The workload imposed by MTD for Income Tax goes beyond the basic legwork of new quarterly updates and digital tax returns.

Three-monthly data gathering also means almost never-ending data cleansing work, for example. Plus, right now you’re probably finding yourself connecting with clients as the deadline approaches—and then there’s the near-endless education as you answer queries.

You might also find yourself placating clients who are unhappy with the change, especially given the extra work, the learning curve, and the cost involved. This can rub off onto you subconsciously.

It all adds up. So, how can you avoid burnout and damaging your mental health well-being—and take care of your employees, too?

That’s what we cover in this blog, as follows:

MTD: What extra capacity will you need?

You may well already be spending more on new staff, on training, and on technology to manage this once-in-a-generation change.

You might have calculated how many people-hours you need to manage to change and service clients.

It’s a good first step. But many managers could still find themselves overestimating their capacity. You need to understand the difference between gross and net capacity—or hours in the building and hours available for productive work.

In other words, one of your full time staff might officially be putting in 37.5 hours a week according to your plan. However, once you subtract CPD commitments, team meetings, administrative tasks, sickness cover, and the inevitable, “Have you got a minute?” interruptions, you might be looking at just 25 to 28 genuinely productive hours for this team member.

It’s likely to be less, in fact, if you were to undertake the impossible task of sitting alongside the employee and measure their every move.

Having too much work and not enough staff or hours in the day to handle it is, of course, stressful. But not knowing what’s coming up over the horizon or finding another essential task or imminent deadline suddenly dropping into our inboxes can also send our levels of cortisol—the stress hormone—soaring. Ultimately this can be bad for our mental and our physical health.

Very often stress, anxiety, and depression arise because we feel out of control.

Well-being and caring for employees in the MTD era

Looking after your mental well being is essential and techniques such as meditation and self-awareness as well as ensuring you take time off to truly relax and unwind are very useful.

Organisations such as the ACCA also offer practical advice on mental well being and the ICAEW recently announced a collaboration with the occupational charity caba.

“We’re working in a Volatile, Uncertain, Complex and Ambiguous (VUCA) environment and no doubt more change is on the horizon as technology and AI continue to evolve,” says Sophie Lord, Chief Executive Development Officer and Wellbeing Committee member at accountants and business advisors Moore Kingston Smith.

The firm has a dedicated well-being community, including a committee and a network of champions, who they’ve upskilled to be Mental Health First Aiders.

“Our champions span across all career levels and regions, to ensure well-being support is accessible to all our people,” she adds. “Our comprehensive intranet well-being hub and benefits package provide a range of resources, from our Employee Assistance Programme (EAP) to webinars on well-being topics such as nutrition, sleep, mental health awareness and more.

Well-being is embedded into performance and career conversations, team briefings and debriefs.

Sophie Lord, Chief Executive Development Officer and Wellbeing Committee member. Moore Kingston Smith

“We aim to break down stigma around mental health, stress, and anxiety by having open conversations and role modelling from our leadership.

“Our people can access vlogs on our hub with partners talking through their own well-being experiences and how they managed these, demonstrating that well-being impacts everyone.”

MTD: How to map your capacity

The more you rethink how you plan and predict, the more you can allocate capacity and resources effectively and efficiently, the fewer unpleasant surprises you’ll suffer.

Here’s a suggestion: Start by mapping your capacity against a compliance calendar.

MTD is landing on top of existing Self Assessment peaks, corporation tax deadlines, P11D returns, and quarterly VAT accounts cycles.

So, create a month-by-month heat map of your existing commitments and then overlay the MTD quarterly submissions.

You’ll probably find that during certain months and periods you’re already running at 110%, even before MTD.

Think about recruiting extra staff temporarily for this period. You could look to outsource work or check to see whether one of the other tasks that you need to carry out at this time could perhaps be postponed to a quieter period.

Audit the “hidden work” that takes place in your office, too.

Chasing clients for records, correcting bookkeeping errors that weren’t caught earlier, and talking clients or junior staff through MTD deployment mechanics all eat up time—and probably won’t show up in timesheets.

Ask your teams to make a note of how much time they’re each spending on these tasks. Once you’ve got this important intelligence you can think about how you’re going to save time and money here.

Can you consolidate these jobs or give them to a more junior person, or deploy IT like agentic AI to take the load? Will a round robin email help to ensure that you’ve got the client records you need well in advance, and that clients know what they need to send you in the new world of MTD?

It’s a good idea to be realistic about the impact of the learning curve, the extra client support, the education, and changes in working practices prompted by MTD on your bottom line.

Build in extra capacity and assume that costs will rise over this period. Again, including the extra outgoings in your budgets and your business plan will avoid those unpleasant surprises.

Stop, standardise and automate for MTD

Your planning should revolve around standardisation and automation.

There might be tasks and services that you’ve always done that you should now consider no longer doing.

These might include printing and filing paper copies with entries and data that exist digitally, or running manual reconciliations that software can handle. It could include producing internal reports that nobody reads, or maintaining spreadsheet trackers that duplicate what’s already in your practice management system.

Decide whether these actions serve a client, meet a regulatory requirement, or support your teams in any way. If they don’t, then you’ve got a strong reason to stop doing them.

Look for places to automate processes. This should be a 24/7, always-on thought process.

Client reminder sequences for upcoming submissions, bank feed reconciliation, automated data extraction, and internal notifications for client record reviews can all be automated.

Agentic AI: Handling the MTD workload 24/7

The Sage MTD Agent takes automation to a whole new level, and it’s the only real way forward if you want to retain capacity in your practice.

It’s part of every Sage for Accountant plan, which you can subscribe to for zero cost and receive access to core Sage practice software.

By automating routine compliance tasks and cutting admin work by up to 50%, the Sage MTD Agent gives you back the hours you need to focus on what actually grows your practice: client relationships and increased service offerings.

In practice, the Sage MTD Agent handles the operational heavy lifting. It segments your client base so you can prioritise effectively, builds out task lists for each quarterly cycle, sends reminders to keep everything on track, and chases outstanding documents on your behalf.

Just as importantly, it keeps you ahead of problems rather than reacting to them. The agent flags potential filing issues early, before they escalate into compliance headaches or awkward conversations with clients.

That kind of proactive oversight, only available through AI, means you can deliver a seamless experience that builds trust and sets your practice apart.

You not only need technology like the Sage MTD Agent. You need to understand what’s possible with agentic AI—because it just wasn’t available just a year ago. Technology is developing fast, and you need it.

But that’s not the end of it.

You can calculate exactly how much time each one of these clients takes to process quarterly submissions for MTD and then plan accordingly so that you have enough capacity to manage each one.

Planning your MTD workload by segmenting clients

Ask yourself whether you’re giving each client the attention that they require when it comes to making the switch to MTD.

You need to be clear and dispassionate as you identify what proportion of your valuable resources that you’re going to devote to each kind of client.

The first group might be sole-traders, landlords with multiple properties, and other clients who prefer a hands-off approach. The second might be SMEs who want to maintain some control over the process while in the third category are clients such as tech-savvy sole-traders—SMEs with sufficient administrative capacity, and those who are looking to minimise their fees.

Some will need more support than others. Think about segmenting them into green, amber, and red.

Another way of thinking about this segmentation is to see clients as “do it for me,” “do it with me,” and “show me how.”

In the red corner are those do-it-for-me clients who really don’t want anything to do with MTD. These are the people and the organisations who still keep paper records, probably in a shoebox somewhere. They’re bad at coming back to you when you contact them and submission is always something of a white-knuckle ride.

Slightly more challenging are your amber clients.

These are the ones who are willing to go through the transition to MTD but are still using spreadsheets and basic software and are therefore not yet compatible. They might often need to be chased when you contact them. You’ll probably find that most of your clients fall into this category and you’ll need to decide how much of your teams’ time and effort is needed to service them.

These clients will need minimal additional support. For them, you’ll mainly be providing oversight and help with submissions.

Clients in the green segment are those that are already using MTD-compatible software and maintain digital records in real time or are close to it. These are the ones who respond promptly when you contact them and who have one designated point of contact for queries.

Final thoughts: Proactive steps for well-being in the MTD era

Alongside what we’ve discussed above about practical steps, consider implementing specific, concrete, management changes at your firm, such as work forecasting, capacity planning and reviewing the level and type of support that you give to each client.

From a well-being and mental health perspective, don’t forget the following:

• Recognise the warning signs early: Watch for changes in yourself, partners, or staff. Persistent irritability, difficulty concentrating, withdrawal from colleagues, working excessive hours without progress, or dreading tasks that previously felt routine are examples. MTD deadlines create sustained pressure rather than a single peak, making burnout harder to spot because it builds gradually.
• Set boundaries before crunch periods hit: Agree as a practice on realistic workload limits, protected lunch breaks, and a hard stop on out-of-hours client emails during peak transition periods. Even in a two- or three-partner firm, modelling healthy boundaries from the top gives junior staff and admin permission to do the same.
• Have a clear action plan for when someone is struggling: Designate one partner as the go-to person for well-being concerns, normalise check-in conversations, and know how to signpost to professional support such as the CABA helpline (free to ICAEW members and their families) or Mind’s workplace resources. Don’t wait for a crisis to work out who handles what.
• Buy in external well-being support: Small practices can access Employee Assistance Programmes (EAPs) through third-party providers, often for as little as a few pounds per employee per month. These typically include a 24/7 confidential helpline, short-term counselling sessions, and legal or financial guidance—giving your team professional support without you having to provide it yourself.
• Build well-being into practice culture, not just policy: Schedule regular informal one-to-ones, run a short anonymous pulse survey each quarter, and review workloads collectively rather than leaving individuals to flag when they’re overwhelmed. Small firms have an advantage here: fewer layers mean changes can be implemented quickly and felt immediately.

Whether you’re running a business or working in HR, payroll is one of the most important responsibilities you’ll manage. The reality is, in the world of employment, few things matter more than being paid correctly. 

So when there’s a mistake, it’s essential to rectify it as quickly as possible. This is where back pay comes in. But it’s important to recognise that calculating back pay is more than just administrative clean-up, it’s about supporting payroll compliance and maintaining trust. 

Want to know more about back pay? Let’s dive in. 

What are back wages?

Jargon always sounds complicated, so when terms like “back wages” are thrown around, it’s easy to feel confused. But it’s not as intimidating as it sounds. Back wages is just industry- speak for the money a business owes an employee for past work. Essentially it’s the difference between what they were paid and what they should have been paid. Simple as that.

But, we will admit that there are several terms floating around when it comes to this topic and while they are used interchangeably, there are some small distinctions. Here’s a breakdown: 

Back wages	The term often used in legal or employment contexts to describe wages owed due to underpayment, sometimes relating to disputes or employment claims.
Back pay	Refers to any delayed or missed pay adjustments, such as a late pay rise or unpaid overtime.
Underpayments	When employees are paid less than they should have been for a certain period.

Regardless of the exact terminology used, this is about correcting a payroll mistake. 

Getting it right isn’t just about fixing a number; it’s about showing your team you’ve got their back. When you run a business, you’re not just an employer; you’re a leader building a future. Handling pay issues with integrity is a cornerstone of that leadership. It shows you value your people and respect the law.

