COUNTRY GUIDE
A dynamic market environment, strategic location, strong business infrastructure, and a prime destination for international business expansion—here’s what you need to know about UK payroll and HR.
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In the UK, PAYE (Pay As You Earn) is the system that employers use to deduct income tax and National Insurance contributions from their employees’ paychecks. The employer calculates and deducts the correct amount of tax and contributions based on the employee’s earnings and tax code. This helps individuals pay their taxes gradually throughout the year instead of in a lump sum, making it easier to manage their finances. You must register for PAYE before the first payday, but you cannot register more than 2 months before you start paying people. It can take up to 15 working days to get your employer PAYE reference number.
While it’s not legally required to have a UK bank account to set up a company, it can be helpful to have one for your PAYE system and to make your statutory payments easier and quicker.
The standard working week in the UK is Monday to Friday from 8 am or 9 am to 4 pm or 5 pm. Lunch breaks are usually one hour.
The total cost of employment is typically between 1.25 and 1.4 times the employee’s salary.
Wages and salary in the UK are governed by National Minimum Wage (NMW) and National Living Wage (NLW)—an hourly rate that states the minimum an employee can be paid. There are other types of statutory pay required under UK employment law, so let’s cover the core areas:
National Minimum Wage, and National Living Wage, dictate the legal minimum UK-based employees can be paid at an hourly rate depending on their age. The rates for tax year 2023/24 are:
|
Band |
Hourly rate |
|
Workers aged 23 and over (National Living Wage) |
£10.42 |
|
For workers aged 21 to 22 |
£10.18 |
|
For workers aged 18 to 20 |
£7.49 |
|
For workers aged under 18 |
£5.28 |
|
For apprentices under 19, or aged 19 and over but in the first year of their apprenticeship |
£5.28 |
*Salary Sacrifice schemes should be monitored to ensure the reduction is salary does not violate the respective NMW threshold*
Employees are entitled to Statutory Sick Pay (SSP) in the UK. SSP is paid to an employee that is unable to work because of an illness or injury. An employer must put their sickness policy in a written statement of employment particulars and a copy must be supplied to all employees who have worked for your company for at least a month.
SSP is paid to the employee at the same time and in the same manner as their wages would be paid for the same period.
As of April 2023, the SSP rate will be £109.40 per week. The amount you must actually pay an employee for each day they’re off work due to illness (the daily rate) depends on the number of ‘qualifying days’ they work each week. The daily rates are as follows:
Unrounded daily rates | Number of qualifying days in a week |
£15.6285 | 7 |
£18.2333 | 6 |
£21.88 | 5 |
£27.35 | 4 |
£36.4666 | 3 |
£54.70 | 2 |
£109.40 | 1 |
To qualify, they need to have been off work for at least 4 days in a row (including non-working days) due to illness, and they need to earn at least £123 per week—this is referred to as the lower earnings limit (LEL). You may also need to ask for evidence of their illness, such as a doctor’s note, before you can pay them SSP.
Parental pay can be a complex topic for businesses to navigate, but it’s an important one to understand if you want to support your employees in balancing work and family life. There are several types of parental pay available to eligible employees, so let’s take a closer look at what you need to know for the current tax year 2023/24.
Payment type | Weekly rate | Definition |
Lower Earnings Limit (LEL) | £123 | What an employee must earn per week to qualify for statutory payments. |
Statutory Maternity Pay (SMP) | £172.48 | Eligible new mothers can claim Statutory Maternity Pay for up to 39 weeks during the leave. |
Statutory Paternity Pay (SPP) | £172.48 | Eligible new fathers can claim Statutory Paternity Pay for up to two weeks; this must be taken all at once. |
Statutory Adoption Pay (SAP) | £172.48 | Employees who adopt a child or have a baby through surrogacy are entitled to a payment from their employer that helps them take time off work to look after the child. |
Statutory Parental Bereavement Pay (SPBP) | £172.48 | This provides parents who lose a child or suffer a stillbirth with the right to take two weeks off work. |
Statutory Shared Parental Pay (ShPP) | £172.48 | Both new parents might be entitled to pay during parental leave. |
Note: Some payments may be 90% of the employee’s average weekly earnings if this is less than the statutory rate.
