Wage): £12.21/hour
• 18-20: £10.00/hour
• Under 18: £7.55/hour
• Apprentice rate: £7.55/hour

Income tax thresholds: Personal allowance (£12,570), basic rate band (to £50,270), higher rate (40%), and additional rate (45% above £125,140) are all frozen – unchanged from 2024/25. The freeze continues until at least 2028.

RTI Reporting Requirements

You must submit a Full Payment Submission (FPS) to HMRC on or before every payday – late submissions trigger automatic penalties with no grace period after month one.

Real Time Information (RTI) is HMRC’s payroll reporting system. Every time you pay an employee, you must report it electronically. There are two submission types:

Full Payment Submission (FPS):

• Due: On or before every payday (no exceptions)
• Reports: Each employee’s gross pay, tax deducted, NIC (employee and employer), student loan deductions, pension contributions
• How: Your payroll software submits directly to HMRC via the Government Gateway
• Late penalty: £100/month (1-9 employees), £200 (10-49), £300 (50-249), £400 (250+). First late submission in month 1 of a new scheme is forgiven; all subsequent late filings trigger immediate penalties

Employer Payment Summary (EPS):

• Due: By the 19th of the following tax month
• Reports: Employment Allowance claims, statutory pay reclaims (SMP, SPP, etc.), CIS deductions suffered, periods of no payments
• Only submit when applicable – not every month

Earlier Year Update (EYU): Abolished from April 2023. All corrections to previous tax years must now go through HMRC’s online correction service or additional FPS submissions.

PAYE Payment Deadlines

Pay your PAYE bill to HMRC by the 22nd of the following month (electronic) or 19th (cheque). Quarterly payments are allowed if your average monthly bill is under £1,500.

After submitting RTI, you must pay HMRC the total PAYE due – this is the sum of income tax deducted, employee NIC, and employer NIC, minus any Employment Allowance or statutory pay reclaims.

Monthly payment deadline:

• Electronic payment (BACS, online banking, Direct Debit): 22nd of the following month
• Cheque: 19th of the following month (3 days earlier to allow for postal delivery)
• Example: April payroll PAYE is due by 22 May (electronic) or 19 May (cheque)

Quarterly payments: If your average monthly PAYE liability is under £1,500, HMRC allows quarterly payments instead of monthly. Quarters end 5 July, 5 October, 5 January, and 5 April – payment due by the 22nd of the following month.

Late payment penalties: HMRC charges penalties based on how many times you pay late in a tax year. The first late payment is penalty-free. The second and subsequent late payments trigger a penalty of 1% to 4% of the amount outstanding, depending on the number of defaults. Interest also accrues on overdue amounts at the Bank of England base rate plus 2.5%.

Auto-Enrolment Compliance

All UK employers must auto-enrol eligible workers into a pension scheme with minimum 8% total contributions (5% employee + 3% employer) – The Pensions Regulator can fine non-compliant employers £400/day.

Auto-enrolment is enforced by The Pensions Regulator (TPR), not HMRC. The obligations are:

Who must be enrolled:

• All employees aged 22 to State Pension age earning over £10,000/year (eligible jobholders)
• Employees aged 16-74 earning £6,240-£10,000/year can opt in and you must facilitate
• Workers earning under £6,240 can join but you are not required to contribute

Minimum contributions (2025/26):

• Employee: 5% of qualifying earnings (£6,240 to £50,270 band)
• Employer: 3% of qualifying earnings
• Total minimum: 8%

Re-enrolment: Every 3 years from your staging date, you must re-enrol any employees who previously opted out. You must assess your workforce, re-enrol eligible jobholders, and submit a re-declaration of compliance to TPR.

Penalties for non-compliance:

• Fixed penalty notice: £400
• Escalating daily penalties: £50/day (1-4 employees), £500/day (5-49), £2,500/day (50-249), £10,000/day (250+)
• These continue until compliance is achieved

Statutory Payments

UK employers must calculate and pay statutory sick pay, maternity pay, paternity pay, and other statutory payments at HMRC-set rates – your payroll software handles the calculations.