Common reasons employers might owe backdated pay

Mistakes happen. The key is to catch them, correct them and learn from them. Back pay situations usually pop up from a few common scenarios. Being aware of these can help employers avoid them: 

• Overtime errors: This often occurs when overtime hours weren’t tracked correctly or the rate of pay was miscalculated. With different rules and hourly rates for different roles, it’s an easy place to slip up.
• Employee misclassification: Classifying an employee as an independent contractor or as “exempt” from overtime when they don’t meet the legal criteria can lead to significant back wages owed.
• Wage disputes: An employee might raise a concern that they’ve been underpaid, whether due to an incorrect hourly rate, uncounted hours or missed commissions.
• Pay rises applied late: When a salary increase isn’t implemented until after the official date.
• Minimum wage changes: When national or state minimum wages rise, payroll must keep pace. If an employee’s pay falls below the new minimum for any period, back pay is required.
• Payroll system errors: Technical mistakes, such as incorrect calculations or missing entries.
• Role changes or promotions: Adjustments that weren’t reflected in payroll immediately.

Back wages compliance essentials

Correctly handling and calculating back pay isn’t just good practice, it’s a legal obligation. For employers in the UK, failing to address underpayments promptly can lead to serious consequences, both for your employees and your business.

Employer obligation to correct underpayments

UK law requires that employees are paid the wages they are entitled to, including any adjustments for missed pay, overtime or incorrect rates. If an underpayment is discovered, it’s the employer’s responsibility to make it right. This ensures compliance with employment contracts, the National Minimum and Living Wage regulations and employment law.

Why timing matters

Delaying back pay can increase the risk of disputes and create unnecessary stress for employees. Paying promptly not only meets your legal obligations but also reinforces trust and maintains morale. The sooner errors are corrected, the smaller the administrative and reputational impact.

The cost of getting it wrong

Failing to handle back pay correctly can lead to:

• Employee disputes: Disgruntled employees may raise complaints, grievances or disputes. 
• Reputational damage: Word spreads quickly when payroll errors aren’t addressed, which can affect retention and recruitment.
• Regulatory penalties: Non-compliance with minimum wage or contractual obligations can result in fines and enforcement action.

Being proactive with back pay isn’t just about avoiding penalties,  it’s an opportunity to show employees that your business is fair, trustworthy and attentive to detail. Correcting errors quickly helps protect your business while maintaining a positive workplace culture.

Step-by-step guide to calculating back pay

Payroll adjustments are stressful, but they are also a key part of effectively running a business. And here’s the thing, calculating back pay right is a huge green flag for you as an employer. It proves you’re serious about fairness and protecting your team.

When you take the emotion out of it, back pay is just another process… and one that is solvable if you follow the right steps. . Here’s the straightforward breakdown to resolving back pay in 2026.

Step 1: Identify the period requiring adjustment

It’s important to start off with the basics and in this case that is the “when”. Establish exactly when the error started and when it ended (or if it’s still ongoing). Consider: 

• Is it a single pay period
• Does it stretch back to the start of the fiscal year?

Being precise here is non-negotiable. If you guess the dates, you’re just creating a new error to fix later.

Step 2: Gather your receipts (and records)

You can’t calculate what you can’t see. Pull every piece of data relevant to the affected period. We’re talking:

• Original timesheets and attendance records.
• Employment contracts outlining agreed rates.
• Historical pay rates and any changes that happened during that time.
• Payroll analytics and reports showing what was actually paid.

This is where having a digital paper trail is a lifesaver. If you’re digging through filing cabinets, now is the perfect time to commit to a digital upgrade.

Step 3: Calculate the difference

This is the core of the work. For each affected pay period, calculate two numbers:

1. What you paid: The net amount the employee actually received. 
2. What you owed: The amount they should have received based on the correct rate, classification, or hours. Start by comparing the gross pay (before PAYE tax, National Insurance and pension deductions). Work out what the employee was actually paid in gross, and what they should have been paid in gross based on the correct rate, classification or hours.Then calculate the corresponding net pay (after deductions) for both figures.Finally, subtract the actual net pay received from the correct net pay that should have been received. The difference is the back pay owed.Make sure you do this calculation for each pay period individually, rather than lumping everything together at the start, as this helps ensure tax brackets and withholdings are applied correctly.

Step 4: Factor in interest or penalties

Depending on the reason for the underpayment, you might owe more than just wages. Some situations require interest on unpaid wages to compensate the employee for the delay. Check the specific regulations for 2026. If you’re correcting a mistake voluntarily before a regulator gets involved, you’re often in a much better position than if you’re reacting to a judgment.

Step 5: Document everything

Transparency builds trust. Once you have the final number, write down exactly how you got there. Create a clear breakdown for your employee showing:

• The error period.
• The original pay vs. the corrected pay.
• The math used to bridge the gap.

How back pay is processed through payroll

Calculating back pay is only one piece of the puzzle, the next step is processing it through payroll. 

Not sure how? We’ve broken it down:

• Add the gross back pay to the next payroll run: In most cases, back pay is added to the employee’s next scheduled payroll run. This approach keeps payments consistent, ensures deductions are calculated correctly and simplifies reporting. It also reduces the administrative burden of running off-cycle payrolls unless the situation is urgent.
• Get the admin right: Back pay can either be included in the regular payslip, clearly itemised as a separate line or paid as a separate back pay payment, with its own payslip. It’s important to decide which option is best for your business. Generally, including back pay in the regular payslip is often preferred, as it provides clearer context and avoids confusion. However, separate payments may be appropriate in certain circumstances, such as large corrections or urgent underpayments.
• Organise record-keeping: Accurate records are essential when processing back pay. Employers should keep clear documentation showing:

• Why the back pay was required.
• The period it covers.
• How the amount was calculated.
• When it was paid.

Good record-keeping supports compliance, simplifies audits and provides clarity if questions arise later.

Employees should be able to see exactly what they’re being paid and why. Clearly labelling back pay on payslips helps prevent misunderstandings and reassures employees that corrections have been handled fairly and accurately. Transparency turns a payroll correction into a trust-building moment rather than a source of concern.

Tax and reporting considerations

Here it is, the word no one wants to hear… tax. And it’s important to remember that back pay doesn’t just impact take-home pay, it also has tax and reporting implications. Handling these correctly helps reduce confusion and protects your business from compliance risks.

How back pay is taxed: In the UK, back pay is generally taxed in the pay period in which it is paid, not when it was originally earned. This means income tax and National Insurance are applied through PAYE as part of the current payroll run.

Why employees may notice higher deductions: Because back pay increases gross earnings for that pay period, employees may see higher pension contributions, tax, student loan or National Insurance deductions than usual. This is normal, but without explanation it can cause concern,  especially if the back pay amount is significant.

How to explain this to avoid confusion: Clear communication is key. Let employees know:

• Why back pay is being paid.
• How it appears on their payslip.
• Why deductions may be higher for that period.

A short explanation can prevent unnecessary queries and reinforce confidence in your payroll process.

Reporting accuracy for Year-End payroll: Back pay must be reported accurately for year-end processes, including payslips, payroll summaries and HMRC submissions. Errors here can create complications later, so it’s important that back pay is processed correctly through your payroll system from the outset.

Common back pay mistakes to avoid in 2026

Running a business is tough enough without payroll mistakes to think about as well. When it comes to back pay, even small slip-ups can cause unwanted problems. And this is something all business owners and HR professionals want to avoid. 

But that good news is that most of these errors are avoidable. By understanding some of the most common mistakes, it’s easier to dodge them. So here are the biggest pitfalls to watch out for in 2026.

Forgetting secondary pay elements

Back pay isn’t always limited to base salary or hourly rates. It’s easy to overlook secondary pay elements such as overtime, allowances, shift loadings, bonuses or commissions. Missing these can result in employees still being underpaid, even after a correction has been made.

Incorrect date ranges

Using the wrong start or end date is a common back pay mistake. This often happens when pay changes take effect mid-pay period or when role changes aren’t recorded accurately. Even a one-day error can affect compliance and employee trust.

Manual spreadsheet errors

Relying on manual spreadsheets increases the risk of calculation mistakes, formula errors or outdated data being used. As payroll becomes more complex in 2026, manual methods make it harder to ensure accuracy, consistency and auditability.

Poor documentation

Failing to document why back pay was required, how it was calculated and when it was paid can cause problems later, especially if an employee queries their pay or during audits. Clear records protect both the employer and the employee.

Delayed corrections

Putting off back pay corrections can turn a small issue into a much bigger one. Delays increase the risk of disputes, reduce employee confidence and may lead to regulatory scrutiny. Addressing errors promptly helps limit their impact and shows good faith.

Simplify back pay calculations with payroll software

While it can sometimes feel like the stakes are really high when it comes to calculating back pay, it doesn’t have to be this way. With the right payroll software, correcting underpayments becomes faster, more accurate and far less stressful.

Modern payroll systems automate complex calculations, apply the correct tax and deductions and maintain clear audit trails. This all reduces the risk of manual errors and compliance issues and make it easier to itemise back pay on payslips, keep records up to date and explain corrections clearly to employees. What’s not to like?

In 2026, payroll accuracy isn’t just about paying people on time, it’s about responding quickly and confidently when adjustments are needed. Payroll software helps turn back pay from a reactive fix into a controlled, transparent process that protects compliance, reinforces trust and keeps payroll running smoothly, even when mistakes happen.

Want to know more about how Employment Hero can support with payroll?

For many HR leaders and business owners, every April means only one thing: the annual scramble to update payroll for the new tax year. It’s easy to view statutory pay increases as just another administrative headache, a mandatory box to tick so you don’t fall foul of the law.

But what if you rethink the approach?

Instead of treating these updates as a compliance chore, savvy leaders are using this moment as a powerful opportunity for engagement. By positioning pay updates strategically, you can boost morale, reinforce fairness and strengthen your team’s commitment to the business. Here’s how to turn a routine legal requirement into a genuine people win.

The current landscape of minimum wage and statutory pay increases

The cost of living is still a major talking point at dinner tables across the UK. When the government announces changes to the National Living Wage (NLW) and National Minimum Wage (NMW), employees pay attention.

Recent increases have been significant, aiming to keep pace with inflation. For a business with 50 or 100 employees, these changes can have a substantial impact on the bottom line. But beyond the spreadsheet, there’s also a human element.

Thousands of workers across the country will see their pay packets change this April. For your employees, this isn’t just a statutory update; it’s about their livelihood. If you simply process the numbers silently, you miss a massive opportunity to connect with your workforce on a topic that matters deeply to them.

Why compliance should be more than a legal requirement

Treating pay updates as a “tick-box” exercise is a missed opportunity. You update the payslip, maybe send a generic email, and move on.

If employees only hear about wage increases from the news and not from you, they might wonder if you’re doing the bare minimum because you have to, not because you value them.

On the other hand, aligning pay increases with your company culture transforms the narrative. It shows you aren’t just complying with the law; you are committed to fair pay. Companies that proactively communicate these changes see a boost in trust. It signals that the business is stable, organised and actually cares about whether its people can pay their bills.

Strategic HR approaches to statutory pay increases

So, how do you move from “compliance chore” to “HR strategy”? It starts with how you frame the conversation.

Communication strategies

Don’t let the payslip do the talking. A silent update is a wasted opportunity.

Be transparent and get ahead of the April deadline. Send out communications explaining exactly what is changing and why. If the increase is purely statutory, be honest about it, but frame it positively.

• A standard approach might look like: “Your pay has been updated to meet government requirements.”
• But a better approach may look like: “We are committed to ensuring fair pay for all our team members. In line with the new National Living Wage rates, we are updating salaries effective from 1st April.”

Even better, if you can afford to pay slightly above the statutory minimum, shout about it. It differentiates you from competitors who are merely toeing the line, and may influence employees considering other opportunities.

Linking pay increases to employee engagement

Fairness is a huge driver of employee engagement. When the gap between the lowest-paid and highest-paid shrinks, morale often dips.

Use this time to review your entire pay structure, not just the roles affected by the minimum wage. If the floor rises, what happens to the people just above it? This is known as “pay compression.” If a supervisor is suddenly earning only pennies more than a new starter, you’re going to have an engagement problem.