Employees are entitled to statutory redundancy pay if been working for current employer for 2 years or more and are subject to redundancy.
Employees have a statutory right to:
Weekly pay is calculated on the average weekly earnings over the 12 weeks before the date of issue of the redundancy notice.
It is important to note that length of service is capped at 20 years for the purposes of assessing the above and that redundancy pay (including any severance pay) under £30,000 is not taxable. Weekly pay is capped at £643, and the maximum statutory redundancy pay you can get is £19,290.
In the UK, various deductions such as Income Tax and National Insurance are deducted from an employees pay before it lands in their bank. Let’s look at the most common deductions, along with additional contributions you may have to pay as an employer:
Income tax bands in the UK dictate how much tax employees pay, based on the amount that they earn. The Personal Allowance throughout the UK is £12,570—meaning employees do not pay tax on the first £12,570 that they earn. They then move through different bands in line with their income, illustrated below. It’s important to note that Scotland has different banding to England, Wales, and Northern Ireland.
Income tax rates England, Wales and NI 2023/2024:
|
Band |
Earnings Bracket |
Tax rate |
|
Personal Allowance |
£12,570 |
N/A |
|
Basic Rate |
£1-37,700 |
20% |
|
Higher Rate |
£30,701- 125,140 |
40% |
|
Additional Rate |
Over £125,140 |
45% |
Income tax rates Scotland 2020/2021:
|
Band |
Earnings Bracket |
Tax rate |
|
Personal Allowance |
£12,570 |
N/A |
|
Starter Rate |
£1 – 2,162 |
19% |
|
Basic Rate |
£2,163 – 13,118 |
20% |
|
Intermediate Rate |
£13,119 – 31,092 |
21% |
|
Higher Rate |
£31,093 – 125,140 |
42% |
|
Additional Rate |
Over £125,140 |
47% |
A taxpayer’s Personal Allowance goes down by £1 for every £2 above £100,000. This means the Personal Allowance is zero for an income of £125,140 or above. A Marriage Allowance (or Transferable Tax Allowance) is available to qualifying spouses or civil partners (born after 5 April 1935), provided they are not liable to taxes in the higher rate or above, they can transfer up to £1,260 to their spouse or civil partner, and the recipient will get a tax bill deduction of 20 percent of the amount transferred. An additional Personal Allowance of £2,870 is available to blind taxpayers.
National Insurance is a form of social security tax. It’s paid by most workers and employers in the UK. It’s used to pay for state benefits like the NHS, unemployment benefits, and the State Pension. Employees often need to have paid National Insurance to qualify for these benefits. Employers deduct contributions from pay just as they do with Income Tax, as well as making their own contributions for their employees.
National Insurance Contributions (NICs) are mandatory if you’re 16 or over and you’re:
or
How much you pay is worked out in a similar way to income tax – it’s calculated on gross earnings (before tax or pension deductions) or profits (earnings minus allowable expenses) above a threshold.
