What Global Businesses Need to Know About Payroll in the United Kingdom.
The last few years have been eventful in the United Kingdom, from both political and economic perspectives. Since the start of 2019, the UK has had five different Prime Ministers and seven different Chancellors of the Exchequer (at the time of writing), while the country’s exit from the European Union in 2020 has fundamentally changed its relationship with the rest of the continent.
Nevertheless, the UK remains a global economic force. London still places second only to New York in the rankings of global financial centers, and the UK ranks sixth in global GDP, ahead of every EU member except Germany. The UK’s economy is highly service-driven, and being the home of the English language makes interaction with global business much easier. It also benefits from the Commonwealth, a cultural association of 56 states around the world, many of which are former colonies from the days of the British Empire.
The UK is made up of four constituent nations: England, Scotland, Wales and Northern Ireland. While there are no firm borders between each of them, there are separate legislatures in the latter three that can pass their own laws in certain areas. This has led to some divergence in payroll and employment regulations between the nations that organizations should be aware of. This guide sets out the key facts for running payroll in the United Kingdom.
Getting Started
If your business is establishing a physical presence in the UK, then you should register with Companies House, part of His Majesty’s Revenue and Customs (HMRC) within your first month of business. You should also register with HMRC as an employer for Pay As You Earn (PAYE), so that you can collect and remit income tax and National Insurance payments.
If your turnover is, or is expected to be, more than £90,000 per year (approx. $114,000; €108,500) , then you will also need to register for, collect and remit Value Added Tax (VAT), which is currently levied at 20%. Registering for this can be done for free online, but you are likely to be required to keep regular digital records under the new Making Tax Digital (MTD) regulations. You should also keep abreast of further MTD developments in the coming years, as more types of tax may fall under its purview.
Employment Considerations
You should check the identity and right to work of every employee that you hire. A new immigration system is in place now that the UK is no longer in the EU, and EU citizens will therefore require a visa to live and work in the UK.
New employees are entitled to a written statement of employment within two months of the initial hiring, including terms and conditions of employment, wages, and a discussion of pensions, sick pay, absence, holiday pay, total hours and other common issues.
The UK’s standard working week is 40 hours across five eight-hour shifts, in line with many other European countries. Theoretically there is a limit of 48 hours per week in place, averaged over a 17-week period, but in practice, many employers (particularly in office-based work) require their staff to sign opt-outs to this limit. Overtime pay is determined entirely by employment contract or collective bargaining.
Probation periods are normally between three and six months, and should be mutually agreed by both parties before starting work. Statutory notice periods start at one week for service between one month and two years, rising by a further week every two years to a maximum of 12 weeks’ notice. Many companies contractually state one month as a notice period from the end of the probation period onwards.
Compensation, Bonuses and Severance
The National Living Wage has been increased a number of times in recent years. As of April 6 2025, the new rate is £12.21 per hour (approx. $15.40; €14.70) for employees aged 23 and over. Lower rates apply for younger employees and apprentices. Further increases in the future are a possibility, so you should monitor proceedings in this area.
Salaries are generally paid monthly, normally towards the end of the month, and pay is generally expected to be remitted directly into the employee’s bank account. They should also receive a pay slip documenting their pay and deductions. Bonus payments are discretionary and are normally paid annually.
The only statutory severance pay in the UK is in the event of redundancy for employees who have at least two years of service. Employees under 22 at the time of redundancy receive half a week’s pay per full year of service, those between 22 and 41 receive one week’s pay per full year, and those aged 42 and over receive one and half weeks’ pay per full year. Only the first 20 years of service can be considered, and for this calculation, weekly pay is capped at £571 (approx. $725; €690).
Tax and Social Security
The UK runs a Real Time Information system that requires payroll information to be reported to HMRC on or before the day you run payroll. You should also advise HMRC of any joiners, leavers, or change in status of existing employees.
As in most Western countries, income tax in the UK is levied progressively, and the rates are relatively straightforward. The first £12,570 earned per year (approx. $15,900; €15,200) is exempt, after which a rate of 20% applies. The 40% rate applies to earnings over £50,270 per year (approx. $63,600; €60,600), and the highest band of 45% covers earnings over £125,140 per year (approx. $158,000; €151,000). You should also be aware that slightly different rates apply in Scotland.
Social security contributions in the UK are quite complex, especially as the rates for one of the main contributions – National Insurance (NI) – has been increased as of April 2025. Employers now have to contribute 15% on all annual employee earnings over £5,000 per year (approx. $6,330; €6,030); employees contribute 8% on earnings subject to the 20% income tax rate, and 2% on earnings subject to the higher bands.
The UK also has a workplace pension scheme, where employers contribute a minimum of 3% and employers a minimum of 5%, although employees have the choice to opt out of this scheme if they so wish. Larger businesses that have an annual pay bill of over £3million (approx. $3.8million; €3.6million) are also required to pay 0.5% of that total bill as an Apprenticeship Levy.
VAT in the UK is 20% and this rate has been left unchanged since 2011. The corporation tax rate is 25% for all businesses with profits over £250,000 per year (approx. $316,000; €301,000).
Holidays and Leave
There are six public holidays that are observed across all four nations in the UK – New Year’s Day, Good Friday, two Bank Holiday Mondays in May, Christmas Day and Boxing Day. There are also several other public holidays observed in some nations but not others.
Paid leave entitlement is 28 days, but this includes public holidays. Whether employees are allowed to carry over unused paid leave is at employer’s discretion. Some businesses offer extra leave as an employee benefit, as well as the ability to buy extra days from the employer, or sell unused days back to them.
The Statutory Sick Pay rate is currently £116.75 per week (approx. $150; €140), although many companies will offer more than this. This is paid by employers for a maximum of 28 weeks.
Maternity leave entitlement is a maximum of 52 weeks, with only the first two weeks post-birth mandatory. Statutory Maternity Pay is covered by employers at 90% of salary for the first six weeks. For the following 33 weeks, mothers are entitled to the lower of 90% of salary, or £184.03 per week (approx. $230; €220). This latter rate is also used for paternity leave, which is a maximum of two weeks within the first 52 weeks post-birth.
There are also a number of other smaller leave entitlements that can be applied on a discretionary basis in employment contracts, such as for bereavement and jury service.
Summary: Your Payroll in the UK
The UK remains a popular destination for global business, despite its exit from the European Union and frequent changes in political leadership in recent years. Nevertheless, there’s plenty to get your head around from a payroll perspective, especially in how some rules differ in Scotland and Northern Ireland compared to England and Wales. These are the kind of situations where accessing local payroll expertise can be really handy; a good global payroll partner will be able to connect you to that expertise – not just in the UK, but in all the countries in which you operate.
This guide is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional. Click here to see more country payroll guides from CloudPay.