Beyond the salary you agree on, you’re responsible for employer National Insurance Contributions, pension contributions, and potentially taxes on any benefits you provide. For most employers, that adds up to 18–20% on top of gross salary before you factor in any perks.
This guide walks you through each UK employer tax obligation, how to calculate your total employment cost, and your options for staying compliant whether you have a UK entity or not.
What employer taxes apply in the UK
UK employers operate Pay As You Earn (PAYE) to collect income tax and National Insurance from employees, paying HMRC monthly. These employer costs sit on top of the gross salary you agree with your employee. They are your cost, not a deduction from their pay.
The main employer costs are:
- Employer National Insurance Contributions (NICs): 15% on employee earnings above £5,000 per year (from April 2025)
- Statutory pension contributions: At least 3% of qualifying earnings under auto-enrolment rules
- Benefits in kind taxes: Additional Class 1A NICs on non-cash perks you provide, such as company cars or private medical insurance
- Employment Allowance: A relief that lets eligible employers reduce their NIC bill by up to £10,500 annually
UK employer national insurance contributions explained
Employer NICs represent the largest additional cost beyond gross salary for most UK employers. Unlike employee NICs, which come out of wages, employer NICs are paid directly by you to HMRC on top of what your employee receives.
Current employer nic rates and thresholds
As of April 2025, employers pay NICs at 15% on employee earnings above the secondary threshold. HMRC’s published rate tables confirm the 15% rate applies from 6 April 2025 to 5 April 2026.
| Earnings Level | Employer NIC Rate |
|---|---|
| Up to £5,000/year | 0% |
| Above £5,000/year | 15% |
For an employee earning £50,000 annually, you’d pay employer NICs on £45,000 (the amount above the threshold), resulting in £6,750 in employer NICs alone.
Employer nics vs employee nics
Both you and your employee pay National Insurance, but the rates and thresholds differ. Employee NICs are deducted from gross pay before the employee receives it. Employer NICs are an additional cost you pay. They don’t reduce what your employee takes home.
Employees currently pay 8% on earnings between £12,570 and £50,270, then 2% above that. Your 15% employer rate applies from a much lower threshold, which means employer NICs can exceed employee NICs for the same salary.
Employment allowance and nic relief
Employment Allowance lets eligible employers reduce their annual Class 1 NICs liability by up to £10,500. For smaller businesses with modest payrolls, this can significantly lower the employer tax bill.
Not every employer qualifies. You cannot claim if your company has only one director and that director is the only employee liable for secondary Class 1 National Insurance. From April 2025, employers paying more than £100,000 in Class 1 National Insurance liabilities can now apply for Employment Allowance. Check GOV.UK’s Employment Allowance guidance to confirm eligibility before your first payroll run.
Workplace pension requirements for UK employers
Auto-enrolment means you’re legally required to enrol eligible employees into a workplace pension scheme and contribute to it. This applies whether you’re a UK-based company or a foreign business employing someone in the UK through an entity or Employer of Record.
Auto-enrolment obligations
You automatically enrol employees who are aged between 22 and State Pension age, earn at least £10,000 per year, and work (or ordinarily work) in the UK. These employees are called “eligible jobholders.”
Employees can opt out, but you can’t encourage them to do so. You’ll also re-enrol anyone who previously opted out every three years.
Minimum employer contribution rates
The minimum employer contribution is 3% of qualifying earnings. Employees contribute at least 5%, bringing the total minimum to 8%.
Many employers choose to contribute more than the minimum to remain competitive in the UK job market, particularly for senior or specialist roles.
Qualifying earnings and contribution bands
Qualifying earnings are the portion of salary between the lower and upper earnings limits, currently £6,240 and £50,270 per year. You calculate pension contributions on earnings within this band.
For an employee earning £40,000, qualifying earnings would be £33,760 (£40,000 minus £6,240). Your minimum 3% contribution works out to approximately £1,013 annually.
Benefits in kind and other UK employment taxes
Benefits in kind (BIKs) are non-cash perks you provide to employees: company cars, private medical insurance, gym memberships. BIKs carry tax implications for both you and your employee.