National Insurance is defined by a number of classes:
Class | Definition |
Class 1 | Paid by employees earning more than £242 a week and under State Pension age. |
Class 1A or 1B | Paid on employees’ expenses or benefits. |
Class 2 | Paid by self-employed people earning profits of more than £11,908 a year. If their profits are less than £6,725 a year, they can choose to pay voluntary contributions to fill or avoid gaps in their National Insurance record. |
Class 3 | These are voluntary contributions that can be paid to fill or avoid gaps in someone’s National Insurance record. |
Class 4 | is paid by self-employed people earning profits of £12,570 or more a year Class 4 contributions are charged at 9% on profits between £12,570 and £50,270, then at 2% on profits over £50,270. |
Thresholds are also applied to dictate the weekly when employees and employers begin to pay National Insurance. In tax year 2023/24, those thresholds are:
Threshold | Weekly Rate | Definition |
Lower Earnings Limit (LEL) | £123 | From here, employees qualify for the benefits of paying National Insurance, but do not yet pay it. |
Primary Threshold | £242 | Employees start paying National Insurance. |
Secondary Threshold | £175 | Employers start making their own contributions for their employees. |
Upper Earnings Limit (UEL) | £967 | Employees start paying National Insurance at a lower rate. |
Upper Secondary Threshold for under 21s | £967 | Employers start making National Insurance contributions for employees under 21 (having paid a rate of zero on pay below this point). |
Apprentice Upper Secondary Threshold | £967 | Employers start making National Insurance contributions for employees under 21 (having paid a rate of zero on pay below this point). |
Veterans Upper Secondary Threshold | £967 | Employers start making National Insurance contributions or qualifying employees (having paid a rate of zero on pay below this point). |
Freeport Upper Secondary Threshold | £481 | Employers start making National Insurance contributions for qualifying employees working in a freeport site (having paid a rate of zero on pay below this point). |
Each employee will also have a category letter, which is the final differentiator in how much National Insurance is paid. Employee contributions for each category letter in the tax year 6 April 2023 to 5 April 2024 are:
Category letter | £123 to £242 (£533 to £1,048 a month) | £242.01 to £967 (£1,048.01 to £4,189 a month) | Over £967 a week (£4,189 a month) |
A – Most employees are assigned this category if they do not meet the requirements of others. | 0% | 12% | 2% |
B – Married women and widows. | 0% | 5.85% | 2% |
C – Employees over the state pension age. | N/A | N/A | N/A |
F – Employees who work in freeports. | 0% | 12% | 2% |
H – Apprentices under 25. | 0% | 12% | 2% |
I – Married women and widows who work in freeports. | 0% | 5.85% | 2% |
J – Employees who defer NI because they’re paying it in another job. | 0% | 2% | 2% |
L – Employees who work in freeports and defer NI because they’re paying it in another job. | 0% | 2% | 2% |
M – Employees under 21. | 0% | 12% | 2% |
S – Employees who work in freeports and are over state pension age. | N/A | N/A | N/A |
V – Employees in their first job since leaving the armed forces. | 0% | 12% | 2% |
Z – Employees under 21, already paying NI in another job. | 0% | 2% | 2% |
Employers must also make NIC contributions for their employees, depending on the employees category. Employer contributions in tax year 6 April 2023 to 5 April 2024:
Category letter | £123 to £175 (£533 to £758 a month) | £175.01 to £481 (£758.01 to £2,083 a month) | £481.01 to £967 (£2,083.01 to £4,189 a month) | Over £967 a week (£4,189 a month) |
A | 0% | 13.8% | 13.8% | 13.8% |
B | 0% | 13.8% | 13.8% | 13.8% |
C | 0% | 13.8% | 13.8% | 13.8% |
F | 0% | 0% | 13.8% | 13.8% |
H | 0% | 0% | 0% | 13.8% |
I | 0% | 0% | 13.8% | 13.8% |
J | 0% | 13.8% | 13.8% | 13.8% |
L | 0% | 0% | 13.8% | 13.8% |
M | 0% | 0% | 0% | 13.8% |
S | 0% | 0% | 13.8% | 13.8% |
V | 0% | 0% | 0% | 13.8% |
Z | 0% | 0% | 0% | 13.8% |
Employees who have an outstanding balance on their student loan will be subject to additional deductions dependant on the type of loan they have (Student Loan or Postgraduate Loan). When an employee completed their studies (Plan 1 or Plan 2) and in some cases where they completed their studies (Plan 4 for Scottish students) will also affect the repayments made to the Student Loan Company (SLC).
