Managing payroll isn’t just about paying wages - it involves tax calculations, deductions, and strict HMRC rules. For small business owners, it can feel overwhelming. Here’s a breakdown of what payroll processing is and the payroll process steps.
Key Takeaways
Payroll processing is the system businesses use to calculate wages, deduct taxes, and pay employees correctly and on time.
In the UK, payroll includes tax deductions, National Insurance contributions, pension schemes, and HMRC reporting through Real Time Information (RTI).
What is Payroll Processing?
Payroll processing, often called running payroll in the UK, is how businesses calculate and pay wages while handling taxes and deductions. It ensures employees get paid the right amount, on time, and that everything follows UK tax laws.
For small businesses, running payroll isn’t just about transferring money - it includes tax calculations, National Insurance contributions, pensions, and legal compliance. Mistakes can lead to penalties, unhappy employees, and extra admin work.
Many businesses find payroll time-consuming, especially with Real Time Information (RTI) reporting to HMRC. This is why many automate payroll or outsource it to experts to save time and avoid costly errors.
What is Payroll Processing Example?
Let’s say you hire Emma, who earns a gross salary of £2,500 per month. Here’s how payroll processing works:
Calculate Gross Pay - Emma’s salary before any deductions is £2,500.
Apply Deductions - Taxes, National Insurance, and pension contributions are deducted automatically based on UK payroll regulations.
Determine Net Pay - After deductions, let’s say, Emma takes home around £1,897.
Process Payroll:
Send Payslip - Emma gets a payslip showing gross pay, deductions, and net pay.
Report to HMRC - Submit a Full Payment Submission (FPS) before payday.
Pay HMRC - The deducted tax and NI must be paid by the 22nd of the next month.
What is the Step-By-Step Payroll Process Like?
Here are the basic steps in processing payroll:
Register with HMRC
If you’re an employer, you need to register for PAYE (Pay As You Earn) so you can manage tax and National Insurance contributions.
Use Payroll Software
Payroll software makes it easier to calculate wages, deductions, and submit reports to HMRC in real time (RTI).
Calculate Wages & Deductions
Work out gross pay, then deduct income tax, National Insurance, pension contributions, and any student loan repayments.
Send Payslips & Pay Employees
Payslips must show earnings and deductions. Payments should be made via bank transfer or another chosen method.
Report to HMRC & Pay Taxes
Every payday, you must send an FPS (Full Payment Submission) to HMRC. Tax and NI contributions must be paid to HMRC by the 22nd of the month.
Keep Payroll Records
UK law requires you to keep payroll records for at least three years in case of audits or HMRC checks.
What We Think
Many small businesses find running payroll time-consuming and confusing, especially with deadlines for reporting to HMRC.
One of the biggest challenges is Real Time Information (RTI) reporting, where payroll details must be submitted on or before payday. Missing this deadline can lead to fines.
Another issue is making mistakes - using the wrong tax code or forgetting a deduction can take hours to fix and cause delays. Keeping up with tax changes and pension rules adds to the stress.
Because of this, many business owners turn to payroll software or outsource the process to save time and avoid costly errors.
How JAFA Can Help
JAFA takes the stress out of payroll by handling everything for you, so you can focus on running your business.
✅ Payroll Without the Paperwork – Say goodbye to spreadsheets and manual calculations. JAFA’s system automates payroll, ensuring wages, tax, and pension deductions are accurate every time.
✅ HMRC Compliance – We handle RTI submissions and tax payments on time, helping you avoid penalties and stay compliant without the stress.
✅ Seamless Payments & Payslips – Employees can access their payslips and tax documents online whenever they need them, and we can even manage staff payments on your behalf.
✅ Support When You Need It – Payroll mistakes can be costly, but with JAFA, you’re never on your own. Our experts keep you informed of payroll changes and help resolve any issues quickly.
Contact our accountants, based in Birmingham, UK, today by booking a FREE discovery call or calling us at +44 121 227 6277.
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