Quick Answer
Every trades employer running PAYE must submit Full Payment Submissions (FPS) to HMRC on or before each payday. Employer NIC sits at 15% on earnings above the £5,000 secondary threshold for 2026/27. Late RTI filing triggers monthly penalties starting at £100. The Employment Allowance has risen to £10,500, which wipes out the NIC bill entirely for many small firms. Get HMRC-recognised payroll software, set your submission schedule, and stop worrying about brown envelopes.
Table of Contents
- The big picture for 2026/27
- What RTI actually means for your business
- PAYE thresholds and rates for 2026/27
- RTI submissions: FPS, EPS and deadlines
- Penalties for getting it wrong
- Employer NIC: what you actually pay per employee
- Employment Allowance: how to claim your £10,500
- Payroll software that handles it all
- Your compliance checklist
- What trades employers are saying
- Recommended videos
- Frequently asked questions
- The bottom line
HMRC
Sage
Xero
QuickBooksThe big picture for 2026/27
If you employ anyone in your trades business, PAYE and RTI are not optional. HMRC expects real-time payroll data every single pay period. The 2025 Autumn Budget changes hit trades employers hard: employer NIC jumped from 13.8% to 15%, and the threshold dropped from £9,100 to £5,000. That means you start paying NIC much sooner on every employee's earnings.
The silver lining is the Employment Allowance doubling to £10,500. For a plumbing firm with three or four engineers, that could wipe out your entire employer NIC bill. But you need to claim it, and you need to get your RTI submissions right to avoid compounding the cost with penalties.
This guide covers every obligation you face as a trades employer in the 2026/27 tax year. No jargon where it can be avoided. Practical steps you can follow this week.
What RTI actually means for your business
Real Time Information (RTI) is HMRC's system for collecting PAYE data. Instead of sending a summary at the end of the tax year, you report every payment to every employee as it happens. The system has been mandatory since 2013, but the rules around it keep tightening.
Under RTI, you submit a Full Payment Submission (FPS) on or before each payday. If you pay your lads weekly, that is 52 submissions a year. Monthly payroll means 12. Miss the deadline and HMRC can charge penalties for every late filing.
The whole point is that HMRC sees your tax and NIC figures in real time. They match your submissions against what employees claim in benefits, tax credits, and student loan repayments. Errors or late filings do not just generate penalties; they can cause problems for your employees too.
Your payday is the date your employees are contractually entitled to be paid, not the date the money hits their account. If contracts say the 28th of each month, your FPS must reach HMRC on or before the 28th, even if you run payroll a few days early.
For most trades businesses running weekly or monthly payroll, RTI is straightforward once you have the right software. The software calculates tax and NIC, generates the FPS, and sends it to HMRC. Your job is making sure it goes out on time and the figures are correct.
PAYE thresholds and rates for 2026/27
Here are the numbers that matter for the tax year starting 6 April 2026. These thresholds have been frozen since 2021 and will stay frozen until at least 2030/31, which means more of your employees' earnings get taxed each year as wages rise.
| Threshold or rate | 2025/26 | 2026/27 |
|---|---|---|
| Personal allowance | £12,570 | £12,570 |
| Basic rate (20%) | £12,571 to £50,270 | £12,571 to £50,270 |
| Higher rate (40%) | £50,271 to £125,140 | £50,271 to £125,140 |
| Employee NIC rate | 8% | 8% |
| Employee NIC primary threshold | £12,570/yr (£242/wk) | £12,570/yr (£242/wk) |
| Employer NIC rate | 15% | 15% |
| Employer NIC secondary threshold | £5,000/yr (£96/wk) | £5,000/yr (£96/wk) |
| Employment Allowance | £10,500 | £10,500 |
The frozen thresholds are a stealth tax rise. An electrician earning £35,000 pays the same percentage bands as last year, but if their wages went up by 3%, more of that increase falls into taxable brackets. As an employer, you are collecting more PAYE on their behalf even though the rates have not changed.
The employer NIC secondary threshold dropped from £9,100 to £5,000 in April 2025 and stays there for 2026/27. That means you pay 15% NIC on a much larger slice of each employee's earnings. For an employee on £30,000, your NIC bill is £3,750 per year, compared to £2,884 under the old threshold. That is an extra £866 per head.
RTI submissions: FPS, EPS and deadlines
There are two main RTI submissions you need to know about:
Full Payment Submission (FPS) reports what you have paid each employee, how much tax and NIC you have deducted, and any student loan or pension contributions. It goes to HMRC on or before each payday. If you pay weekly on Friday, the FPS must be with HMRC by Friday. No exceptions.
Employer Payment Summary (EPS) is used to report things that reduce your PAYE liability: the Employment Allowance, statutory pay recoveries (SSP, SMP, SPP), and CIS deductions suffered. The EPS is due by the 19th of the month following the tax month. HMRC tax months run from the 6th to the 5th, so the April tax month (6 April to 5 May) has an EPS deadline of 19 May.
You also need to submit an EPS if you have not paid any employees in a tax month. This tells HMRC you have not forgotten; you simply had nothing to report. Failing to submit either an FPS or a nil EPS will trigger late filing penalties.