Addressing this proactively, helps reinforce fairness across your business, letting people know that it isn’t just about the bottom line; it’s about showing your team that experience and responsibility are valued. Acknowledging this, even if you can’t fix it all overnight, goes a long way.

Leveraging technology for compliance and engagement

Let’s face it, manual calculations are a nightmare. If you’re managing 50+ employees on spreadsheets, the risk of error during statutory updates is high, and nothing kills engagement faster than a wrong payslip.

In fact, 84% of UK businesses have experienced payroll errors, and just over half say these are a significant, recurring challenge. How companies tackle payroll is changing—2 in 3 UK businesses now manage payroll in-house using software, while 1 in 3 still outsource to a third-party provider.

Yet, a third of businesses are still relying on spreadsheets or forms, opening themselves up to even greater risk and wasted time. (Source: Employment Hero commissioned research with One Poll, UK, May 2025, n=1000, business leaders/owners in companies of 5-249 employees)

This is where your tech stack becomes your best friend. Modern HR and payroll software doesn’t just automate the maths; it frees you up to focus on the strategy. Instead of spending three days wrestling with Excel, you can spend that time crafting the right communication plan for your team.

Real results prove what’s possible. The Booksellers Association, managing payroll and HR for a team of 45, transformed their processes using Employment Hero. By moving from manual calculations and disjointed systems to an integrated digital solution, they cut payroll processing time by a staggering 75%, saving three days every month, without paying a penny more than their old provider.

The switch didn’t just streamline admin, it brought HR and compliance into one secure, central hub, laying the groundwork for scalable growth and better support for their team. Faster, error-free payroll and robust HR management meant more time to focus on what mattered most: serving their members and building a thriving workplace culture.

Tools like Employment Hero can automate these updates, ensuring you remain compliant without the stress. For many small businesses, the reality is stark. Rising wage costs don’t exist in a vacuum. They’re landing alongside higher National Insurance contributions, increased pension costs and soaring energy bills. It’s a challenging environment that puts real pressure on margins and momentum.

That’s why a streamlined approach to compliance isn’t just convenient; it’s essential. Automating pay updates gives you back hours each pay cycle and protects your business against costly mistakes. This allows you to scale without the admin burden crushing your spirit (or your weekend).

The role of HR in shaping workplace culture

HR plays a vital role in supporting and empowering the organisation. You are the architects of culture. Statutory pay increases are a perfect time to demonstrate your values in action.

If your company values “transparency” or “people-first,” this is your chance to prove it. Align your pay strategy with your broader organisational goals. For example, if you are pushing for better retention, use the pay review period to remind staff of the total value of their employment package: benefits, flexibility, and development opportunities, not just the hourly rate.

When you treat financial wellbeing as a core part of your culture, you build a workforce that feels secure and supported. That’s how you turn a regulatory requirement into a competitive advantage.

Practical tips for HR leaders

Ready to turn this April into a win? Here is your game plan:

1. Start early: Don’t wait until the last week of March. Run your reports now to see who is affected.
2. Check the “ripple effect”: Look at employees earning just above the new minimum. Do you need to adjust their pay to maintain differentials?
3. Draft your comms: Prepare clear, human-sounding emails or letters. Ditch the jargon.
4. Audit your tech: Is your current payroll system up to the task? If you are dreading the process, it might be time to look for a scalable solution that automates compliance.
5. Train managers: Your line managers will be the ones fielding questions. Give them a simple FAQ sheet so they can answer confidently.

Ready to turn pay rises into a win with Employment Hero?

Statutory pay increases don’t have to be a headache. They are a yearly opportunity to reinforce trust, demonstrate fairness and engage your team.

By shifting your mindset from “compliance” to “culture,” you can turn a mandatory update into a moment that strengthens your business. Don’t let the opportunity slip by. Plan strategically, communicate openly and use the tools available to make the process seamless.Ready to make compliance easier? Explore how Employment Hero can help you automate pay updates and focus on what really matters, your people.

We’re here to make employment easier for everyone. If you aren’t on the Employment Hero platform and want to learn more, you can book a free demo today!

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Our new ATS search and filtering tools let you pinpoint perfect candidates in seconds. Whether you’re filtering by screening answers, sliding for top SmartMatch scores, or searching for specific skills, you’ll find exactly who you need without the manual scroll.

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Core HR & Employee Management

Certification follow-ups with new triggers

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We’ve boosted Compliance Workflows with new certification triggers. Now, you can automatically send reminders when a certification is submitted, approved, declined, or expires. This powerful automation saves HR hours and keeps your team compliant with less manual effort.

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New: Probation Report

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Introducing our new Probation Report, which lets you track probation start and end dates, monitor progress statuses, and export data via CSV. Whether someone is just starting or finishing their trial period, you’ll have the visibility you need to support your team’s growth.

Employee file change approval history

Available to Platinum, Plus and Unlimited subscription tiers

Ever wonder exactly where a file change request is stuck in the pipes? We’ve added new approval level labels to give you total clarity. Whether your approvals are sequential or parallel, you can now see exactly who has signed off and who’s up next, making complex workflows a breeze to manage.

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Primary Groups updates

Available to Premium, Platinum, Plus and Unlimited

We’ve added Primary Group support to our bulk importer, making it easier than ever to keep your team structures updated in seconds. You can also use an employee’s Primary Group or Group Leader to automatically send file changes to the right person.

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Automated induction content Workflows

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Take the stress out of onboarding with our new automated induction Workflows. You can now automatically assign, track, and follow up on mandatory content based on specific triggers. It’s a total game-changer for staying compliant, helping you ensure every new starter has what they need from day one.

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Notice period variables now available in contracts

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You can now use notice period variables to auto-populate your employment contracts. By pulling information directly from employee records into the new document editor, you’ll save time and ensure your contracts are always accurate. It’s a small change that makes a big impact on your workflow.

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Deeper insights with enhanced turnover reporting

Available to Premium, Platinum, Plus and Unlimited subscription tiers

Dive deeper into your people data with our latest Turnover Report upgrades. We’ve added a sleek new table view and CSV exports, making it a breeze to analyse and share retention insights. Plus, with custom date ranges and new filters for tenure and managers, you have everything you need to build a winning retention strategy.

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New Mandatory Fields switch for onboarding employee details

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Our new Mandatory Fields settings page gives you the power to decide which information is a “must-have.” From emergency contacts to cost centres, you can now ensure your team provides the exact data your business needs to stay compliant and organized.

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Enhanced audit tracking for emergency contacts

Available to all subscription tiers

Our enhanced audit trails now include emergency contacts, so you can track every update, addition, or deletion. It’s all about giving you peace of mind and crystal-clear visibility into your team’s most vital information.

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Policy templates now default by country

Available to all subscription tiers

We’ve made policy management even easier by defaulting template searches to your specific country. Now, the most relevant templates find you first, cutting down on manual filtering so you can keep your compliance on track without the extra clicks.

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New location for Continuous Employment Date

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We’ve moved Continuous Employment Date to a more logical home under Employment Details. This change makes the field easier to find and keeps your UK statutory data safe and sound, ensuring salary updates never interfere with your team’s important milestone dates.

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Rotas, Time & Attendance

SSO support for Hero Time Clock

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We’ve added SSO support to Hero Time Clock, meaning your team can now tap in using their familiar Microsoft, Okta, or Google accounts. It’s all about making your morning clock-in as secure and friction-free as possible.

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Public holiday icons for Rotas

Available to all subscription tiers

Rostering around public holidays just got a whole lot brighter. Look out for the new umbrella icon on your rotas; it’s there to help you spot holidays at a glance. Now you can plan ahead for penalty rates and staffing shifts, making holiday scheduling stress-free and budget-friendly.

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Public holidays now visible in Time Off calendars

Available to all subscription tiers

You can now view public holidays directly within your time off calendars, appearing as handy shaded background cells tailored to each employee’s location. Want to stay organised? Use our new custom color coding to make those holidays pop and manage team availability with total clarity, accessible from the Public Holidays settings page.

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Smarter rostering with new sales data insights

Available to Platinum, Lite, Plus and Unlimited subscription tiers

Sales Data Import and Visualisation bridges the gap between sales performance and labour planning by bringing sales, rota hours, timesheet data, and labour budgets together in one view. By importing past and forecasted sales data via CSV into Employment Hero, you can track how sales are performing against labour metrics across your work sites, identify variances, and spot trends over time. This clearer connection between demand and staffing helps you make more informed rostering decisions, optimise workforce allocation, and improve overall efficiency and profitability.

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Greater control over Timesheet email notifications

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Take the wheel with your timesheet communications. Our latest update brings all timesheet-related emails into your central settings, allowing you to preview, manage, and toggle notifications with ease. It’s never been simpler to ensure your team gets the right information at the right time.

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Manage time off requests with Hero AI chat commands

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Our HR Agent can now handle time off approvals, rejections, and cancellations via simple chat commands in Hero AI. People managers can now take action on team requests instantly within the chat, making leave management faster and more conversational than ever before.

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Customise your rota’s week start day

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You can now customise the start day of your work week to perfectly match your payroll cycles. From budget tracking to scheduling rules, your entire rota view will now stay in sync with how you actually run your business.

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New visual badges for public holidays

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We’ve added handy public holiday badges to the time off request screen. Now, when you’re booking that long weekend, the system clearly labels the holiday for you. It’s a simple visual boost to help you plan your downtime with total confidence.

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Self-serve time reporting for managers

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Our new worksite-based reporting allows managers to pull their own time reports without waiting on a Global Admin. It’s secure, scoped to their specific locations, and designed to save everyone time—giving your leadership team the insights they need, exactly when they need them.

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Include booked leave in rota costs

Available to users of the Advanced Rota system

We’ve added a new feature that tracks the cost of approved leave directly within your schedule. By including these costs in your totals, you get a crystal-clear view of your true labor budget.

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Track total labor costs in rotas

Available to users of the Advanced Rota system

Our new update brings employer on-costs like National Insurance, pensions, and holiday pay right into your Rota and Timesheet views. By factoring in these extra expenses during the planning stage, you can build more accurate budgets and eliminate those “hidden” cost surprises come payday.

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Workflows & Custom Forms

Enhanced Custom Form Workflow email notifications

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Custom Form Workflows now feature an automated ‘Send Email Notification’ action. Keep stakeholders instantly informed when a form is submitted, approved, or declined. Save hours and eliminate communication gaps.

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Automated task creation for Custom Forms

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Ready to put your HR workflows on autopilot? You can now trigger automated tasks directly from your Custom Form submissions. Whether it’s alerting IT for a new equipment request or reminding managers of next steps, these automated actions keep your operations moving smoothly while saving you heaps of manual coordination time.

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Track form completions with ease

Available to all subscription tiers

Our new Form Assignment Status tab gives you an instant bird’s-eye view of who has tackled their forms and who needs a nudge. With clear “Pending” or “Completed” statuses, managing your team’s documentation is now organized, automated, and totally stress-free.

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Performance & Engagement

Learning on the go with the EH Work App

Available to Learning Management System (LMS) powered by Go1 users

Your team can now tackle their training anytime, anywhere, directly from the EH Work App. From checking due dates to finishing courses on the commute, progress stays perfectly synced across all devices. It’s a faster, more flexible way to keep your team’s skills sharp and up to date.

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Smarter company feed and milestone notifications

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We’re helping you reclaim your inbox. By turning individual Company Feed posts and milestone alerts into helpful daily summaries, we’ve cut out the noise without losing the connection. You’ll still get all the birthday and anniversary reminders you love, just in one neat, easy-to-read daily digest.

