Trade Business Payroll Guide UK — PAYE, RTI and Running Payroll for Tradespeople (2026)

The moment you take on your first employee — whether that's a full-time apprentice, a part-time labourer, or a casual worker who turns up every Friday — you become an employer in HMRC's eyes. That triggers a set of payroll obligations that don't go away. This guide walks you through everything you need to know about running payroll for a UK trade business in 2026: from registering as an employer to filing RTI returns, paying HMRC on time, and deciding when to hand it all over to a payroll bureau.

1. When You Need to Set Up PAYE

You must register as an employer with HMRC as soon as you start paying employees — even if you only have one person on the books. There's no minimum wage threshold that lets you avoid PAYE registration; if someone is employed by you, you're an employer.

Who counts as an employee? Broadly: anyone working for you under a contract of service — full-time, part-time, or casual workers who turn up when you need them. What does not count is a genuine self-employed subcontractor who runs their own trade business, sets their own hours, uses their own tools, and invoices you for work done. If a subbie works exclusively for you, uses your van, and works your hours, HMRC may decide they're actually an employee — a risk worth taking seriously.

To register, go to the Government Gateway and register as an employer. You'll receive a PAYE reference number and an Accounts Office reference number, both of which you'll need for every submission and payment. Register before your first payday — HMRC recommends doing it at least two weeks before you pay anyone.

• Full-time employees: always PAYE
• Part-time employees: always PAYE
• Casual workers on a regular rota: almost certainly PAYE
• Genuine self-employed subbies with their own UTR: not PAYE (but may be CIS — see section 5)

2. PAYE Basics: Tax Codes, Income Tax and National Insurance

PAYE (Pay As You Earn) means you deduct Income Tax and employee National Insurance from each employee's gross pay before you hand them their wages. You then pay those deductions to HMRC, along with your own employer National Insurance contributions.

Tax codes tell you how much tax-free pay each employee gets. The standard tax code for 2026/27 is 1257L, which gives employees a personal allowance of £12,570 a year (£1,047.50 a month) before any Income Tax is due. HMRC will send you each employee's tax code — use it. If you don't have one, use the emergency code until HMRC tells you otherwise.

Income Tax rates for 2026/27 in England and Wales:

• Personal allowance: £0–£12,570 at 0%
• Basic rate: £12,571–£50,270 at 20%
• Higher rate: £50,271–£125,140 at 40%
• Additional rate: above £125,140 at 45%

Most trade employees will sit in the basic rate band. Your payroll software calculates the exact deduction each pay period based on the employee's tax code and earnings to date.

3. Real Time Information (RTI) Submissions

Since 2013, HMRC has required employers to report payroll information in real time. That means you submit data to HMRC on or before each payday — not at the end of the tax year.

Full Payment Submission (FPS): The main RTI filing. You send one for every pay run, and it must reach HMRC on or before the date you pay your employees. It contains each employee's gross pay, deductions (tax and NI), year-to-date figures, and payment date. Your payroll software handles the submission — you just need to make sure it goes in on time.

Employer Payment Summary (EPS): A supplementary filing. You send an EPS in any month where you made no payments to employees (so HMRC knows you haven't simply forgotten), or to claim CIS deductions suffered (see section 5). The EPS is due by the 19th of the following tax month.

Late filing penalties: HMRC charges automatic penalties for late or missing FPS submissions. For employers with 1–9 employees the penalty is £100 per month of default. Penalties are waived for the first late submission in a tax year if you correct it quickly, but don't rely on that.

4. National Insurance Rates 2026/27

National Insurance is split between what your employees pay and what you pay as the employer. Both are calculated on earnings above the relevant threshold.

• Employee NI (Class 1): 8% on weekly earnings between £242 and £967 (2026/27 rates); 2% above £967
• Employer NI (Class 1): 13.8% on weekly earnings above the Secondary Threshold (£175 per week / £9,100 per year for 2026/27)
• Class 1A NI: 13.8% on benefits in kind — applies to things like a company van with private use or private fuel (see section 9)

As an employer you pay your own 13.8% contribution on top of the employee's wages — it's not deducted from their pay. Factor this into your cost of employment calculations. For a tradesperson earning £35,000 a year, employer NI adds roughly £3,500 to your labour cost before you consider pension contributions.

Employment Allowance: Most small trade businesses qualify for the Employment Allowance, which lets you reduce your employer NI bill by up to £5,000 per tax year. You claim it through your payroll software via an EPS. You cannot claim it if your employer NI bill in the previous tax year was £100,000 or more, or if you are the only employee and also a director. Claim it — if you qualify, it's free money off your NI bill.

5. CIS and Payroll: How They Interact

The Construction Industry Scheme (CIS) is a separate system for payments to self-employed subcontractors. It is not the same as PAYE. If you pay genuine subbies for labour, you deduct CIS tax at source (20% for registered subbies, 30% for unregistered ones) and pay that to HMRC. But CIS and PAYE can overlap in two important ways for a growing trade business.

Having both employees and subbies: Many trade businesses have a permanent employed workforce for day-to-day jobs and bring in subbies for bigger contracts or specialist work. If that's you, you have both PAYE and CIS obligations running simultaneously. Keep them completely separate — different records, different payments, different submissions.

CIS deductions suffered: If you're a subcontractor yourself (being paid by a main contractor who deducts CIS from your invoices), you can offset those CIS deductions against your PAYE liability. You do this via an EPS — your payroll software will have a field for "CIS deductions suffered." This can significantly reduce how much you need to pay HMRC each month. If your CIS deductions suffered exceed your PAYE liability, HMRC will refund the difference.

6. Auto-Enrolment: Workplace Pensions

Auto-enrolment applies the moment you become an employer. Your staging date — the date your auto-enrolment duties begin — is your PAYE registration date. There is no grace period. From day one you must assess your workers and enrol eligible employees into a qualifying workplace pension scheme.

