Calculating Payroll – How to do it Accurately and Efficiently in the UK

Calculating payroll

Calculating Payroll – How to do it Accurately and Efficiently in the UK

Calculating payroll is a complex task, but it doesn’t have to be difficult. There are various ways you can make calculating employees’ income easier for yourself. This guide will show you how to calculate pay accurately and efficiently in the UK so that when it comes time to pay your staff, everything goes smoothly.

Get to grips with the PAYE system

The PAYE system is a crucial part of calculating payroll. It’s designed to ensure that employees are taxed correctly, and this means you need to understand how it works if you want your company to remain compliant with the law.
You may already be familiar with PAYE as a concept, but if not then here’s an overview:
• Employees have tax deducted from their salaries and wages by their employer (the payer). This money goes into government coffers on behalf of HMRC.
• The amount of tax taken out depends on whether an individual receives income above or below certain thresholds. If someone earns more than these amounts then higher rates apply until reaching a maximum level where no further deduction can be made by employers under current legislation (20%).

Calculating payroll knowhow – when to deduct tax from salaries and wages

You’ll need to know when to deduct tax from salaries and wages. This depends on whether you are paying employees by the hour, week or month. In general, if they are paid monthly:
• Deduct National Insurance contributions (NICs) at source, as well as income tax (if they’re under 65 years old).
• Use a tax calculator to work out how much NICs should be deducted from each payment – this will depend on their age and earnings. You can also use a table provided by HMRC for this purpose

Understand the different tax rates that apply to different workers when Calculating payroll

The UK has three tax bands, which are based on your earnings.
Each band applies a different rate of income tax:
• 20% – basic rate (most workers).
• 40% – higher rate (those earning over £41,000 per year)
• 45% – additional rate (those earning over £150k per year).


Calculating payroll is a complicated topic, but it’s important to understand how it works if you want to run a business efficiently. The UK has some of the most complex tax laws in the world, so it’s essential that you know what they are and how they affect your employees’ salaries. For payroll and startup support for small businesses, get in touch with our team today.
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