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Granular access control for 1:1 reports

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Our new 1:1 Report permissions give you total control over data visibility. You can now confidently empower your managers with the reports they need for their specific teams, while keeping company-wide 1:1 data secure and private. It’s a smarter, safer way to manage your coaching insights.

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Easier access to 9-Box Talent Grid

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Our 9-Box Talent Grid has a new home. Now found directly under Performance, this move makes talent mapping faster than ever. You can also correct rating errors on the fly and toggle exactly what your team sees. It’s talent management made simple, visible, and way more flexible.

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Rich text and AI for Management Notes

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Management notes just got a major upgrade, adding rich text formatting, bulleted lists, and file attachments. Plus, with our new integrated AI assistant, you can draft clear, professional notes in seconds.

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Platform, Security & API

Consolidated daily task emails

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We’ve combined seven task notifications into one sleek daily summary. Now, you can catch up on all your upcoming deadlines and new assignments in one go. It’s the same great visibility, just with way fewer pings, giving you more time to actually tackle that to-do list.

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Granular permission updates for Core HR

Available to various subscription tiers

Our latest update introduces granular controls for custom profile fields and document management. Please note: any notes created or unedited before January 12 will maintain their original visibility settings. However, all new notes created from January 12 onwards will follow the new note-by-note sharing model. This ensures historical data remains consistent while giving you precision control over all future communications.

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Expanded self-service with Hero AI

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We’ve supercharged our AI to handle everything from checking your team’s time zones to pulling up employment history and roster details. It’s the ultimate shortcut for those quick questions, giving your team instant answers and giving your HR department their time back.

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Shareable custom reports for Admins

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You can now share your custom report templates directly with other Admins in your organisation. Whether you want to keep a report private, share it with a specific group of Admins, or make it public for the whole Admin team, our new visibility settings ensure everyone stays on the same page with a single source of truth.

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Granular permissions for individual people reports

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You can now hand-pick exactly which people reports your managers and teams can access. No more “all or nothing” permissions, now you have precise, granular control that keeps your sensitive HR data secure while giving your team the specific insights they need to succeed.

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Brand consistency extended to email notifications

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We’ve linked our advanced branding tools to your email notifications, so your custom colors now flow seamlessly from the platform to your team’s emails. It’s automatic, instant, and keeps your company identity front and center with every notification sent.

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New delegated access for SSO settings

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With our new SSO Configuration permission, you can safely hand the technical reins to your IT experts without giving away the keys to the kingdom. It’s all about working smarter and keeping your security tighter by giving the right access to the right people.

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OpenAPI updates for timesheets and webhooks

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OpenAPI now handles worksites and positions, giving you more granular data for your custom workflows. Plus, with our new real-time webhooks, your third-party apps stay perfectly in sync the moment a timesheet is touched or a team member clocks out. It’s seamless, automated, and ready for action.

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New max data limits for Leave page APIs

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We’ve introduced new data limits for Leave pages, making our platform more resilient against system overloads and automated attacks. It’s a behind-the-scenes win that ensures your HR tools stay fast, stable, and secure for everyone, everywhere.

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New API support for organisational structures

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Streamline your organisational management with our latest API expansion. You can now automate the creation and editing of departments and positions across your worksites. It’s a major win for tech-forward teams looking to keep their HR data perfectly in sync without the manual heavy lifting.

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Improved security for offboarding API

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We’ve aligned our offboarding API with standard platform permissions, ensuring your data stays protected during every stage of the employee lifecycle. It’s a small change with a big impact on maintaining a secure, streamlined HR ecosystem.

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Experience & Interface

New email previews for organisation notifications

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We’ve added live previews to your most-used email notifications, from onboarding welcomes to payslip alerts. Now, you can see exactly what your team sees, ensuring your communications are always clear and professional. It’s a simple way to gain more confidence in your automated workflows.

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Standardised filters for Core HR reports

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We’ve standardised the filters across 12 of your favorite Core HR reports, from Probation to Policy. Now, you’ll enjoy a consistent, familiar experience every time you dive into your data, helping you find exactly what you need without the guesswork.

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Faster, cleaner navigation for EH Work app

Available to all subscription tiers

Our new “smart scroll” headers give you more screen space, while global search across every pillar means you’re never more than a tap away from what you need. With a cleaner dashboard and updated Quicklinks, the EH Work app is now snappier and more intuitive than ever.

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New filters for faster reporting

Available to all subscription tiers

We’ve rolled out a sleek, modern filter design that makes navigating your data a breeze. Starting with Reports and Custom Forms, this new look cuts out the clutter and ensures a smooth experience across all your devices. Keep an eye out as it pops up across the platform.

Payroll

New API endpoints for pay conditions

Available to Premium and Plus subscription tiers

We’ve opened up new endpoints for pay condition rule sets, making it easier to automate your payroll workflows. You can now clone entire rule sets in seconds—copying over every individual rule automatically—so you can spend less time on manual setup and more time on high-level strategy.

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Enhanced security for banking API endpoints

Available to Platinum, Plus and Unlimited subscription tiers

We’ve aligned bank details and leave categories with our standard platform permissions. It’s all part of a broader update to give you more precise control over who can access your most sensitive data.

Jump into the Employment Operating System today 

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As an HR or payroll manager, you have the critical responsibility of ensuring everyone is paid correctly and on time. Even one mistake can put employees’ trust and the organisation’s reputation at risk.

Payroll processing, therefore, is a key task and one that need to be done in the right way.

Research by Marlin PR on behalf of Sage shows that 35% of UK workers would find another job if their employer paid them incorrectly even once.

Furthermore, 51% would lose trust in their employer and resent them.

Read this article for a list of key tasks that you have to cover as an HR or payroll manager. And learn more about payroll processing too.

Here’s what we cover:

What is payroll processing?

Payroll processing is the administration of employee pay based on employee type, status, salary, wages, and deductions.

It also involves filing reports and paying employment taxes to HMRC.

These calculations must be made in enough time to follow the organisation’s pay schedule, and in compliance with applicable regulations.

Payroll processing can be complex to manage because of its many varying factors, such as:

• Pay scales
• Employee classifications
• Promotions
• Employee turnover
• Terminations.

It’s essential to have checkpoints in place at the critical points of payroll processing for as much error prevention as possible.

Key elements of payroll processing

Here are ten things that HR managers must do to ensure these calculations are accurate.

1. Start with clean data

Common mistakes such as employee misclassifications (such as typos, spelling errors or incorrect information) happen during onboarding, which impacts your employees’ health insurance and retirement benefits, and tax withholdings.

Add a checkpoint here to confirm the employee classification is correct and for your employee to verify their personal information and tax code are accurate before their first payroll run.

2. Verify timesheet information

For your timesheets, you should have a system in place that checks for inconsistencies with employee type, hours worked, and pay scale.

A preventative measure here reduces the risk of overspend on payroll.

3. Know your total payroll costs

You need to know how much each employee will cost the business beyond their wages to spot inconsistencies during each pay period.

Always factor in gross pay, benefits, tax and National Insurance withholdings for each employee.

You also need to consider Statutory Sick Pay (SSP), statutory pay for parents (maternal/paternal leave), tips, bonuses, pensions, and suspensions as they apply. Note that the rules around SSP change as of April 2026,

Using a payroll budget will help you to track and stay on top of costs related to your people processes.

4. Produce and distribute payslips

You must give each employee and worker a payslip detailing their:

• Gross pay
• Deductions
• Net pay
• Hours worked for that pay period.

Payslips can also include your employee’s National Insurance number and tax code, their pay rate, and their pay and deductions year-to-date.

You may be able to produce payslips using your payroll software if it has this feature. You can use different software if it does not.

You can either print payslips or send them electronically.

5. Make payments and file reports on time

Every month, you have to pay HMRC the tax and National Insurance you owe as reported on your Full Payment Submission (FPS) in the previous tax month minus the reductions on any Employer Payment Summary (EPS) you sent before the 19th in the current tax month.

HMRC will send you a late filing notice if you’ve paid any employees and do not send an FPS or send one late. It can also charge you a penalty unless you have a valid reason for reporting late.

Late, missing or incorrect payroll reports can affect your employees’ Universal Credit payments and tax status.

You should keep a schedule of essential payroll dates, including bank holidays, that impact closings.

6. Complete annual reports and tasks to prepare for the next tax year

You need to report to HMRC on the previous tax year and prepare for the new tax year.

This must include your employees’ pay, payroll benefits and deductions in an FPS.

To prepare for the next tax year, you’ll need to manage the payroll year end process:

7. Keep excellent records

HMRC can check your files at any time.

By keeping excellent records, you’ll be able to respond quickly if either HMRC or one of your employees has any queries regarding payroll data.

Your policies need to be clear and documented so anyone can follow them.

8. Keep up with the minimum wage

The National Living Wage and National Minimum Wage rates are legally binding and change each tax year.

The National Living Wage is the hourly rate to which all employees aged over 21 are legally entitled.

Meanwhile, the National Minimum Wage applies to people who are at least at the school-leaving age.

9. Keep up with all payroll legislation and compliance

Staying on top of payroll legislation and laws can be challenging because they are continually changing.

Real-Time Information, the Cycle to Work Scheme, and the gender pay gap are examples of how social influences can impact payroll legislation.

You should take advantage of resources such as Gov.uk to understand what changes will mean for payroll as they happen.

Attending payroll seminars, watching webinars and going to industry conferences can help to enhance your knowledge, too.

10. Simplify payroll tasks with technology

Managing the many moving parts of payroll is a lot to juggle.

There are software solutions that use automation, smart data and connectivity to save you time on manually uploading payroll data.

This can help you to generate reports quickly, reduce errors and maintain compliance.

A modern cloud payroll software solution can simplify your payroll operations, so you can focus on strategic ways that the HR function can help the business to grow.

How does the payroll process work?

If you’re doing payroll processing for the first time, you’ll need to register your business as an employer, so you can pay tax and NICs for your employees.

You can do this up to eight weeks before the first pay day rolls around.

HMRC will then send you a Pay As You Earn (PAYE) reference number and an Accounts Office reference number, which are critical for your business to run payroll .

In order for your business to be legally compliant, you’ll also need to choose a payroll processing solution that makes accurate and timely payments.

There are three options:

• Your business can run its own payroll by using HMRC-compatible payroll software
• If you have fewer than 10 employees, you can use HMRC’s free Basic PAYE Tools (or you can use payroll software)
• Alternatively, you can outsource payroll processing to a payroll provider, which can be anything from a qualified accountant to a dedicated payroll bureau.

9 steps of the payroll process

Once you set up payroll, the payroll process consists of nine important steps:

1. Collect employee information

Your business must collect and maintain accurate and up-to-date employee information, including employment contracts, payment details and tax codes.

For example, when a new team member joins a retail shop, the HR manager collects their P45 form to work out the correct tax code and puts their bank details on file in order to pay their salary.

2. Record hours worked

When processing the pay of employees who work for your business on an hourly basis, you must record the number of hours worked, the amount of overtime completed and any absences from work.

A consulting firm, for example, uses a digital timesheet system to record employees’ start and finish times. This ensures that employees receive pay for the correct number of hours.

3. Calculate gross pay

Work out gross pay by multiplying an employee’s pay rate by the number of hours they worked within a certain pay period and include overtime, holiday pay, bonuses, and commissions.

For instance, an estate agent might add commission earnings to the basic salaries of its agents and these additions must be reflected in payroll.

4. Calculate payroll taxes

An employee’s tax payments depend on their tax code and National Insurance category letter.

If you’re doing manual payroll calculations, you can use HMRC’s calculators and tax tables to check that you’re on the right track. You can also use them to check tax, NICs and student loan deductions.

If your business is using payroll software, you should be able to access these features as part of the package (but check with the vendor if you’re unsure).

