HMRC Payroll Compliance for UK Small Businesses: The 2026 Checklist

HMRC collected over £220 billion in PAYE and NI in the last tax year. Getting it wrong — even by accident — means penalties, interest charges, and the kind of letters that ruin a Monday morning.

Here's what you need to have in place for payroll compliance in the 2026/27 tax year.

The fundamentals: what every employer must do

1. Register as an employer with HMRC

Before you can run payroll, you must register as an employer with HMRC. This gives you an employer PAYE reference number and accounts office reference. Registration is free and can be done online, but it can take up to 5 working days to process.

You must register before your first payday — you cannot backdate registration.

2. Run payroll and submit RTI every pay period

Real Time Information (RTI) means you must submit a Full Payment Submission (FPS) to HMRC on or before each payday, every pay period. No exceptions.

The FPS reports:

• Each employee's pay
• Tax deducted
• NI contributions (employee and employer)
• Student loan deductions
• Statutory pay (SSP, SMP, etc.)

Late FPS submissions attract automatic penalties starting from the first day late. For employers with fewer than 10 employees, the penalty is £100 per month of failure.

3. Calculate and deduct income tax correctly

Income tax is deducted via PAYE using the tax code assigned to each employee by HMRC. Common tax codes:

• 1257L — standard personal allowance (£12,570 in 2026/27)
• BR — basic rate (20%) on all earnings (often used for second jobs)
• 0T — no personal allowance (used when HMRC has no P45/P46 information)

If you receive a tax code change notice from HMRC, you must implement it from the next pay period.

4. Auto enrolment and pension compliance

If you employ anyone aged 22–66 earning above £10,000/year, you must auto enrol them into a qualifying workplace pension. Key obligations:

• Enrol eligible employees within 3 months of their start date (or trigger date)
• Contribute a minimum of 3% employer contribution on qualifying earnings
• Process opt-outs within 1 calendar month — and refund contributions where employees opt out within the 1-month window
• Re-enrol opted-out employees every 3 years (re-enrolment date)
• Complete a Declaration of Compliance to The Pensions Regulator

5. Issue payslips

All employees are entitled to a payslip on or before their payday. Payslips must show:

• Gross pay
• All deductions (tax, NI, pension, other)
• Net pay
• The number of hours worked (if pay varies with hours)

Digital payslips are fully legal and accepted.

Key dates for 2026/27

Common compliance failures and how to avoid them

Late or missing RTI submissions

The most common payroll error. Set up reminders for every payday — RTI must be submitted on or before that date, not after.

Wrong tax codes

Using an old tax code because you missed a HMRC coding notice. Check your Government Gateway inbox weekly during the first quarter of the tax year.

Forgetting the employer NI changes

The employer NI rate and secondary threshold have changed. Ensure your payroll software is updated for 2026/27 rates before 6 April 2026.

Statutory pay errors

SSP, SMP (statutory maternity pay), SPP (statutory paternity pay), and ShPP (shared parental pay) all have specific calculation rules. Getting these wrong can result in employees being underpaid — and HMRC penalties.

Not keeping records

HMRC requires you to keep payroll records for 3 years after the tax year they relate to. This includes FPS submissions, P60s, P45s, and payslips.

The right tool makes this manageable

Payroll compliance is non-trivial. The rules change annually, RTI requires precision, and the penalties for errors are real.

Paply handles RTI submissions automatically, applies the correct tax codes and rates from 6 April, and generates digital payslips — so your team always gets paid correctly and HMRC always gets their FPS on time.

No late-night panics. No correction letters. Just payroll that works.