You are legally required to pay statutory amounts to qualifying employees. For 2025/26:

Small employers (Class 1 NIC below £45,000) reclaim 103% of statutory pay. Larger employers reclaim 92%. SSP is not reclaimable – it is entirely an employer cost.

Your payroll software calculates these automatically based on employee eligibility. You reclaim the amounts through your EPS submission – the reclaimed amount reduces your next PAYE payment to HMRC.

Student Loan and Postgraduate Loan Deductions

Employers must deduct student loan repayments from employees earning above £27,295 (Plan 2) or £21,000 (Plan 1) – HMRC sends start notices telling you which plan applies.

If HMRC sends you an SL1 (Student Loan Start Notice) or PGL1 (Postgraduate Loan Start Notice), you must deduct repayments from the employee’s pay. The 2025/26 thresholds and rates:

Your payroll software calculates deductions automatically once you enter the plan type. An employee can have both a student loan and a postgraduate loan deducted simultaneously. Do not start or stop deductions without an HMRC notice – penalties apply for incorrect processing.

Year-End Obligations

After your final 2025/26 payroll run, mark your last FPS as final, issue P60s to all employees by 31 May, and submit any P11Ds by 6 July.

At the end of each tax year (5 April), you must complete these tasks:

1. Final FPS (by 19 April): Submit your last Full Payment Submission with the “final submission” indicator checked. This tells HMRC your payroll reporting for the tax year is complete
2. Final EPS (by 19 April): Submit if you need to report any year-end adjustments (statutory pay reclaims, Employment Allowance claims)
3. P60s (by 31 May): Issue a P60 to every employee who was on your payroll on 5 April. Shows total pay, tax, and NIC for the year. Your software generates these
4. P11D and P11D(b) (by 6 July): Report benefits in kind (company cars, private medical insurance, etc.) unless you payroll benefits through your regular RTI submissions
5. Update software: Apply the new tax year update before running your first April payroll. Cloud software does this automatically; desktop software requires a manual update download

HMRC Penalties Summary

HMRC payroll penalties range from £100/month for late RTI to percentage-based charges for late payment – most are automatic with no prior warning or grace period.

The easiest way to avoid all of these penalties is to use reliable payroll software that submits RTI on time and calculates correctly. Alternatively, an outsourced payroll provider takes on the compliance burden and carries insurance against errors.

How to Stay Compliant

Stay HMRC-compliant by using recognised payroll software, submitting RTI before payday, paying PAYE by the 22nd, and updating for new tax year rates every April.

Payroll compliance is straightforward if you follow a consistent process:

1. Use HMRC-recognised software: All mainstream payroll software handles calculations and RTI submissions correctly. Even free options like Collegia FreePayroll are HMRC-recognised
2. Process payroll 1-2 days before payday: This gives you time to check calculations and submit RTI before the deadline
3. Set up a Direct Debit for PAYE: Automatic HMRC payments eliminate late payment risk. Set up via your HMRC online account
4. Claim Employment Allowance: £10,500 off your employer NIC – apply through your first EPS of the tax year
5. Update software every April: New tax year rates take effect from 6 April. Run your first new-year payroll only after updating
6. Keep records for 3 years: HMRC can request payroll records going back 3 years plus the current year

If managing compliance in-house feels risky, a payroll bureau handles all HMRC obligations for £4-£15/employee/month. For a comparison of the two approaches, see our outsourcing vs in-house payroll guide.

Clara Wenslow

Finance & Business Services Editor

Clara analyses SME finance and procurement markets, covering business loans, invoice finance, payroll, and related B2B services. She ensures each comparison and guide is transparent and data-driven.

Reviewed by

Sarah Mitchell

B2B Commerce & Finance Reviewer