5. Calculate employee deductions

Determine if there are any other payroll deductions that should be taken into account, such as pension contributions.

To make accurate payments, it’s critical to be clear about the difference between pre-tax deductions and post-tax deductions, and ensure you work them out at the right point of the payroll process.

6. Calculate net pay

Once you’ve worked out taxes and employee deductions, subtract them from the gross pay.

The resulting figure is known as the net pay, or employee’s take-home pay, which is the amount your employees will actually receive for the period.

7. Approve payroll

Typically, the payroll manager or the head of HR is responsible for approving the payroll.

But before payroll processing begins, it’s essential for them to do a comprehensive review to ensure that employees will be paid correctly and that your business will comply with all relevant laws.

8. Pay employees

You can choose to pay your employees in the form most convenient for your business—whether that’s via BACS, online payment, cheque, or even cash in hand.

Regardless of the payment method, your business must pay its employees by the agreed pay date and issue them with a record of their pay, either electronically or in hard copy.

It’s a legal requirement that the payslip shows employees’ earnings before and after deductions, the amount of deductions and the number of hours worked.

9. Report PAYE and NICs to HMRC in real time

Use Real-Time Information (RTI) to send payroll information to HMRC on or before payday. This consists of employees’ pay, deductions and PAYE and NICs information.

In addition to paying employers’ National Insurance contributions, you should also pay tax and National Insurance deducted from your employees. This is usually by the 22nd day of the following month.

How long does payroll take to process?

Payroll processing times vary depending on the size of your business, how many employees it has, the payment method it uses and whether or not it uses timesheets.

Small businesses should typically expect the payroll process to be completed within one to three days, depending on:

• The accuracy of the data: incorrect data slows down the process.
• The number of employees: the higher this is, the slower the process will be.
• The complexity of the payroll structure: the more complicated it is, the longer the process will take.
• Payroll frequency: weekly or fortnightly pay runs take more time and resources than monthly pay runs.
• Manual versus automated payroll: automated payroll is substantially quicker and more accurate than manual payroll.
• Internal versus outsourced payroll: outsourcing payroll processing tasks to third-party service providers initially takes a little longer than internal payroll, but it eventually speeds up the process and frees up internal resources to perform other tasks.

Payroll process tasks to manage

Beyond the initial payroll process, your business is legally required to keep payroll records for at least three years. This will ensure that it’s ready for an on-the-spot audit, if one is ever carried out.

Your business is also responsible for reporting any changes to employee details to HMRC, such as a change of address.

And following the end of a tax year (5 April), as part of your payroll year end duties, your business will need to:

• Send its final Full Payment Submission (and in some cases your Employer Payment Summary) for the year
• Issue P60s to employees detailing their pay and deductions (by 31 May)
• Report any employee benefits and expenses
• Complete any workplace pensions auto-enrolment duties (if your business has eligible employees).

Final thoughts

Payroll processing is a sizable yet manageable task for your business.

By following the key steps—from recording employee hours to sending RTI to HMRC—your HR manager or payroll manager can rest assured that their processes are efficient and compliant.

And by using payroll software, they simplify the process further by pooling all the critical information into one place, automating repetitive tasks and providing transparency for the purposes of compliance and auditing.

This transforms your payroll into a seamless process, guaranteeing timely payments to your employees with no extra hassle for your HR or accounts departments.

Editor’s note: This article was first published in December 2019 and has been updated for relevance.

Payroll year end is just around the corner.

But when is the HMRC deadline for payroll year end, we hear you ask?

It’s 19 April for your final submission.

And for your final pay as you earn (PAYE) payment, it’s 19 April if paying via post, and 22 April for digital payment.

Ideally, when sorting your processes, you should be dealing with just a standard month-12 or week-52 payroll with some extra steps added in to close the year.

But it’s important to know what you need to get right.

In this article, we help you get prepped and ready for payroll year end.

Here’s what we cover:

Payroll year end things to do

The key thing to remember is that your final reports to HMRC for the 2025/26 tax year must be submitted by no later than 19 April 2026.

Next, you need to prepare for the new tax year and make sure you provide your employees with their P60s by no later than 31 May 2026.

To help you with payroll year end, here’s everything you need to do, complete with key dates for your diary, so you can tick off what’s required and stay on top of your payroll.

Julie Northover supplies expert advice throughout. She’s a payroll consultant at the Chartered Institute of Payroll Professionals (CIPP), and also runs her own payroll bureau for small and elite clients.

Step 1: Check when your payroll ends

In some circumstances, your payroll might not end on week 52, and instead you may need to complete an additional payroll. This will mean your payroll ends on week 53, or possibly week 54 or 56.

This happens if two things are true:

1. You process payrolls weekly, two-weekly, or four-weekly (monthly payrolls are excluded).
2. Your usual payroll date falls on 5 April in any year (or 4 April if it’s a leap year—2028, 2032, and so on).

Notably, payrolls that run monthly always only ever have 12 months. That means there’s never a month 13, and you can skip this section and run payroll as usual.

And if your payroll is run after 5 April then you can skip ahead.

If the payroll falls on 5 April, then your payroll ends as follows depending on whether you pay weekly, two-weekly, or four-weekly:

• Weekly payroll falling on 5 April: A week 53 payroll (5 April to 11 April)
• Two-weekly payroll falling on 5 April: A week 54 payroll (5 April to 18 April)
• Four-weekly payroll falling on 5 April: A week 56 payroll (5 April to 2 May)

If you’re affected by this, you need to switch employees to a week one tax code for the extra payroll.

Most payroll software, such as Sage 50 Payroll, will do this automatically. If you’re not certain your software does this, you should check.

If the tax code status is not amended to a week one basis, it would mean most employees will pay too much tax.

Once the new payroll year begins, you should adjust the tax code again for the new tax year according to the P9X (see Step 6, below).

Step 2: Check for leavers or new starters

If employees have left your business during the past year, or there have been new starters, now’s the time to check to ensure they’ve been processed.

This might mean talking with managers and making sure clear lines of communication are open.

“Year end is a final sweep to ensure nobody has been missed,” says Julie. “It’s a time to make absolutely sure you’ve covered everything.

“Most people are very disciplined and if they take care of things like this at the end of each pay period then everything should be in order.”

It’s important that you do this before submitting your final Full Payment Submission (FPS) or Employer Payment Summary (EPS).

“Once you move into the new payroll year, it’s not always easy to go back and fix details like this,” she adds.

Step 3: Process your final pay run

You need to complete your final pay run of the 2025/26 tax year before you can run your year end.

So, you’ve worked out whether you have a week 53 (or 54/56), processed the final payroll of the tax year and have made any relevant employees leavers. Now you can send your final FPS and, if required, EPS.

The deadline for this is 19 April.

In addition, you need to record your P32 payment to HMRC.

There’s no difference to the FPS and EPS in the final pay period. Submit them as normal. Then you can proceed with the payroll year end process.

Avoiding errors that require retrospective adjustments is key. Adjustments required after 19 April will involve submitting additional FPSs or EPSs.

Before 2020/21, retrospective adjustments were done via an Earlier Year Update (EYU) but this is no longer used.

“There is a process for communicating with HMRC about anything that’s not correct,” says Julie. “But it’s an admin burden that payrollers like to avoid where possible.

“It’s an unwritten rule among the payroll profession that we will do everything we can to avoid the necessity for retrospective adjustments after the tax year end is complete.”

Step 4: Process your year end

Using the example of Sage 50 Payroll again (as this step may differ for other payroll software), at the end of the tax year, choose the tax year you want to complete on the Year End screen and submit your final EPS to HMRC.

Take note, this final submission is different to those normal EPS submissions you send to HMRC either on a monthly or quarterly basis.

Your final EPS submission will include your end of year declarations. If applicable, it will feature the date your business ceased trading.

Now you can process your year end and make your final submission for the 2025/26 tax year.

Once this step is complete, you can produce your P60s.

Step 5: Get your P60s ready

All your employees who are working on the final day of the tax year, on 5 April, need to receive a P60 from you by 31 May.

This includes deemed employees who are now on your payroll because of the Intermediaries Legislation (IR35).

This important document summarises their pay and deductions for the year, and is perhaps the final task to complete following year end.

Using your payroll software, you can generate your P60s and securely share them online with your employees, usually in the same way you share payslips.

There’s also the option to print them off if you need to.

You might be tempted to run the P60 creation as soon as possible, but it certainly shouldn’t be done before the final payslip has been issued, plus the usual time required for feedback from employees about any errors.

“You send payslips out 12 months of the year, if you’re running a monthly payroll,” adds Julie.

“And then once a year you send another document, the P60, which is just summarising those 12 payslips.

“So, if you’ve not had any pay or reconciliation issues with the 12 payslips, you shouldn’t have an issue with the P60.”

Step 6: Check the P9X and start your new payroll year

“There are two processes that payroll professionals often see as one,” says Julie. “They are closing one tax year off and opening up the next.

“The new year checklist is bigger than the year end checklist nowadays.

“So, as soon as you close off and before you start your month one (or week one) payroll, you need to refer to the P9X.”

The P9X is the document published by HMRC that explains what tax codes employers must change or carry forward on 6 April.

Software vendor support documentation also summarises this information, so that could be another port of call before the first pay run of the year.

However, the government web pages should be considered the primary source of any information.

Other work for the new payroll year involves checking other thresholds such as for student loans and postgraduate loans.

“These will probably be hard-coded into the yearly updates from your software vendor,” says Julie.

“But you should not sit on your laurels and assume everything’s correct. You need to check to ensure everything is accurate.”

There are some things that must be done manually by the payroll team:

• If somebody has deferred National Insurance, their CA2700 certificates are only valid for one tax year. Therefore, renewed certificates are required before you can process pay for the new tax year using the deferred National Insurance contributions (NICs) insurance category letter.
• Those receiving childcare vouchers should be reviewed to ensure they do not need an amendment to the value they are eligible to receive. As part of the PAYE process, HMRC requires you to complete a Basic Earnings Assessment (BEA) prior to each first pay period in a new tax year for anyone who has been in receipt of childcare vouchers since 6 April 2011.

Step 7: Payroll changes to know for 2026/27

A handful of legislative changes affect payroll from April 2026 onwards. Of course, you shouldn’t forget the increases in statutory wages and adjustments to National Insurance announced in the Autumn 2025 Budget. See also our guide to calculating payroll tax, which lists Income Tax and National Insurance rates for 2026.

Statutory Sick Pay

The biggest change for 2026/27 onwards is the overhaul of Statutory Sick Pay (SSP).

For 2025/26 and earlier periods, the employee’s average weekly pay needed to exceed the Lower Earnings Limit in order for the employee to be entitled to SSP.

SSP would then only be paid from the fourth day of sickness.

From 6 April 2026, all employees will be entitled to SSP, regardless of their earnings, and SSP will be paid from the first day of sickness.

The amount of SSP they receive will depend on their earnings. If 80% of the average weekly pay is less than the weekly rate of SSP (£123.25 from April) then they will receive 80% of their average pay. Otherwise they’ll get the weekly rate.

Ultimately, this means more employees are now eligible for SSP, potentially increasing employer costs. Those that were previously entitled to SSP will receive less if their average earnings are less than £154.06.

Transitional protections apply for those already on SSP before 6 April 2026 and such employees will continue under the previous system.

Paternity leave

Paternity leave and unpaid parental leave become a right from day one of employment as of 6 April 2026.

For 2025/26 and earlier periods, the employee needed to have been employed for 26 weeks to be entitled to paternity leave, and 52 weeks for unpaid parental leave.

Notably, this change affects only leave entitlement. The employee still needs to have been employed for 26 weeks before they are entitled to paternity pay.