HMRC operates a risk-based approach and historically allows a three-day grace period. If your FPS arrives within three days of payday, you are unlikely to be penalised. But do not rely on this as policy; it is discretionary and HMRC can withdraw it at any time. Submit on time.
Your first late FPS in any tax year is penalty-free. HMRC gives you one mistake. After that, every late submission in that tax year attracts a monthly penalty. The penalty amount depends on how many employees you have.
Penalties for getting it wrong
HMRC does not mess about with RTI penalties. Here is what you face for late or missing submissions:
| Number of employees | Monthly late filing penalty |
|---|---|
| 1 to 9 | £100 |
| 10 to 49 | £200 |
| 50 to 249 | £300 |
| 250+ | £400 |
Those penalties are per tax month. Miss three months of FPS submissions with five employees and you are looking at £300 in penalties before HMRC even considers additional charges.
After three months of non-filing, HMRC adds an extra 5% penalty on the outstanding tax and NIC. Late payment of PAYE itself attracts separate interest charges. And if HMRC suspects deliberate non-compliance, they can open an investigation that costs far more in accountant fees than any penalty.
Since September 2025, HMRC has resumed using Direct Recovery of Debts (DRD). If you owe more than £1,000 in unpaid PAYE and have ignored repeated contact, HMRC can take the money directly from your bank account. This is not theoretical; it is happening to small businesses right now.
P11D forms for reporting benefits in kind are due by 6 July after the end of the tax year. Late P11Ds can trigger an initial penalty of £300 plus £60 per day for each form that remains outstanding. If you provide company vans, fuel cards, or private medical insurance, get these filed on time.
You can appeal penalties within 30 days of receiving a penalty notice. Valid grounds include the FPS actually being submitted on time (provide your submission reference), a genuine reasonable excuse like serious illness or HMRC system outages, or errors in HMRC's own records.
Employer NIC: what you actually pay per employee
Employer National Insurance is the hidden cost of hiring. Your employees never see it on their payslips, but it comes straight off your bottom line. At 15% on everything above the £5,000 secondary threshold, the numbers add up fast.
Here is what employer NIC looks like at typical trades salary levels:
| Annual salary | Employer NIC (per year) | Employer NIC (per month) |
|---|---|---|
| £20,000 | £2,250 | £187.50 |
| £25,000 | £3,000 | £250 |
| £30,000 | £3,750 | £312.50 |
| £35,000 | £4,500 | £375 |
| £40,000 | £5,250 | £437.50 |
A plumbing firm with four engineers on £30,000 each faces a combined employer NIC bill of £15,000 per year. That is before the Employment Allowance. After claiming the full £10,500 allowance, the actual NIC cost drops to £4,500 for the whole team. Still real money, but manageable.
The cost per employee is roughly £938 higher than it was before the April 2025 changes. For trades businesses operating on tight margins, that can be the difference between hiring another apprentice and making do with the team you have. If you have not already adjusted your pricing to account for the NIC increase, you are absorbing a cost that your competitors may have already passed on.
If you want a deeper breakdown of how the NIC increase affects trades businesses specifically, we covered the full numbers in our guide to employer NI costs per engineer.
Employment Allowance: how to claim your £10,500
The Employment Allowance lets eligible employers reduce their employer NIC bill by up to £10,500 per tax year. It was doubled from £5,000 in April 2025 specifically to offset the NIC increase for smaller businesses. The old £100,000 eligibility threshold has been removed, so now all eligible employers can claim regardless of their total NIC bill.
You are eligible if you are a business or charity that has at least one employee. You cannot claim if you are a sole director company with no other employees, you are a public authority, or you carry out more than half your work in the public sector.
With four employees on £30,000 each, your total employer NIC would be £15,000. The £10,500 Employment Allowance brings that down to £4,500 for the year, or £375 per month. For many small trades firms with three employees or fewer, the allowance covers the entire NIC bill.
Claim it through your payroll software. Most HMRC-recognised payroll packages let you tick a box in the employer settings to indicate you are claiming Employment Allowance. The software then reduces your PAYE liability automatically each month. You need to make a fresh claim each tax year, so check your settings every April.
If your employer NIC bill is less than £10,500, you effectively pay zero employer NIC. Any unused allowance does not carry forward to the next year, so there is no benefit in delaying the claim.
Payroll software that handles it all
You have two choices for running PAYE: HMRC's free Basic PAYE Tools, or commercial payroll software. HMRC's tool works for businesses with fewer than 10 employees, but it is clunky, runs on outdated technology, and has no proper support channel. One forum user summed it up: the payroll business is so incomprehensible that they outsource it to a payroll company despite having just one employee.
Commercial software is worth the investment. It calculates tax, NIC, student loans, and pension contributions automatically. It generates and submits your FPS and EPS. It produces payslips. And it keeps records that satisfy HMRC if they come knocking.