Common taxable benefits in kind
Most benefits you provide have a taxable value that HMRC uses to calculate additional tax and NICs:
- Company cars: Taxed based on CO2 emissions and list price
- Private medical insurance: The premium you pay becomes a taxable benefit for the employee
- Accommodation: Taxable if you provide housing, with some exceptions for job-related accommodation
- Interest-free loans: Taxable if the loan exceeds £10,000
Reporting benefits with p11d
You report most benefits to HMRC annually using form P11D, due by 6 July following the end of the tax year. Each employee who received benefits gets their own P11D.
Alternatively, you can “payroll” benefits by adding their value to the employee’s taxable pay each month. This can simplify your reporting obligations but requires registration with HMRC. Confirm current payrolling rules with your payroll provider or accountant before the tax year starts.
Class 1a nics on benefits
You pay Class 1A NICs at 15% on the taxable value of most benefits in kind for the 2025–26 tax year. Payment is due by 22 July following the tax year (or 19 July if paying by post).
Class 1A NICs are your cost alone. They’re not deducted from the employee’s pay. Factor Class 1A into your total employment cost calculations when offering benefits.
How to calculate UK employer payroll tax
Calculating your total employment cost before making an offer helps you budget accurately and avoid surprises. Here’s a step-by-step approach.
1. Determine gross salary and taxable pay
Start with the annual gross salary you’re offering. Taxable pay typically includes salary, bonuses, commissions, and most allowances.
2. Calculate employer National Insurance
Apply the 15% employer NIC rate to earnings above the £5,000 secondary threshold. For a £60,000 salary: £60,000 minus £5,000 = £55,000 × 15% = £8,250 in employer NICs.
3. Add pension contributions
Calculate your minimum 3% contribution on qualifying earnings (the portion between £6,240 and £50,270). For a £60,000 salary, qualifying earnings are capped at £44,030, so your minimum contribution is approximately £1,321.
4. Include benefits in kind costs
If you’re offering benefits like private medical insurance, add both the cost of the benefit itself and the Class 1A NICs (15% for 2025–26) on its taxable value.
5. Calculate total employment cost
Sum all components to get your true cost of employment:
| Cost Component | Example (£60,000 salary) |
|---|---|
| Gross salary | £60,000 |
| Employer NICs (15% above £5,000) | £8,250 |
| Pension contribution (3% on qualifying earnings) | £1,321 |
| Private medical insurance (example) | £1,200 |
| Class 1A NICs on benefits (15%) | £180 |
| Total employment cost | £70,951 |
An Employer of Record like RemotePass can run this calculation for you through a cost simulation before you commit to hiring.
How to register and report employer taxes to hmrc
PAYE (Pay As You Earn) is HMRC’s system for collecting income tax and National Insurance from employment. You register and report through this system to employ anyone in the UK compliantly.
Paye registration
Register for PAYE online through GOV.UK. Processing takes time, so start at least a few weeks before your first employee’s payday. Once registered, HMRC provides a PAYE reference number and Accounts Office reference that you’ll use for all payroll submissions.
Real time information reporting
Real Time Information (RTI) means you report payroll data to HMRC every time you pay employees, not at year-end. Information about tax and other deductions is transmitted each pay run.
Most payroll software handles this automatically, but you’re responsible for ensuring submissions are accurate and timely.
Paye payment deadlines
For regular monthly PAYE, taxes and NICs are due to HMRC by the 22nd of the month following the pay period (or the 19th if paying by post). April payroll taxes, for example, are due by 22 May.
You can pay by Direct Debit, online banking, or BACS. A Direct Debit helps avoid missed deadlines. Late payments trigger penalties that escalate with repeated lateness.
Options for managing payroll in the UK
How you handle UK payroll depends on your company structure, headcount, and how much compliance work you want to manage directly.
Running payroll in-house
If you have a UK entity and dedicated HR or finance staff, you can manage payroll internally using HMRC-recognised software. You retain full control but need to stay current with rate changes, threshold updates, and reporting requirements each tax year.