Mandatory payrolling of benefits in kind

Mandatory payrolling of benefits in kind (BIK) was originally due April 2026 but has been delayed to April 2027. You should still be preparing for its impact, though.

Small Employers Relief

Employers can currently reclaim 92% of employees’ Statutory Maternity, Statutory Paternity, Statutory Adoption, Statutory Parental Bereavement, Statutory Neonatal Care, and Statutory Shared Parental Pay.

If a business has paid £45,000 or less in Class 1 National Insurance in the last complete tax year (not including any reductions like Employment Allowance) they can qualify for Small Employers Relief, and reclaim 100% of the Statutory Payment, and an additional 8.5% compensation.

From 6 April 2026, the rate of compensation will increase from 8.5% to 9%. Employers who qualify for Small Employers Relief will therefore be able to reclaim 109% from HMRC.

Payroll year end dates to be aware of

Some of the key dates around payroll year end have been highlighted above, but here they are again below, along with some other payroll dates that you need to be aware of.

It’s worth adding these to your calendar if you haven’t got them in there already:

5 April

• The 2025/26 tax year ends on this date.

Before 6 April

• Update your employee payroll records.
• Time to update your payroll software.

6 April

• The new tax year (2026/27) begins.

19 April

• This is the deadline for the final submission of the 2025/26 tax year.

22 April

• This is the deadline for month 12 PAYE and online payment submission.

By 31 May

• Your employees need to receive their P60s by this date.

By 6 July

• You need to report on expenses and benefits; you may be able to use your payroll software to do this.

6 July

• This is the deadline to submit your P11D and P11D(b) forms.

22 July

• On this date, payment of Class 1A National Insurance contributions on Benefits in Kind must be with HMRC (note that 19 July is the deadline if not using digital systems).

Final thoughts on payroll year end

See? Payroll year end doesn’t need to be stressful.

With a bit of forward planning, you can get your processing done with ease before you put preparations in place for the new tax year.

Editor’s note: This post was originally published in March 2018 and has been updated yearly for relevance.

Making Tax Digital (MTD) for Income Tax is forcing a pricing reset across the profession.

You’re being asked to do more work, and more often, with tighter deadlines.

Meanwhile, your clients still expect fees that were set for a once-a-year service.

In this article, we explore how MTD for Income Tax pricing needs to change in response, looking at why traditional annual fee models no longer hold up, and how you can rethink pricing in a way that’s fair to clients and sustainable for your practice.

Here’s what we discuss:

Why MTD has made pricing unavoidable

For years, income tax pricing has been built around an annual event.

Records came in, work ramped up, returns were filed, and fees followed a familiar rhythm.

We don’t need to remind you that MTD changes that completely. You’re now expected to engage with client data throughout the year and submit updates at least every quarter (although more frequent is better!).

More than this, quarterly updates mean you must maintain a high standard for record quality on an ongoing basis.

That shift has exposed a growing gap between the work being delivered and the fees many practices are charging.

You might already feel this in your practice, with capacity feeling tighter, deadlines arriving all the more frequently, and teams managing multiple submission windows rather than one intense period of work.

At the same time, clients see tax as something that happens once a year.

Avoiding a pricing conversation doesn’t make this easier. It simply pushes the pressure onto your people and your margins.

Understanding what quarterly updates actually involve

Quarterly updates aren’t a full tax return but, in the same breath, they aren’t a light touch exercise.

Each submission still requires records to be acquired, then reviewed. Figures need to be sense-checked and errors to be corrected before anything is filed.

When you multiply that effort across dozens or hundreds of clients, the time commitment becomes significant very quickly.

It might not be just the quantity of work that’s problematic. Even if each update takes a relatively small amount of time, completing them all within fixed submission windows places real strain on systems and staff.

And that’s before you factor in chasing missing information, answering client questions, or dealing with poor quality records.

Some firms have questioned whether it’s acceptable to take a relaxed approach during HMRC’s penalty grace period. This means HMRC will not penalise late quarterly updates in the first year.

This is not a solution. Quarterly updates remain a legal requirement, and knowingly failing to comply can breach your professional conduct rules (PCRT) as laid down by your membership organisation. Submitting figures you know aren’t accurate, or skipping updates altogether, not only puts your practice and job at risk. It undermines trust.

MTD requires proper processes and consistent delivery, and pricing needs to reflect that reality.

Why annual pricing no longer reflects the service you provide

When fees are tied to the annual tax return, much of the work you will do under MTD goes unseen and unpaid.

The effort is spread across the year, but income often isn’t, which creates pressure on cash flow and limits your ability to invest in people and technology.

There’s also a visibility issue. Clients see the final tax return but, depending on their service level, might not see the repeated work that happens behind the scenes throughout the year.

They don’t understand that five or ten phone calls chasing them for paperwork every three months is a drain on your resources—and therefore your bottom line. They only see the fact the quarterly update is completed.

Without context like this, price increases can feel sudden or unjustified from their perspective. But it’s very hard to explain and it’s where many pricing conversations stall.

You feel underpaid for the work involved, and clients feel surprised or frustrated by higher fees.

Moving away from annual pricing and towards a model that reflects ongoing service helps close that gap.

AI changes the economics of MTD work

AI is now a practical part of modern accountancy, particularly when it comes to handling the volume and frequency of MTD submissions.

And with MTD, it’s simply the only way forward.

AI reduces manual processing, improves record quality, and helps ensure updates are accurate and on time.

Sage’s MTD AI Agent is part of Sage for Accounting, and is designed to handle repetitive groundwork at scale. It can automatically segment clients based on complexity, set up tasks and reminders, chase documents, and flag potential issues early. It’s like having an additional member of staff dedicated to MTD.

None of this replaces professional judgement, but it frees your team to focus on review, advice, and client communication.

This has a direct impact on pricing. When routine work is handled efficiently, you can offer clearer packages, predictable fees, and better service without increasing headcount at the same rate as your client base.

It also strengthens your value story. Clients benefit from cleaner data, fewer surprises, and a smoother experience across the year, which makes pricing discussions far easier.

Rethinking MTD for Income Tax pricing

Many practices are moving away from annual fees towards monthly retainers that reflect year-round work. This aligns income with effort and makes costs easier for clients to plan for.

Tiered pricing is another common approach. Packages might be based on transaction volume, business complexity, or the level of support required. Clients who handle more themselves pay less, and those who want full support pay more.

Some firms are bundling advisory touchpoints into their MTD offering. Quarterly updates create natural moments to discuss cash flow, tax estimates, two or three-year projections, and business performance. Including these conversations within your pricing helps clients see clear value beyond compliance.

What matters most is that clients gain a clear understanding. Clients need to understand what’s included, what isn’t, and how their choices affect the fee.

Tools like GoProposal, now part of Sage for Accountants, can help formalise this through clear letters of engagement that set expectations from the start.

The Do It For Me client

Many small business owners are already accustomed to using technology, provided the tools are simple enough and training resources are available.

But as most accountants and bookkeepers know, there’s a stubborn minority of clients who are entirely the opposite.

We can call these Do It For Me clients. They prefer a hands-off approach and want an accountant to handle every aspect, including organising the data and reconciling against bank accounts. Above all else, these clients value the peace of mind that compliance is handled on their behalf.

It might surprise you but this approach is entirely possible for MTD for Income Tax.

An add-on for accountants and bookkeepers to use alongside AutoEntry’s data entry automation, and available within Sage for Accountants, AccountsPrep provides a central platform perfect for handling clients who don’t have or need a full ledger.

Accountants and bookkeepers can take bank statement data as the source of truth, and scan in the data via AutoEntry. They can then quickly use AccountsPrep to sort, categorise and prepare to trial balance without the need for the back and forth to the smallest of clients.

For example, clients need only output three months of bank statement PDFs each quarter for the quarterly update. They can do this using their banking app. Once the accountant or bookkeeper receives these, then reconciling in a way fully compliant with MTD can take minutes.

Together, AutoEntry and AccountsPrep provide a robust, integrated approach to MTD (and Self Assessment), simplifying financial administration and enhancing data accuracy for every one of your sole trader and landlord clients.

Example of MTD pricing tiers you can adapt

It’s one thing to say pricing needs to change, but understanding what that actually looks like in practice is another.

Many firms are now structuring their services in tiers as a way to anchor value properly and make higher levels of support feel justified.

Here’s a practical example you could adapt to your own client base.

Bronze: Compliance only

Designed for confident DIY clients who are comfortable using software and keeping their records up to date.

• Client maintains bookkeeping within agreed software
• You review records quarterly
• You submit quarterly updates
• Basic end of period adjustment
• Email queries only
• Monthly fee from £35 to £50 plus VAT, plus software
• Final year end tax return priced separately

Silver: Compliance plus light support

Suitable for small sole traders or landlords who want more reassurance.

• Bookkeeping support for simple businesses
• Quarterly review and submission
• Basic tax estimate after each quarter
• Limited phone or email support
• Clear turnaround expectations
• Monthly fee from £65 to £85 plus VAT, plus software
• Final digital tax return priced separately

Gold: Compliance plus proactive advisory

Designed for growing sole traders, multiple property owners, or more complex affairs, with a full oversight and forward-planning view.

• Full quarterly bookkeeping
• Quarterly updates submitted
• Quarterly cash flow and profit summary, or even two or three-year projections (tip: Futrli by Sage is ideal for this)
• Tax estimate and planning conversation
• Priority support
• Ongoing advisory input
• Monthly fee from £100 to £150 plus VAT, plus software
• Final digital tax return included or priced at a reduced rate

Why tiers work psychologically

Tiered pricing does two important things:

First, it reframes the conversation from “why are fees going up?” to, “which level of support do you want?”, shifting control to the client while maintaining your boundaries.

Second, it makes mid and higher tiers feel reasonable.

If Bronze looks lean and self-managed, Silver and Gold feel supportive and safer.

Even if you expect most clients to choose the middle option, the structure guides that decision.

A few practical tips before you implement tiers

Here’s what to bear in mind:

• Be explicit about software requirements. Limiting bookkeeping platforms reduces chaos and protects your margins. Tip: With Sage for Accountants, you can offer Sage Accounting to clients while receiving a significant RRP discount that grows with the more subscriptions you add to your plan.
• Separate the final tax return clearly so there’s no confusion about scope.
• Review pricing after year one. MTD workflows will evolve and your fees should reflect real experience, not guesswork.
• Don’t underprice quarterlies. Even small per-quarter fees add up quickly across your client base.

Most importantly, align pricing with capacity.

If you don’t have the team to deliver high-touch support at scale, your Gold tier needs to be priced accordingly.

Using MTD to strengthen your service offering

MTD gives you more frequent insight into your clients’ financial position, and that visibility creates opportunities to add value in practical, meaningful ways.

You might offer simple quarterly tax estimates, cash flow snapshots, or management summaries that help clients plan ahead.

These don’t need to be complex advisory projects to make a difference. Even small insights can shift how clients perceive your role.

For some clients, MTD will highlight a need for more support. For others, it may confirm they’re comfortable doing more themselves. Both outcomes are useful. They allow you to segment your client base and focus your time where it has the greatest impact.

Over time, this leads to a more resilient practice with clearer positioning and healthier margins.

Communicating MTD value in a way clients understand

Most clients don’t care about the mechanics of quarterly submissions. They care about outcomes.

When you talk about pricing, focus on what they gain: better visibility of their tax position, fewer unexpected bills, more confidence that they’re meeting their obligations, and less stress at year end.

Be open about why fees are changing. Explain the additional work involved and the systems you’re using to deliver it efficiently. Position MTD as a service you’re managing on their behalf, not an inconvenience you’re passing on.