Here are the main options for UK trades businesses:
Sage Payroll starts from £10 per month for basic payroll. The cloud version handles up to 100 employees and includes auto-enrolment pension management. Sage is one of the most widely used payroll platforms in the UK and integrates well with Sage accounting products. If you already use Sage for your books, adding payroll is straightforward.
Xero Payroll is available as an add-on to Xero accounting plans from the Grow tier upwards. It costs £1.50 per employee per month on top of your Xero subscription (£37 per month for Grow). For a firm with five employees, that is £44.50 per month total. Xero handles RTI submissions, auto-enrolment, and produces payslips. If you are already on Xero for invoicing and expenses, keeping payroll in the same system makes life simpler.
BrightPay has been popular with small employers and accountants for years. The 2025/26 desktop version costs £139 for up to 10 employees as a one-off annual fee. From 2026/27, BrightPay moves to cloud-only pricing. It is HMRC-recognised, handles RTI and auto-enrolment, and includes free phone support.
HMRC Basic PAYE Tools is free and handles up to 9 employees. It does the basics: FPS, EPS, P60s, P45s. But the interface is dated, support is minimal, and users regularly report bugs and frustrations. If you have three employees or fewer and a tight budget, it works. Beyond that, spend the money on proper software. Your time is worth more than wrestling with a free tool every payday.
All four of these are listed on HMRC's recognised payroll software page. Using non-recognised software is asking for trouble; HMRC may reject your submissions.
For a detailed comparison of accounting software that includes payroll, see our Xero vs QuickBooks vs Sage comparison.
Your compliance checklist
Whether you are hiring your first employee or tightening up an existing payroll process, run through this list:
1. Register as an employer with HMRC. You must register before your first payday. HMRC will issue you an Employer PAYE Reference and an Accounts Office Reference. Allow up to four weeks, so do not leave it until the last minute.
2. Choose HMRC-recognised payroll software. Set it up with your employer references, company details, and tax year settings. Enter each employee's personal details, tax code, NI category, and start date.
3. Run payroll on schedule. Calculate gross pay, deduct tax and employee NIC, deduct student loans and pension contributions, then calculate employer NIC on top. Your software does all of this automatically.
4. Submit your FPS on or before each payday. Do not wait until the end of the month to submit weekly payrolls. Each FPS must match the actual pay date.
5. Submit your EPS by the 19th of the following month. Claim your Employment Allowance, report statutory pay recoveries, and report any CIS deductions suffered through the EPS.
6. Pay HMRC by the 22nd of the following month (if paying electronically) or the 19th (by cheque). Late payment attracts interest and may count towards a penalty trigger.
7. Give employees payslips. You are legally required to provide payslips on or before each payday showing gross pay, deductions, and net pay. Your payroll software generates these automatically.
8. Set up auto-enrolment. If any employee is aged 22 or over and earns more than £10,000 per year, you must auto-enrol them into a workplace pension. The minimum contribution is 8% of qualifying earnings (3% employer, 5% employee). NEST is the government-backed pension scheme that accepts all employers.
Put two recurring reminders in your phone: one for your FPS deadline (every payday) and one for EPS and payment (the 19th of each month). Missing a deadline because you were on a job is not a reasonable excuse in HMRC's eyes.
What trades employers are saying
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Frequently asked questions
Yes. If you pay any employee more than £123 per week (the lower earnings limit), you must register as an employer and run PAYE. Even if their earnings fall below the tax threshold, you still need to report via RTI.
No. RTI submissions must go through HMRC-recognised payroll software. You cannot email, post, or phone in your payroll data. The free HMRC Basic PAYE Tools counts as recognised software if you have fewer than 10 employees.
Your first late submission in a tax year is penalty-free. After that, you face a monthly penalty of £100 (for 1 to 9 employees). HMRC may apply a three-day grace period, but that is discretionary. Set reminders and submit on time.
No. CIS subcontractors are not employees, so they do not go through PAYE or RTI. You report CIS deductions through a separate CIS monthly return. However, any directly employed staff must go through RTI regardless of whether you also use subcontractors. See our CIS guide for more detail.
Not if you are the only employee of your limited company. You need at least one other employee on the payroll. Once you hire someone, even part-time, you become eligible for the full £10,500 allowance.
HMRC's Basic PAYE Tools is free for up to 9 employees. Sage Payroll starts from £10 per month. Xero payroll adds £1.50 per employee per month to your Xero subscription. BrightPay charges £139 per year for up to 10 employees. All are HMRC-recognised.
Only if they are aged 22 or over and earn more than £10,000 per year. Below that threshold, you do not have to auto-enrol them, but they can opt in if they choose. You must still assess every employee at each pay period.
The bottom line
RTI and PAYE are not complicated once you have the right system in place. Pick HMRC-recognised software, claim your Employment Allowance, submit your FPS on every payday, and pay HMRC by the 22nd. The trades businesses that get caught out are the ones that leave payroll to the last minute, use manual spreadsheets, or ignore the deadlines. The cost of getting it right is a few hundred pounds a year in software. The cost of getting it wrong starts at £100 per month in penalties and goes up from there. Sort it once, run it properly, and it becomes background noise rather than a source of stress.
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