Student loan repayments are made directly by graduates’ employers when they begin earning a certain amount, unless they make direct payments to the Student Loans Company (and it’s the employee’s responsibility to liaise with the Student Loans Company). The threshold and rate varies depending on the repayment plan in question, as follows:
Plan | Annual Threshold | Rate | Applies to |
Plan 1 | £22,015 | 9% of earnings above the threshold. | Students living in England and Wales who started undergraduate courses before 2012, and Northern Irish students after 1988. |
Plan 2 | £27,295 | 9% of earnings above the threshold. | Students living in Wales who started after 2012, and students living in England between 2012 and 2023. |
Plan 4 | £27,660 | 9% of earnings above the threshold. | Students living in Scotland |
Postgraduate | £21,000 | 6% of earnings above the threshold. | Postgraduate students |
Employees pay directly into their workplace pension via payroll. The minimum contribution is:
These are minimum contributions are taken from your ‘qualifying earnings’ before tax or National Insurance contributions are deducted. And your qualifying earnings include this whole list:
Grasping UK payroll and HR compliance—including RTI, payroll filings, auto enrolment, and other key components—is essential to ensure that you operate within legal parameters and avoid potential pitfalls. Here are the key areas to consider:
Real Time Information for payroll is a system that helps organisations stay on top of compliance and ensures employees pay the correct amount of income tax. Submissions include:
On a monthly basis, any changes to an employee’s fixed payroll data must be provided to ensure compliance and that employees are paid correctly, these would include:
Additionally, any one-off payments relevant to the current pay period should be provided, these would include:
This is your main RTI submission. When you pay your team, you submit a wealth of information to the bods at HMRC, including:
Based on that information, HMRC know how much your organisation must pay for each team member.
After the sums have been done for the FPS, you’ll want to complete an EPS. An EPS is used to report the figures that you wouldn’t include on the FPS. These values are the deciding factor on what payments you’ll have to make to the HMRC. EPSs are usually submitted once a month, or once a year in some cases. Here are some reasons for why you might send an EPS:
Automatic enrolment (also known as auto-enrolment) is a system where every employee (who meets a certain criteria) will automatically become part of their organisation’s pension scheme. every employer in the United Kingdom must have a workplace pension scheme in place and they must automatically enrol all their eligible employees into it. The 2008 Pensions Act made it a legal requirement for organisations to:
To be eligible, employees must be:
If they earn less than £10,000 annually (but more than £6,240, in this 2023/24 tax year) you don’t have to automatically enrol them into your scheme. But they can ask to join, and you must let them join if you would like to and make contributions for them.
For 2023-2024 the lower limit is £6,240 and the upper limit is £50,270.
If an employee opts out, re-enrolment must be carried out every three years, on the anniversary of the organisation’s staging date and if they still qualify during the re-enrolment. Automatic enrolment is compulsory, but staying enrolled isn’t.
When an employee joins your organisation, the following information is required:
When hiring UK employees, the employer is required to supply full details of the employee to HMRC via their payroll system when they submit their RTI files.
When an employment comes to an end the employer must produce a P45 following the final payment to the employee. If any payments after leaving (after issuing the P45) are made to the employee, they will be processed on a 0T tax code, and any overpaid tax will need to be reclaimed from HMRC directly by the employee.
The employee’s final payment will generally include:
When an employee leaves, the employer must complete a P45 form confirming:
UK employment legislation provides the following protections to employees in respect of termination of employment:
UK employees are entitled to a full range of statutory employment rights and benefits, including certain rights during their employment, such as a right to a written statement of terms, statutory minimum payments in the event of illness and entitlement to some types of family-related leave. Mandatory UK employee benefits include:
Supplementary benefits are completely at the employer's discretion and must be outlined in an employee’s employment contract. Common supplementary benefits in the UK include:
Understanding the UK’s statutory leave and time off regulations is crucial for both employers and employees, ensuring that rights are upheld and responsibilities are met in the workplace. Here are the key types of leave employees are entitled to in the UK:
The UK statutory leave entitlement means that each employee has a legal right to take 28 days of paid annual leave each year (that’s based on an employee who works 5 days a week). This is also known as statutory annual leave. The Working Time Regulations, set out in 1998, states that employees should get a minimum of 5.6 weeks of annual leave from work each year, to protect the health and safety of anyone classed as a worker. Those five-point-six weeks of annual leave works out to be 28 days if your employee works a 5-day week (which is considered “full-time” employment). For part-time workers, this is calculated on a pro-rata basis. The total number of days in the 28 days may include bank holidays.
When an employee is already on another form of leave, some (or all) of the leave can be carried over until the next year. If a worker is sick, for example, and can’t take all their leave, the company has to allow the person to carry over a maximum of 20 of their 28 days leave.