You are the gateway to HMRC for clients, and you’re helping clients comply with an HMRC requirement.

Starting these conversations early gives clients time to adjust and reduces friction later.

Managing price increases with existing clients

Price increases are easier to handle when they’re planned rather than reactive.

Ideally, you introduce new pricing structures before clients are mandated into MTD, with a clear explanation of how the service is changing.

“Early bird offers” that are discounted slightly from your usual rate for 12 months will boost sign-up rates and minimise any client urge to shop around (although you should highlight that, because you already manage their accounting data and know it well, your practice can make the transition to MTD as seamless as it can be).

Some practices phase increases over the first year, while others introduce new packages and allow clients to choose their level of support. There’s no single right approach, but consistency and transparency matter.

When clients push back, return to the service you’re providing and the risks you’re managing for them. If a client genuinely doesn’t see the value, that can prompt a useful conversation about fit.

Final thoughts

MTD has accelerated pricing discussions many practices needed to have anyway.

It has changed the nature of Income Tax compliance, and pricing models built around a single annual task no longer reflect the work involved.

With the right structure, the right use of AI, and clear communication, MTD can strengthen your practice rather than strain it. It gives you an opportunity to modernise pricing, improve service quality, and build a more sustainable business.

Handled well, MTD can become more than just a regulatory obligation, and also a key foundation for growth.

Payroll tax can be calculated manually, but thankfully we have software to help make it easier.

Payroll tax is a notoriously confusing area for small business owners, especially those new to managing employees. Getting it wrong can lead to penalties, employee dissatisfaction, and a lot of wasted time.

In this comprehensive guide, we break down the process of calculating payroll tax in the UK, and provide clear explanations and practical advice to help you navigate the complexities of the Pay As You Earn (PAYE) system, National Insurance contributions (NICs), and other deductions.

Here’s what we cover in this article:

What are payroll taxes?

In the UK, payroll taxes typically refer to the amounts you deduct from your employees’ wages and pay on their behalf to HMRC.

This includes income tax under the PAYE system, and National Insurance contributions (NICs). Essentially, these taxes fund things like the NHS, state pensions, and other public services.

PAYE is HMRC’s core system for calculating and collecting income tax and NICs directly from anyone formally employed.

As an employer, when managing payroll you’ll be dealing primarily with these two components. But there might be other deductions too, depending on your employee’s circumstances.

Parallel to the payroll tax deducted from employees, you as the employer must also pay certain contributions calculated in proportion to the employees’ wages.

This mainly refers to your own employers’ National Insurance contributions, but in some situations includes the Apprenticeship Levy (which will evolve into the Growth and Skills Levy). More on that later.

If you don’t fully understand how these taxes and the PAYE system work, you risk incurring penalties.

But don’t worry, as further on in this article we’ll explain how to keep your business compliant.

Manual payroll tax calculation: Step-by-step process

Deducting payroll tax is part of being a responsible employer, and there’s a thriving market in software to help you do it.

But if yours is a very small business or a start-up, you might not have sufficient budget for purpose-built software.

In that case, you’ll want to know how to calculate payroll tax yourself. It’s fairly simple maths: just a matter of following the right sequence, double-checking your figures, and keeping detailed records.

And HMRC offers various free PAYE calculators, which are ideal for individuals or small employers. The basic sequence is:

• Gather each employee’s pay details
• Work out their gross pay for the period
• Calculate the income tax and National Insurance due
• Check for other contributions that have to be deducted
• Register your employee’s net pay figure, including extras such as commissions
• Notify HMRC.

Now, we’ll go through these points one by one:

1. Gather details

The obvious starting point is the amount you paid your employee. But there are other details that you’ll need on hand:

• Gross pay is the total amount your employee earns before any deductions.
• Employee tax code specifies their personal allowance, the amount they can earn before paying income tax. Each employee’s personal allowance depends on whether they have additional sources of income, or whether they’re married, among other factors.
• Tax band, which means the tax calculation category your employee falls into depending on the total amount of taxable income they earn. It determines the percentage of taxable income that will be withheld as tax.
• Payment date and period covered. This is not always a full month. Some contracts may specify alternatives such as weekly or biweekly.
• Taxable income, such as the portion of gross pay that’s subject to income tax, calculated after deducting the personal allowance.

The final point, taxable income, may be further reduced by other tax-free allowances or expenses that can be excluded.

“Tax-excluded expenses” is a bit of a misnomer because it makes it sound like they’re tax-free at the time of spending.

The tax-free part in fact refers to a waiver on the amount you reimburse to the employee after they claim their expenses. That reimbursement is technically part of their pay, but it’s tax-free.

Expenses that fall within this bracket include:

• Travel expenses, including accommodation, fuel or public transport
• Business equipment, such as laptop or phone
• Working from home costs, such as internet access
• Entertainment, such as a formal dinner for meeting clients

2. Calculate income tax

Here, you’ll refer to the tax band mentioned above—your highest-earning employees will pay tax at a higher rate than those earning basic pay.

HMRC provides tax calculators and tables that tell you the relevant tax rate for each tax band. Alternatively, you can look up the rates on the HMRC website.

These are the figures for the 2026/27 tax year in England, Wales, and Northern Ireland:

Tax band	Taxable income range	Tax rate
Personal allowance	Up to £12,570	0%
Basic rate	£12,571 to £37,700	20%
Higher rate	£37,701 to £125,140	40%
Additional rate	Above £125,140	45%

It’s worth noting that, although the Welsh government has the ability to change income tax rates, it has kept them aligned with England. However, this could change in future.

These are the figures for the 2026/27 tax year in Scotland:

Tax band	Taxable income range	Tax rate
Starter rate	Up to £3,967	19%
Basic rate	£3,968 to £16,956	20%
Intermediate rate	£16,957 to £31,092	21%
Higher rate	£31,093 to £62,430	42%
Advanced rate	£62,431 to £125,140	45%
Top rate	Above £125,140	48%

Across the UK, an individual’s personal allowance goes down by £1 for every £2 of net income that’s above £100,000. This effectively means that the personal allowance drops to zero if their income is above £125,140.

In all cases, both the allowance and the tax band (in effect, the tax rate) determine how much of an employee’s gross pay will be removed for tax.

Applying a percentage to a single figure is easy enough. But when you do this for lots of employees, it’s easy to slip up.

Keep a record of your calculations, as you’ll need to report these figures to HMRC, and if there’s an anomaly they will be able to spot where it occurred.

3. Calculate National Insurance contributions (NICs)

Both you and your employee pay NICs. But, as with income tax bands, the actual amount deducted varies from person to person.

The rate of NICs is “reserved”, meaning the UK parliament sets them and they do not change depending on whether you live in England, Scotland, Wales or Northern Ireland—unlike Income Tax, as we discussed above.

Your employees’ contributions depend on their earnings and National Insurance category. Again, HMRC’s NIC calculator comes in handy for working out the correct amounts.

For the 2026/27 tax year, there are over a dozen employee NIC calculations, reflecting age or whether they served in the armed forces, for example. And then for each category there are different tiers of percentage rates reflecting the amount earned.

Confusingly, HMRC refers to these as thresholds, rather than rates or bands.

You’ll calculate NICs based on each employee’s gross earnings above the primary threshold, which is the limit at which pay-based NIC contributions kick in.

For your own NIC calculation (employers’ NIC), in addition to the earnings-based component, you could incur NIC contributions on perks you give to your employees, such as a company car or phone, on the compensation they receive if they’re made redundant, and even on awards they receive for sporting activities. Note that benefits in kind (BIKs) become a mandatory part of payroll as of April 2027.

4. Deduct other contributions

Besides income tax and NICs, you might need to deduct other contributions from your employees’ pay.

These could include:

• Student loan repayments
• Pension contributions
• Holiday pay

Note that payments for maternity/paternity leave are not classed as deductions.

If an employee is repaying a student loan, the instalments due are usually based on their earnings, so it makes sense that the employer has to take care of that.

Pension contributions can be either automatic (auto-enrolment) or voluntary. In the former case, it’s the employer’s responsibility to ensure that payments are made.

In the latter, the employer is under no obligation, but may decide to take care of it since the channels are already in place. They may even decide to match the employee’s voluntary payments.  

An extreme case of an additional deduction is when an employee has defaulted on some debt—such as council tax or child maintenance—and a court rules that payments should come directly out of their pay. This is known as an “attachment of earnings” order.

5. Calculate net pay

Net pay is what your employee takes home after all deductions. It’s what’s left after you’ve subtracted income tax, NICs, and any other contributions from their gross pay.

However, it should also include any overtime, bonuses, commission, and statutory payments on top of the agreed regular wages or salary.

This is the amount you pay into each employee’s bank account.

It’s a legal requirement that the payslips you provide clearly show all deductions. This not only helps employees understand their earnings, but is good practice all round, promoting transparency.

6. Notify HMRC and issue payslip

The PAYE system requires that you report these figures to HMRC on or before the day you pay your employees.

HMRC’s standard document for this is the Full Payment Submission (FPS), which you can submit online or through payroll software. This is a legal requirement, detailing the payments and deductions made.

The law also requires that you provide each employee with a payslip that clearly shows their gross pay, all deductions (income tax, NICs, student loan repayments, pension contributions, and so on), and their net pay.

This helps employees understand how their pay is calculated.

How much is employer tax?

As an employer, you have your own tax obligations. You’ll pay employers’ National Insurance contributions, which are based on your employees’ combined earnings, above a certain threshold.

For the 2026/27 tax year, employers pay NICs at a rate of 15% on employee earnings above £5,000 per year (£96 per week). This is calculated based on gross earnings, before the employees’ NICs are deducted.

You may claim up to £10,500 Employment Allowance. Note that the previous £100,000 NIC liability eligibility cap was removed from April 2025, which meaningfully expands what you might be able to claim.

Note that not all employers are eligible—for example, sole directors of limited companies are usually not eligible.

Also, the calculations for employers’ NICs will vary based on factors such as your employees’ age and employment status. You can find the latest rates and thresholds on the HMRC website.

If your annual payroll bill exceeds £3 million, you’ll also have to pay the Apprenticeship Levy/Growth and Skills Levy, which is charged at 0.5% of your monthly pay bill. The government then puts this money towards apprenticeship training schemes across the UK.

Common payroll tax calculation mistakes

Even with careful attention, mistakes can happen if you manage your payroll documentation manually.

Common errors include:

• Using outdated tax codes or rates: regulations, official guidelines and HMRC methodology are subject to change, so it’s easy to fall behind on the latest updates. You can stay on top of the correct tax codes and rates by subscribing to HMRC email alerts or regularly checking its website for updates. If you use payroll software, make sure it’s up to date.
• Incorrect calculation of NICs: in the above sections, we glossed over the true complexity of the different NIC categories and thresholds—that’s a separate article in itself. It can be a minefield of potential errors due to misinterpreting the rules or using incorrect thresholds. Double-check your calculations against HMRC’s NIC tables, use online calculators, or seek professional advice if you’re unsure about the correct categories and rates.
• Overlooking other deductions: while employees should keep you informed about their circumstances, it’s ultimately your responsibility to ensure you have accurate and up-to-date information. So it’s also down to you to be aware of other deductions such as student loan repayments or pension contributions. Don’t just focus on the main deductions like income tax and NICs. Implement a system for regularly collecting and updating employee data, such as an employee self-service portal or periodic reviews, based on a checklist of all possible deductions. Those details can later be plugged into payroll software for rapid calculation of the right deduction types.

If you do find a mistake, correct it immediately and inform HMRC so you avoid penalties or employee disputes.

