Payroll Outsourcing for Small Businesses

Every payday is also a filing deadline. A UK employer has to report each employee’s pay and deductions to HMRC on or before the day they are paid, pay HMRC what is owed the following month and keep up with rates that change every April. For a small business without a finance team, that work usually lands on the owner or an office manager, often in the evening.

This guide explains what payroll involves, what changed for employers in April 2026, what mistakes cost, and when payroll services for small businesses are worth paying for.

What running payroll involves

On or before each payday, an employer has to record each employee’s pay, work out tax and National Insurance, produce payslips and send HMRC a Full Payment Submission (FPS) (GOV.UK, Running payroll). The work then carries on through the month and the year.

In practice, that means sending the Full Payment Submission on or before each payday, sending an Employer Payment Summary by the 19th of the following tax month if you are claiming any reductions, and paying HMRC the PAYE and National Insurance owed by the 22nd of the following tax month, or the 19th if paying by post. At the end of the tax year, each employee needs a P60 by 31 May, and employee expenses and benefits have to be reported by 6 July (GOV.UK, Running payroll; GOV.UK, Payroll annual reporting).

Alongside HMRC, employers have workplace pension duties to the Pensions Regulator. Statutory sick pay, maternity pay and paternity pay are also run through payroll, and so are student loan deductions and court orders. None of it is difficult on its own. The pressure comes from doing all of it accurately, every pay period, while running the business.

What changed for employers in April 2026

The 2026 to 2027 tax year brought several changes that every payroll had to pick up from the first pay run in April.

• Minimum wage: the National Living Wage for workers aged 21 and over rose to £12.71 an hour. The rate for 18 to 20 year olds is £10.85, and £8 for under 18s and apprentices in their first year (GOV.UK, Rates and thresholds 2026 to 2027).
• Statutory sick pay: waiting days were abolished, so sick pay is now due from the first day of absence. The lower earnings limit was removed as well, which means lower-paid staff who previously got nothing now qualify. They receive the lower of £123.25 a week or 80% of their average weekly earnings (LITRG, 2026).
• Employer National Insurance: stays at 15% on earnings above £5,000 a year, with an Employment Allowance of £10,500 for eligible employers (GOV.UK, Rates and thresholds 2026 to 2027).

Recruitment agencies had a bigger change to absorb. From April 2026, an agency that supplies a worker paid through an umbrella company is legally responsible for operating PAYE on that worker’s pay, and liable for any shortfall if the umbrella gets it wrong (GOV.UK, Tackling non-compliance in the umbrella company market). Our earlier article on changes to umbrella company regulations covers the background.

The cost of getting payroll wrong

HMRC charges a monthly penalty when a Full Payment Submission is late, when fewer submissions arrive than expected, or when no Employer Payment Summary is sent for a month in which nobody was paid. The amount depends on the size of the business.

The penalty is £100 a month for employers with 1 to 9 employees, £200 for 10 to 49, £300 for 50 to 249 and £400 for 250 or more (GOV.UK, What happens if you do not report payroll information on time).

The first failure in a tax year is not usually penalised, and a submission sent within 3 days of payday is normally tolerated. HMRC is clear, though, that employers who are regularly late inside that window may still be contacted or penalised. Paying HMRC late can bring separate late payment penalties and interest.

The less visible costs tend to be larger. Underpaying the minimum wage, missing a workplace pension deadline or getting sick pay wrong under the new rules all lead to arrears and, in some cases, enforcement action. The Pensions Regulator can issue compliance notices and fines to employers who miss their automatic enrolment duties (The Pensions Regulator, Warnings, notices and payment of fines). And a payslip that is wrong more than once damages trust with staff faster than almost anything else a small employer does.

What an outsourced payroll service covers

A good outsourced payroll service takes over the whole cycle rather than just pressing the button on payday. That should include:

• running each pay run and sending the Full Payment Submission on time
• payslips for every employee
• telling you what to pay HMRC and when
• starters, leavers and P45s
• statutory sick, maternity and paternity pay
• workplace pension deductions and the information your pension provider needs
• year-end work, including P60s and benefits reporting
• picking up rate and rule changes each April without being asked

The business stays the employer registered with HMRC after it outsources, which is why the choice of provider matters.

When outsourcing makes sense

In-house payroll can work well for a very small, stable team on fixed salaries. The case for outsourcing gets stronger when any of these apply:

• you are taking on your first employees and have not run payroll before
• the business has grown past 10 staff, the point at which HMRC’s late filing penalty doubles
• pay varies from month to month because of hours, overtime, commission or temporary workers
• payroll depends on one person, and nobody else can run it when they are off
• you are a recruitment agency paying temps or supplying umbrella workers, where getting PAYE wrong now carries direct liability
• the owner’s time is going on payroll instead of on clients

What to ask a payroll provider

Before signing up, it is worth checking:

• Who actually runs your payroll, and who do you speak to when something is wrong?
• How are rule changes handled, such as the April 2026 sick pay changes?
• What is included in the fee, and what is charged extra (starters, leavers, year end, pensions)?
• How is employee data kept secure?
• Can the same firm help with the questions payroll throws up, such as employment status, tax or a dispute with a member of staff?

The last question matters more than it first appears. Payroll is where tax, employment law and accounts meet, and a provider that only processes numbers will send those questions back to you.

Frequently asked questions

How much does it cost to outsource payroll?

It depends mainly on the number of employees, how often they are paid and how much changes between pay runs. Ask for a fixed monthly fee that includes year-end work, so there are no surprises in April.

Can I outsource payroll if I only have one or two employees?

Yes. A small payroll is quick to run, and getting the set-up right from the first employee avoids problems later.

What happens to my existing payroll records?

Your provider takes over from your current software or accountant, carrying across year-to-date figures so that tax and National Insurance stay correct for the rest of the year.

The bottom line

Payroll is a fixed monthly obligation with HMRC deadlines on every payday, and April 2026 added more to it. Most small businesses can run it in-house. The real questions are whether that is the best use of the owner’s time, and whether the business can absorb the cost when something goes wrong.

Speak to a specialist

WTT’s accountancy and payroll team handles payroll processing and compliance alongside statutory accounts, corporate tax returns and bookkeeping. Because our tax and employment law specialists work in the same group, the questions payroll raises can be answered in one place. To talk about taking your payroll off your hands, contact us today on +44 (0)20 3468 0000 or info@wttconsulting.co.uk.

References

GOV.UK. Running payroll. HM Revenue & Customs. https://www.gov.uk/running-payroll

GOV.UK. Payroll annual reporting. HM Revenue & Customs. https://www.gov.uk/payroll-annual-reporting

GOV.UK. (2026). Rates and thresholds for employers 2026 to 2027. HM Revenue & Customs. https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027

GOV.UK. What happens if you do not report payroll information on time. HM Revenue & Customs. https://www.gov.uk/guidance/what-happens-if-you-dont-report-payroll-information-on-time

GOV.UK. Tackling non-compliance in the umbrella company market. HM Revenue & Customs. https://www.gov.uk/government/publications/tackling-tax-non-compliance-umbrella-company-market/tackling-non-compliance-in-the-umbrella-company-market--3

Low Incomes Tax Reform Group. (2026). Statutory sick pay: information for employers. https://www.litrg.org.uk/employers/pay-and-deductions/statutory-sick-pay-information-employers

The Pensions Regulator. Warnings, notices and payment of fines. https://www.thepensionsregulator.gov.uk/en/employers/warnings-notices-and-payment-of-fines

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