Outsourcing to a UK payroll provider
A UK accountant or payroll bureau handles PAYE registration, payroll calculations, and HMRC submissions on your behalf. You still need a UK entity, but the administrative burden shifts to them.
Using an Employer of Record
An Employer of Record (EOR) manages all UK employer tax obligations on your behalf: PAYE registration, NICs, pensions, benefits reporting, and HMRC submissions. This option works well for companies without a UK entity, or those hiring a small UK team without wanting to establish local infrastructure. RemotePass provides EOR services in the UK, managing compliance from onboarding through payroll and offboarding.
How to hire in the UK without a legal entity
Foreign companies cannot simply run UK payroll without a registered presence. HMRC requires an employer to be registered for PAYE, which typically means having a UK entity or using an alternative structure.
The compliant route is an Employer of Record. The EOR registers for PAYE, calculates and pays all employer taxes, and handles HMRC reporting on your behalf.
That means you can hire in the UK within days rather than the months it takes to establish an entity. RemotePass acts as the legal employer for UK hires, managing employer NICs, pension auto-enrolment, and all HMRC submissions.
Ready to hire in the UK without setting up an entity? Book a RemotePass demo to see how EOR simplifies UK employer tax compliance.
Common UK employer tax mistakes
Even experienced teams make errors when navigating UK employment taxes.
Misclassifying workers as contractors
IR35 rules determine whether someone working through their own company is really an employee for tax purposes. If HMRC decides your “contractor” is actually an employee, you could face back-taxes, NICs, and penalties.
The off-payroll working rules apply when a worker providing services through their own intermediary would have been an employee if they were providing services directly. Medium- and large-sized businesses must make that determination. If you’re unsure, get specialist advice before engaging contractors in the UK.
Missing paye registration deadlines
Register for PAYE before your first employee’s payday. Late registration can complicate your first payroll run and potentially delay your employee’s first payment.
Start the process at least two weeks before you plan to pay anyone.
Underestimating total employment costs
Employer NICs and pension contributions add 18–20% or more to gross salary. Many companies budget only for the salary figure, then face unexpected costs when payroll runs.
Always calculate the full employment cost — employer NICs, pension, and any benefits — before extending an offer.
Simplify UK employer tax compliance with RemotePass
Managing UK employer taxes involves multiple moving parts: PAYE registration, NICs calculations, pension auto-enrolment, benefits reporting, and monthly HMRC submissions. For companies without UK expertise or infrastructure, that complexity can push back your first hire by weeks and leave gaps in your tax reporting.
RemotePass acts as your Employer of Record in the UK, handling every aspect of employer tax compliance. You get a single platform for onboarding, payroll, and HR operations, with the confidence that your UK team is employed compliantly from day one.
Book a RemotePass demo to see how we simplify UK hiring.
FAQs about UK employer tax requirements
What percentage of National Insurance do UK employers pay?
UK employers pay Class 1 NICs at 15% on employee earnings above the secondary threshold of £5,000 per year. This rate applies from April 2025.
Who is responsible for paying employer tax to HMRC in the UK?
The employer (or an Employer of Record acting on their behalf) is responsible for calculating, deducting, and remitting employer taxes to HMRC each pay period.
Can a foreign company employ someone in the UK without a legal entity?
A foreign company cannot directly run UK payroll without a registered presence. The compliant alternative is using an Employer of Record, which becomes the legal employer and handles all UK tax obligations.
What penalties apply for late UK employer tax payments to HMRC?
HMRC charges penalties for late PAYE and NIC payments. The first failure to pay on time does not count as a default. Penalties begin at 1% for 1–3 defaults in a tax year and escalate to 4% for 10 or more defaults. Interest also accrues on overdue amounts.
How does an Employer of Record handle UK employer taxes?
An EOR becomes the legal employer, registers for PAYE, calculates and pays all employer NICs and pension contributions, and submits Real Time Information reports to HMRC on your behalf.