Penalties and fine print to be aware of include:

• Late filing: £100 or more per month, depending on the size of your payroll.
• Late payment: starting at £100 per late submission, but can vary depending on the specific circumstances and the lateness of the payment. They also carry interest, typically at 2.5% above the Bank of England base rate.
• Compliance checks: HMRC can inspect your records and impose further penalties for underpayment or non-compliance.

Tools to simplify payroll tax calculation

Thankfully, there are many tools available to simplify payroll tax calculations. Payroll software can automate calculations, generate payslips, and submit reports to HMRC.

These tools, together with HMRC’s online calculators and resources, can save you time and reduce the risk of errors.

Consider using a cloud-based payroll system for easy access and updates.

If you’re new to payroll, don’t hesitate to seek professional advice. An accountant or payroll specialist can provide valuable support and ensure you’re compliant.

Accurate and fast payroll tax calculation is key

A good understanding of the different components of payroll tax ensures that your employees are paid correctly and that your business remains compliant with HMRC regulations.

Whether you choose to calculate payroll manually or use HMRC-compatible payroll tax software, there’s no escaping the need to stay informed and organised, because accuracy is the key to avoiding unexpected costs.

Don’t be afraid to outsource this task to people in the know or simplify the process by investing in the best tools available.

Your people may have been informally automating for years—copying and pasting between systems, building workarounds in spreadsheets, reusing old emails, or finding the quickest way to get something done when your software didn’t quite fit.

The problem is that this kind of automation is invisible, inconsistent, and often relies on senior people’s time.

It’s also very easy to get stuck in “AI research mode”, where you’re reading, watching demos, and experimenting, without seeing meaningful results in your day-to-day practice work.

The fastest way out of that loop isn’t a big transformation project. It’s picking one or two workflows that you know are quietly draining your time every week and fixing those first.

This article focuses on what to automate first. Not in theory, but in the next 30 days.

Here’s what we cover:

Start with time, not technology

Before thinking about tools, ask yourself and your team a simple question: where does time quietly leak out of your practice every week?

It won’t be the big, strategic work. Not advisory conversations. But the surrounding friction.

Often, your time drains live in the gaps between systems and people:

• Chasing missing information from clients
• Reformatting or extracting data from emails, PDFs, and spreadsheets
• Rewriting proposals from notes, calls, or memory
• Setting up jobs, reminders, and follow-ups that already feel repetitive
• Updating multiple systems that don’t quite talk to each other

None of these tasks are difficult. But they’re constant.

And because they sit between “real work,” they’re rarely tracked, priced, or challenged.

Some accountants describe this as “death by handover,” where you see information moving from WhatsApp to email, from email to practice software, from practice software to spreadsheets, with small delays and rework at every step.

That’s why these types of workflows are the best place to start:

• The risk is low (you’re not automating judgment or advice)
• The time cost is high (they happen every day, for every client)
• The impact is immediate (less chasing, less copying, less mental load)

If you review your processes, it’s unlikely you’ll discover new problems. Instead, you’ll notice how much time you’re already spending working around your systems.

Once you see that, the maths becomes hard to ignore.

Saving, for example, 10–15 minutes a day doesn’t sound dramatic until you add it up.

12 minutes a day ≈ 1 hour a week ≈ 48 hours a year, per person, per task

Multiply that across a team, multiple workflows, and a year—suddenly AI stops being about cool innovation.

It becomes about getting your time back. This is where AI earns its keep.

If you want a clearer picture of what AI can realistically handle in an accounting or bookkeeping firm today—without the hype—the Start Strong with AI Guide for Small Business breaks down practical use cases, limitations, and where AI genuinely fits into everyday work.

Top 3 workflows to automate

Here are the top three workflows to automate.

1. Client chasing and reminders

Chasing clients for missing information may be one of your biggest hidden drains on time and energy.

It sits in the “friction” category of practice work: the small, repetitive gaps between systems and people where time quietly leaks away every week.

These micro‑tasks aren’t difficult, but they’re constant, untracked, and mentally exhausting.

AI-assisted workflows help reduce that friction by automating the repetitive parts of the process. They can:

• Generate reminder messages automatically
• Adjust tone (polite, firm, final reminder)
• Trigger follow-ups when documents are missing
• Notify you when human judgment is needed

The key point is that you keep full control. AI shouldn’t decide who to chase or what’s acceptable, but it could and should stop you from writing and sending the same message over and over again.

That shift from manual repetition to automated consistency is where your firm can start to feel the impact immediately.

This is also one of the clearest examples of a “low‑risk, high‑frequency workflow”: a task that happens daily, carries no judgement, and delivers instant time savings once automated.

Real businesses are already seeing this reduction in admin.

For example, Tyne Chease saved around 14 hours a week on admin after introducing automated invoice-related follow-ups through Sage Accounting and Copilot—demonstrating how even simple, consistent reminders can transform workloads.

Client chasing is often the fastest “30-day AI win” because it doesn’t change the substance of the work—just the process—letting you spend less time sending emails, and more time on the work only you can do.

2. Proposals and engagement letters

Proposals quietly consume more senior time than you realise.

They don’t arrive often enough to feel like a broken system—but when they do, they usually land with partners or senior managers. Not because the work is complex, but because it requires judgement, context, and confidence.

The pattern is familiar:

• Notes taken during a discovery call
• A delay while other work takes priority
• A proposal written from memory, emails, or half-complete notes
• Multiple revisions to get scope, tone, and pricing right

As practitioners put it: “High-value thinking wrapped in low-value execution.”

Here, AI shouldn’t replace your judgment, but it can remove the blank page.

Used well, AI can help you:

• Draft a first-pass proposal from discovery notes or call transcripts
• Pull in standard services, pricing bands, and engagement terms
• Format documents consistently
• Reduce turnaround time from days to minutes

That shift matters.

Instead of starting from scratch, you can start at 80% complete, allowing you to review and refine rather than recreate.

Speed also improves quality. Faster proposals mean:

• Better recall of client pain points
• Language that reflects the actual conversation
• Stronger momentum and higher conversion
• Less senior time lost to admin

Nothing is sent without human approval. AI accelerates preparation. People retain responsibility.

Where structured proposal tools fit: You can use tools like GoProposal by Sage to bring structure, consistency, and transparent pricing to proposals and engagement letters.

Accountants consistently complain that time sinks happen before they even open a system—pulling notes together, shaping scope, and drafting the first version.

This is where AI becomes an accelerator.

AI can draft the initial proposal content, while GoProposal ensures:

• Compliant engagement letters
• Consistent pricing
• Professional templates
• A standardised process for every prospect

The result is a joined-up workflow that removes low-value admin while preserving judgement, tone, and pricing integrity.

That combination is exactly what firms like Bee Motion have leaned into.

By systemising proposals and engagement letters as part of a wider workflow (reducing the manual effort around drafting), you can save significant time each day, increase average fees, and scale without losing control or burning out senior staff.

Don’t think about AI “writing proposals”. Think about removing friction so your experienced people can focus on higher-value work.

3. Data extraction and organisation

This is where your firm may feel strain every day.

Clients don’t send information neatly. They send it in whatever format is fastest for them:

• PDFs attached to emails
• Spreadsheets exported from other systems
• Photos of receipts taken on phones
• Bank statements forwarded via email or WhatsApp

By the time that information reaches your accounting system, it’s already passed through multiple inboxes, folders, and people.

Practitioners consistently describe this as the messiest handover in the firm. Not because the work is complex, but because it’s fragmented.

AI doesn’t fix this by replacing judgement. It fixes it by reducing manual movement.

Used well, AI tools can:

• Extract data from PDFs, images, and spreadsheets
• Categorise transactions based on context and history
• Store files automatically in the correct client folder
• Flag missing data or anomalies for review

The real shift isn’t speed. It’s where attention goes.

Instead of:

• Copying figures between systems
• Renaming and relocating files
• Checking whether something has been missed

Your team can move into an oversight role:

• Reviewing exceptions
• Validating unusual items
• Stepping in only when something doesn’t look right

As accountants put it: “I don’t want AI to be clever—I just want it to stop me touching the same data three times.”

When data arrives already structured and traceable:

• Errors fall
• Rework drops
• Handovers improve
• Senior staff aren’t pulled into basic clean-up

That’s why data extraction and organisation is often the fastest place to reclaim time—without touching advisory work, pricing decisions, or client relationships.

You don’t want to shut people out from the process, but you do want to remove friction from it.

A real world example

That shift is exactly what firms like Walter Dawson & Son have seen in practice.

By automating the collection and structuring of client data, you can cut hours of manual admin and redirect that time back into client conversations.

And instead of rekeying invoices or chasing paperwork, you can review clean, ready-to-use information.

As Managing Director Julie Young puts it, the time saved is now spent “reflecting on the numbers and talking to clients about how they’re actually performing.”

The outcome is a better use of expertise and more time where it matters most.

Why small automations work (and bigger projects often don’t)

Large AI initiatives often fail for reasons that have nothing to do with technology.

They tend to:

• Try to fix everything at once
• Assume clean, consistent data
• Require full team buy-in before anything can start
• Compete with day-to-day client work for attention

“System projects” often stall, not because the idea is wrong, but because no one has the time or headspace to carry it through.

AI can fall into the same trap when it’s framed as a transformation.

Small automations work for the opposite reason. You do the following:

• Solve an obvious, shared pain point
• Fit around existing workflows rather than replacing them
• Don’t rely on perfect data
• Show value quickly—often in days, not months

Small wins change behaviour

Instead of asking people to believe in AI, let them feel the impact.

• A reminder sent automatically.
• A proposal drafted in minutes instead of hours.
• Client data arriving already organised.

Those wins matter because they change behaviour.

Once people feel time coming back into their day:

• Resistance drops
• Confidence grows
• Experimentation feels safer
• Conversations shift from “should we?” to “what next?”

That’s the moment where bigger automation becomes realistic, not because a strategy document says so, but because your firm has proof it works in your own context.

In practice, sustainable AI adoption doesn’t start with ambition. It starts with relief.

A simple 30-day approach

You don’t need a long-term roadmap. You need to see progress in your own workflows.

That’s why the most effective AI adoption follows a simple pattern: notice → test → measure → repeat—the structure used in Sage’s AI Action Workbook.

Here’s what that looks like in practice.

Week 1: Notice where time goes

List the tasks you repeat every week—especially the ones you put off or dislike doing.
Invoice chasing. Proposal prep. Receipt handling. Data clean-up.

You’re not looking for the most important task. You’re looking for the most annoying one.

Week 2: Pick a low-risk starting point

Choose one task that:

• Takes at least 10 minutes
• Happens frequently
• Doesn’t require judgement or client-facing decisions

This mirrors the workbook’s focus on process readiness—starting where habits already exist, rather than forcing change.

Week 3: Test one AI-assisted workflow

Use the tools you already have where possible.

Automate part of the task, not all of it.

The goal isn’t perfection.

It’s reducing effort—fewer clicks, fewer handovers, fewer interruptions.

Week 4: Measure, refine, and lock it in

Roughly estimate the time saved.

Document the steps.

Decide whether to keep it, tweak it, or drop it.

This is where confidence builds—because you can see the impact in real terms, not just dashboards or demos.

That’s it.

No replatforming.

No “AI strategy deck.”

No big announcement to your team.

Just time quietly coming back into your day—and a clear signal about what to automate next.

Final thoughts: AI won’t replace you, but it will change the way you work

It should be obvious now that AI doesn’t remove the need for professional judgement. If anything, it makes your judgment more valuable.

You won’t win by chasing the latest tools, but you will if you quietly remove friction from everyday work.

Start small. Automate what wastes time. Let results, not hype, decide what you do next.

If you want to pick one automation to implement in the next 30 days, the AI Action Workbook helps you choose, plan, and start—without turning it into a big project.