Who is eligible? Employees aged 22 or over, earning more than £10,000 per year (roughly £192 per week), and working in the UK. Workers between 16–21 or over state pension age, or earning below £10,000, must be enrolled if they ask to be — you still have to contribute.

Minimum contributions (2026/27): At least 8% of qualifying earnings total, split as a minimum of 3% from you (the employer) and 5% from the employee. Qualifying earnings are between £6,240 and £50,270 per year.

Pension providers for trade businesses: NEST (National Employment Savings Trust) is the government-backed default and is free to use for employers. Other providers include The People's Pension, NOW: Pensions, and Aviva Workplace Pensions. Most payroll software integrates directly with NEST and other major providers.

You must also re-enrol any employees who opted out every three years. The Pensions Regulator can issue fines starting at £400 for non-compliance, escalating to daily penalties for continued failure.

7. Payroll Software Options

You cannot legally run payroll on a spreadsheet and then phone HMRC — RTI requires software that can submit directly to HMRC's systems. Here's what's available:

• HMRC Basic PAYE Tools: Free software from HMRC, suitable for employers with up to 10 employees. Does FPS and EPS submissions, calculates tax and NI, produces payslips. No auto-enrolment tools built in. Good for very small trade businesses that want to keep costs down and don't mind doing pension admin manually.
• Xero Payroll: Integrated with Xero accounting (from around £5/month add-on to a Xero subscription). Handles RTI, auto-enrolment, payslips, and syncs directly with your bookkeeping. Strong choice if you're already on Xero.
• Sage Payroll: From around £8/month for up to 5 employees. Long-established payroll software with good HMRC integration, auto-enrolment support, and detailed reporting. Also integrates with Sage Accounting.
• QuickBooks Payroll: Add-on to QuickBooks Online (from around £4/month). Similar feature set to Xero Payroll — RTI, auto-enrolment, payslips. Works best if you're already using QuickBooks for bookkeeping.

Payroll software earns its keep by automating RTI submissions, catching calculation errors, and keeping an audit trail HMRC can inspect. The cost is modest compared to the risk of getting payroll wrong.

8. Paying HMRC: Deadlines and Methods

Collecting PAYE and NI from your employees is only half the job — you also need to pay it over to HMRC on time. The payment schedule depends on the size of your PAYE bill.

• Monthly payments: Due by the 22nd of the following tax month if paying electronically (19th by cheque). So the PAYE for wages paid in May must reach HMRC by 22 June.
• Quarterly payments: If your average monthly PAYE bill is less than £1,500, you can apply to pay quarterly instead. Due dates are 22 July, 22 October, 22 January, and 22 April.

Pay via your HMRC online account using your Accounts Office reference number (13 characters, format 123PA00012345). You can pay by bank transfer (Faster Payments or CHAPS), Direct Debit, or debit card. Do not use your PAYE reference number — it's different and HMRC won't be able to allocate the payment correctly.

Late payment consequences: HMRC charges interest on late PAYE payments from the day after the deadline. They also issue surcharges (a percentage of the tax late) after 30 days. Persistent late payment can trigger a visit from an HMRC compliance officer. Set up a standing order or calendar reminder — missing these deadlines is an avoidable cost.

9. Benefits and Expenses for Trade Employees

If you provide benefits to employees beyond their wages, those benefits may have NI and tax implications. The main ones for trade businesses:

• Tools and equipment: Tools provided for work use only are generally exempt from tax and NI. If an employee also uses tools privately, that benefit in kind must be reported on a P11D and Class 1A NI paid by you. Keep it simple: if you buy the tools and they stay for work use, there's no benefit.
• Van benefit charge: Providing an employee with a company van they can use privately triggers a van benefit charge — currently £3,960 per year for the employee. You pay Class 1A NI (13.8%) on this. If you also provide private fuel, there's a further £757 fuel benefit charge. These are reported on the annual P11D (deadline 6 July after the tax year end).
• Meal allowances: If employees are working away from their normal workplace, you can reimburse reasonable subsistence costs tax-free under HMRC's travel and subsistence rules. There are benchmark scale rates (e.g. £5 for a meal after 5+ hours away from base). These must meet HMRC conditions — keep receipts.
• Mileage rates for employees' own vehicles: If employees use their own car or van for work, you can reimburse at HMRC's Approved Mileage Allowance Payments (AMAP) rates — currently 45p per mile for the first 10,000 business miles per year, 25p per mile above that. Payments within these rates are tax and NI free. Pay above these rates and the excess is taxable.

10. When to Outsource Payroll

Most trade business owners are not accountants, and payroll has enough moving parts — RTI deadlines, NI calculations, auto-enrolment, P11Ds, year-end P60s — that mistakes are genuinely expensive. The question is whether your time is better spent running jobs or running payroll.

Cost of a payroll bureau: Typically £5–£20 per employee per month, depending on the provider and what's included. For a trade business with 3 employees, that's £180–£720 a year. For that, a good bureau will handle all RTI submissions, send payslips, manage auto-enrolment, file P11Ds, and produce P60s at year end.

What to look for in a payroll provider:

• RTI submissions included (not an add-on)
• Auto-enrolment management
• Employee payslip distribution (email or app)
• Year-end P60 production
• CIS deductions suffered handling if you're also a subcontractor
• Integration with your bookkeeping software so payroll journals post automatically

Many trade accountants offer payroll as part of a monthly package alongside bookkeeping and VAT returns. If you're already paying an accountant, ask whether payroll is included or what it would add to your monthly fee. The all-in approach — bookkeeping, VAT, payroll, self-assessment — is usually better value than stitching together separate providers, and it means one person understands your whole financial picture.