PAYE is how employers collect Income Tax and National Insurance from pay before it reaches the employee. Here is how payroll works in 2026/27, the rates and thresholds, the 15% employer NIC and the £10,500 Employment Allowance, and how Real Time Information reporting works.
How PAYE works, the Income Tax and NIC rates, the employer NIC and Employment Allowance, RTI reporting, and the deadlines and forms.
Under PAYE, you deduct Income Tax and employee (primary Class 1) National Insurance from each employee's pay before they receive it, then pay employer (secondary Class 1) National Insurance on top. You send the deductions to HMRC and report each payment in real time. Most employers run this through HMRC-recognised payroll software.
| Item | 2026/27 |
|---|---|
| Personal allowance (tax-free) | £12,570 |
| Basic rate (to £50,270) | 20% |
| Higher rate (£50,271–£125,140) | 40% |
| Additional rate (over £125,140) | 45% |
| Employee NIC (£12,570–£50,270) | 8% |
| Employee NIC (above £50,270) | 2% |
| Employer NIC (above £5,000) | 15% |
The personal allowance and thresholds are frozen until April 2031, so pay rises gradually pull more into tax — a process called fiscal drag. Scottish taxpayers have different Income Tax bands; see our Scottish Income Tax guide.
You pay 15% employer NIC on each employee's earnings above the £5,000 secondary threshold. Eligible employers can claim the Employment Allowance to reduce this by up to £10,500 a year.
For a single employee on £30,000 the allowance can wipe out the employer NIC entirely; across a larger team it offsets the first £10,500. Model your total cost with our payroll cost calculator.
Connected companies share one Employment Allowance. A company whose only employee paid above the secondary threshold is a director generally cannot claim the allowance. Check eligibility before claiming.
You must report pay and deductions to HMRC on or before each payday using a Full Payment Submission (FPS), and an Employer Payment Summary (EPS) where you need to claim the Employment Allowance, recover statutory pay, or tell HMRC no payments were made.
You must pay at least the National Living Wage (£12.71 an hour from April 2026), enrol eligible staff in a workplace pension, and report benefits in kind — see our P11D and benefits guide.
gov.uk PAYE for employers · claim Employment Allowance · NIC rates and categories · minimum wage rates.
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Rates, employer NIC, the Employment Allowance, RTI and deadlines — answered for 2026/27.
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Find an expert →UK Tax Hero provides general tax guidance and a free expert-matching service for the 2026/27 tax year. It is not personal tax, legal or financial advice. Figures are based on published HMRC rates and may change. Always confirm details on GOV.UK or with a qualified professional before acting.