Offering more than the mandated minimum is an option for employers. On this extra leave, you get to have the final say on the rules. You can offer your employees any number of holidays you like, and can implement systems where they accrue with length of service.
There are eight national holidays in England, Wales and Scotland. In Northern Ireland it is 10. Public holidays such as UK bank holidays do not automatically count as paid holidays. The employer decides whether public holidays are a part of the employee’s annual holiday entitlement or not. For example, if employees are forced to take public holidays as part of their annual leave, they may offer 20 days annual leave plus 8 bank holidays, totalling the statutory minimum 28 days/5.6 weeks. Where a bank holiday falls on a weekend, a ‘substitute’ weekday becomes the bank holiday – usually the following Monday.
Women are eligible for up to 26 weeks of ‘Ordinary Maternity Leave’ (protected employment) and up to 26 more of Additional Maternity Leave (unprotected employment). Employees must take at least 2 weeks after any baby is born, with ‘factory workers’ required to take 4 weeks off.
Statutory Maternity Pay (SMP) is payable for up to 39 weeks and provides the employee with 90% of their average weekly earnings (AWE) for the first 6 weeks. Thereafter, they receive the lesser of 90% AWE or £172.48 (2023/24) a week. Weeks 40 – 52 if taken are unpaid maternity leave.
Employment rights, such as the accrual of holiday, are protected throughout the maternity period, however, they are not guaranteed to return to the same job role if they opt to take any of the additional maternity leave.
As with SSP, many employers offer their employees occupational maternity pay, the terms of which are generally outlined in the employment contract and vary from employer to employer.
Men are generally entitled to two weeks’ paternity leave. Paternity leave must be taken within 56 days of the date of childbirth. Statutory Paternity Pay (SPP) is payable at the lesser of 90% average weekly earnings (AWE) or £172.48 (2023/24) a week.
As with SMP, many employers offer their employees occupational paternity pay, the terms of which are generally outlined in the employment contract and vary from employer to employer.
You and your partner may be able to get Shared Parental Leave (SPL) and Statutory Shared Parental Pay (ShPP) if you’re:
You can share up to 50 weeks of leave and up to 37 weeks of pay between you.
You need to share the pay and leave in the first year after your child is born or placed with your family.
You can use SPL to take leave in blocks separated by periods of work, or take it all in one go. You can also choose to be off work together or to stagger the leave and pay. Criteria differs depending on the circumstances, so it’s important to be aware of what people are entitled to.
A new company formation in the UK is usually swift and trouble-free as long as you supply HMRC and Companies House with the correct information about your organisation. Once you have chosen your company’s legal structure, you will need to register an official company address and choose an appropriate SIC code which helps to categorise your business. You will then need to register your company with Companies House where it will be added to the official register.
Corporation tax registration will usually happen automatically, but this can take up to a week following your registration. You will also need PAYE registration with HMRC to collect employee tax and NICs.
It can take up to one week to set up a UK entity, this does not include VAT and other required registrations, which can easily be completed after the company formation process has been completed.
You will also need to register for VAT if your VAT taxable turnover goes over the current VAT threshold, which is currently £85,000, or you know that it will. Your VAT taxable turnover is the total of everything sold that is not VAT exempt.
While it’s not legally required to have a UK bank account to set up a company, it can be helpful to have one for your PAYE system and to make your statutory payments easier and quicker.
You don’t need to live in the UK to register a company in the UK. The registration process is the same for foreign nationals as for residents living in the UK. You don’t need to live in the UK to become a company director.
However, your company will need to be registered with Companies House in England and Wales, Scotland or Northern Ireland, depending on the location of your company.
Corporate tax returns are due 12 months after the accounting period, the payment is due 9 months and 1 day after the accounting period.
The accounting period will be set as 12 months from the date of incorporation, this can however be amended. The accounts should be filed within 9 months after the accounting period.
Want to find out more about Cintra Global? We’d love to hear about your global expansion plans and tell you about how we can support you with your international payroll, HR, and expansion needs.
Maling Exchange, Hoults Yard
Walker Road, Newcastle upon Tyne
NE6 2HL
Phone: 0191 478 7000
Email: [email protected]
Registered in England and Wales
Company No. 10776377
