Pay your team in the United Kingdom

The United Kingdom remains a key destination for international hiring: a highly skilled workforce and a well-established regulatory framework. However, employing in the UK means navigating a complex payroll system with strict compliance requirements.

Employers must meet ongoing obligations to declare and pay payroll taxes, with significant penalties for non-compliance. This guide covers the key elements foreign companies should know before hiring in the UK.

Setting up payroll in the United Kingdom

There is no formal obligation to set up a local legal entity to hire in the UK. However, employers must register with HMRC (His Majesty’s Revenue and Customs) under the PAYE (Pay As You Earn) scheme. Registration must be completed before the first salary payment (up to two months in advance). Allow up to 20 working days to receive your PAYE employer reference number.

Once registration is validated, HMRC issues a reference number and access to the PAYE Online portal for electronic filings. Employers are required to inform HMRC of every new hire. Typically the new employee provides a P45 form issued by their previous employer, with their tax code and payroll history. For first-time hires, HMRC provides a starter checklist.

Employers hiring staff aged 22 to State Pension age, earning more than £10,000 per year, must automatically enrol them in a qualifying workplace pension scheme. This involves registering with a pension provider and enrolling each eligible employee.

No obligation to hold a local bank account for payroll: payments may be made from foreign accounts. For wire transfers to HMRC from abroad, use the bank details specific to international payments and pay in pounds sterling to avoid FX charges.

Taxes & social security in the United Kingdom

The UK’s National Insurance system is funded by both employer and employee contributions. In addition, employees must be enrolled in a separate pension fund. The tax system is progressive with a top marginal rate of 45%.

Tax considerations

UK tax residents are taxed on their worldwide income, while non-residents are only taxed on their UK-source income.

The system is progressive: basic rate 20%, higher rate 40%, additional rate 45%. A standard personal allowance of £12,570 per year applies (2025/2026 tax year). The tax year runs from 6 April to 5 April of the following year.

* Note: employees in Scotland are subject to different bands and rates.

Withholding & reporting

Employers must withhold and remit their employees’ income tax to HMRC via the PAYE system. This process involves several recurring filings during each tax month.

On or before each pay day, employers must submit a Full Payment Submission (FPS) to HMRC, detailing all payments made to employees and the corresponding deductions.

To claim reductions on amounts owed to HMRC (e.g. reimbursements for maternity or paternity leave), employers submit an Employer Payment Summary (EPS), due by the 19th of the following tax month.

Employers must pay HMRC the amounts owed by the 22nd of the month following the pay period for electronic payments (the 19th for non-electronic payments). Any delay or failure to file results in penalties.

Social contributions

The UK’s National Insurance system is funded by both employer and employee contributions. Employee contributions are deducted directly from their salary. These contributions fund various State benefits, including the State Pension and unemployment insurance.

Since 6 April 2025, NIC rates are set at 15% for employers and 8% for employees on earnings up to the Upper Earnings Limit, plus 2% above that threshold.

Employers are also subject to Class 1A NIC on benefits in kind and expense reimbursements (15% rate for 2025/2026). NIC payments are made at the same time as PAYE payments for income tax, by the 22nd of the following month.

Finally, employers must enrol eligible employees in a qualifying pension scheme. The minimum employer contribution is 3% of qualifying earnings; the employee contributes a minimum of 5%, for a minimum total of 8%.

Employment obligations

Employees in the United Kingdom benefit from several statutory rights:

• Annual leave & public holidays: 28 days of paid annual leave, including public holidays (8 public holidays)
• Maternity leave: up to 52 weeks (26 weeks ordinary leave + 26 weeks additional leave)
• Paternity leave: up to 2 paid weeks (Statutory Paternity Pay)
• Shared parental leave: up to 50 weeks shared between both parents (37 weeks payable)
• Sick leave: up to 28 weeks; from the 4th day, the employee receives Statutory Sick Pay (SSP)

Compensation

In the UK, the minimum wage varies depending on the employee’s age and status (apprentice or not). Since 1 April 2025, the new National Minimum Wage (NMW) and National Living Wage (NLW) rates are:

• Apprentices and under 18: £7.55 /hour
• 18-20: £10.00 /hour
• 21 and over (NLW): £12.21 /hour

These rates are adjusted annually. No legal obligation to pay overtime at a higher rate, except where average hourly pay (overtime included) falls below the applicable minimum. Any premiums are defined in collective agreements or contracts.

It is not customary or mandatory to pay a 13th or 14th month.

Payroll requirements

In the UK, pay frequency can be weekly, bi-weekly, semi-monthly or monthly — the latter being the most common according to the CIPP (Chartered Institute of Payroll Professionals).

The most common pay day for weekly frequencies is Friday. For monthly payroll, it is the last working day of the month. The most-used method is Bacs (Bankers’ Automated Clearing Services), with a 3 working-day processing time. No local account required.

Each payment must be accompanied by a payslip, electronic or paper, which must show:

• Gross salary amount
• All variable and fixed deductions
• Net salary payable
• Total hours worked (where applicable)
• Amount and payment method for each portion (if fragmented)

Employers must also issue a P60 (End of Year Certificate) by 31 May following the end of the tax year. Payroll archives must be kept for at least 3 years from the end of the tax year; failing this, the employer faces fines of up to £3,000.