Payroll taxes in the UK: An employer’s guide

When you hire in the UK, you — as the employer — are responsible for calculating, withholding, and submitting payroll taxes from your team members’ pay slips. For some taxes, you are also required to make employer contributions.

In this article, we’ll explain clearly which taxes you need to withhold, which taxes you need to contribute to, and how to remit and make payments. So let’s jump straight in.

What is payroll tax?

Payroll taxes are the contributions employees and businesses make to the government to fund public programs, such as retirement, healthcare, and unemployment insurance. They typically include income tax and social contributions, and are set at pre-determined rates.

These rates (and the rules governing them) vary by country, but it’s every employer’s responsibility to ensure they are compliant, and that they are withholding and submitting the correct amounts.

What is the difference between payroll taxes and corporate taxes?

Generally, payroll taxes are tied to your employees’ wages, while corporate taxes are based on your company’s profits. 

Which payroll taxes do you need to withhold from your employee in the UK?

In the UK, the main taxes you’ll need to withhold are:

Pay As You Earn (PAYE, or income tax)

UK residents in England, Wales, and Northern Ireland are taxed at the national level, as follows:

Note that, in Scotland, these rates vary slightly, with additional brackets:

You must withhold the correct amount from your employees’ pay slips based on these rates (and their location).

When to pay: If your company’s average monthly PAYE and National Insurance contributions (see below) are less than £1,500, you may be eligible to make payments quarterly. Otherwise, you must make monthly payments.

Employee National Insurance contributions

Employees contribute to National Insurance (NI), which funds numerous state benefits like the State Pension (and other programs). The amount deducted depends on the employee's earnings and specific thresholds, and is reviewed annually.

When to pay: NI payments should be made at the same time as PAYE payments (see previous section).

Which payroll taxes does your business need to contribute to?

As well as withholding the taxes and contributions listed above, you are also required to make your own contributions, as follows:

Employer NI contributions

You are required to make NI contributions on your employees' earnings above a certain threshold. The rate and thresholds are set annually by the government, and are set to rise significantly in April 2025.

When to pay: At the same time as your employee PAYE and NI payments.

Note that you may also be required to make Class 1A and 1B NI contributions, which are payable on certain benefits-in-kind (such as company cars). Class 1A contributions are due on most taxable benefits, while Class 1Bs apply when an employer has a PAYE Settlement Agreement with His Majesty’s Revenue and Customs (HMRC).

Pension contributions (auto-enrolment)

Under the auto-enrolment scheme, you must automatically enroll eligible employees into a workplace pension scheme, and make minimum contributions. Eligibility typically includes employees aged between 22 and the State Pension age, earning over £10,000 annually.

When to pay: This should be agreed with your company’s chosen pension provider, but is typically paid monthly.

Additional considerations

In the UK, any employer contributions are conditional on certain criteria being met. For instance, you may be required to pay:

Apprenticeship levy

If your annual payroll bill exceeds £3 million, you will need to pay an apprenticeship levy at 0.5% of the bill. Note that you will receive an annual allowance to offset against the levy.

When to pay: Alongside your PAYE and NI payments.

Statutory payments

You are responsible for administering and, in some cases, funding statutory payments such as Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP). While these payments are made to employees, employers may be able to reclaim some or all of the costs, depending on specific criteria.

When to pay: This depends on the scheme. If eligible for reimbursement (e.g., under the Statutory Maternity Pay reclaim scheme for small employers), claims must be made during the same tax year and processed through your PAYE submissions. To understand what you owe and when, it’s advisable to work with a trusted payroll partner.

You may also be required to withhold additional taxes for certain employees, such as court-ordered garnishments, or education taxes for those who are repaying student loans.

To quickly see a full breakdown of payroll taxes and employment costs for your UK hire(s) based on their salary, use our free Employee Cost Calculator tool.

How do you remit and pay payroll taxes in the UK?

To remit and pay employer and employee taxes and contributions, you will need to:

1. Calculate the correct amounts for withholding, and then add your employer contributions. If you use Remote Payroll or Remote EOR, we will do this for you.

2. Ensure that you adhere to the payment deadlines detailed above.

3. Make the payments through HMRC’s online portal, citing your company’s 13-character reference number. You can also make the payments by post or by bank transfer.

How do you manage payroll taxes as an international employer?

When you hire a UK-based team member from abroad, there are several ways you can manage their payroll and payroll taxes.

If you already have your own legal entity in the UK, you can:

• Handle it in-house. You can hire your own payroll tax specialists and manage everything internally. This can be costly, however.

• Use a local third party. You can hire a local firm to handle payroll, although this can be unreliable, costly, and pose data risks.

• Use a PEO. A professional employment organization (PEO) acts as an outsourced HR provider, and includes payroll.

• Use a global payroll provider. Global payroll providers — like Remote — have local specialists in multiple countries, ensuring that you are fully compliant with all tax requirements in each one. This is especially convenient if you have (or plan to have) employees in different countries, as you can manage all of them through one platform.

If you don’t have your own entity in the UK and you still want to hire there, you can:

• Set up your own entity. This can be extremely costly and time-consuming, but if you plan on establishing your business long-term in the UK, it might be a viable approach. To pay your employees, you would then need to choose one of the options above.

• Use an EOR. Employer of record (EOR) providers — like Remote — enable you to quickly and easily hire anywhere in the world, and also handle all the core HR functions (such as compliance and payroll). As well as being generally more cost-effective than opening your own entity, this option is highly scalable and, again, enables you to streamline all your global HR tasks in one place. How does an EOR work?

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EOR, Payroll, or both: What does your business need?

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What about independent contractors?

In the UK, independent contractors are classified differently to employees. As a result, they (in most cases) are responsible for calculating, managing, and paying their own taxes.

However, it’s crucial to understand the difference between contractors and employees, as you may inadvertently create misclassification risk. This can result in severe fines and penalties for your business. Learn more about hiring contractors in the UK.

How can Remote help?

Knowing which payroll taxes you need to calculate, withhold, and contribute to requires local expertise, especially as these rules can — and do — change. And if you make a mistake or fail to comply, the financial consequences can be significant.

Whether you have your own entity in the UK or not, Remote ensures that you are withholding and contributing the correct amounts, and that you are fully compliant at all times with UK tax and employment laws. We also provide 24/7 support for any guidance you may need.

To see how we can help — and to learn which approach is the most suitable for your business — speak to one of our friendly payroll experts today.

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