If you employ staff, you are responsible for collecting Income tax and National Insurance from them on behalf of the government. This is done through Pay As You Earn (PAYE) deductions taken from their wages, salary or commission. As many small businesses do, you can outsource this payroll function or keep it in-house.

While many small companies still do manage their payroll manually, this is time-consuming and prone to error. So, the best solution for most SMEs is to automate the process using specifically designed payroll software for small business.

Not too long ago, this would have been unaffordable. But now, given the wide range of cost-effective products on the market, including pay by the month cloud payroll software, it’s a realistic option.


Setting up the best payroll software for your business

If you are employing people for the first time, you will need to first register with Her Majesty’s Revenue and Customs (HMRC) as an employer beforehand and complete certain tasks to set up payroll.

With any kind of payroll software, you will first need to enter into the system each person’s employment details. This includes their tax code, which determines how much PAYE and National Insurance you need to deduct.

You can get most if not all this information from their P45. HMRC’s starter checklist details the information you need to get from new employees.

Then, just update an employee’s record with all changes to wages or salary paid and any holiday pay or other entitlement, and the payroll software does all the necessary tax and NI calculations.


Keeping payroll information safe

While it’s important to keep comprehensive records for HMRC, you must ensure you follow new General Data Protection Regulations (GDPR). These have come into force as of May 2018 and govern how organisations collect, store and use personal data, not just for payroll, but also accounting, marketing, sales and customer service purposes.

If you would like to learn about the impact of GDPR on payroll you can read our article here: GDPR compliance for small business.

In brief, under GDPR you can hold only the minimum necessary details about someone. This information has to be accurate and kept confidential. When you collect it, you have to tell them why you need it and what you are going to do with it.

You must also be prepared to show this information to the individual concerned should they ask to see it. If you are using online payroll software, your service provider also needs to be GDPR compliant.


Choosing the best payroll software for small business

Which is the best small business payroll software for you will depend on factors such as your company’s size, the level of technical support you need, the accounting software you currently use and whether your staff are salaried, paid by the hour, or receive a commission.

However, these are some of the important functions and common features you should look out for.

  • Real Time Information (RTI). To give an accurate, up- to-the-minute picture of tax paid and other deductions, the government introduced RTI. HMRC expects everyone to use only payroll software that is RTI compliant.
  • If you pay bonuses, commission and overtime, look for a system that can easily be customised to your business needs. If your payroll rarely changes, software that offers automated rules and scheduling will enable you to run the same processes every week or month with very little input.
  • With most people paid through BACS, you will want payroll software that can handle this, or you will have to set up a separate system to do so.
  • Be aware that not all systems will print out payslips, or send an Employer Payment Summary (EPS) report or Earlier Year Update (EYU) to HMRC. Again, all useful to have.
  • UK businesses are now required to automatically enroll employees into a pension scheme and make payroll deductions accordingly. So choosing software that can auto-enroll new employees and manage pension payments and records will be another time saver.
  • If you need to access the payroll system from a smartphone or tablet, then consider software that works across multiple devices. But check if there is any loss of functionality when working on a smaller screen.
  • Having multi-user access is useful if you want staff to be able to download previous payslips or look up their pay history, for instance.
  • There is always a learning curve implementing any new software, so you may want to consider the level of technical and ongoing support available from the vendor.


Best payroll software UK 2023

So, which should you go for? Here’s a quick assessment of some of the best and most user friendly ones.

All have been approved by HMRC to ensure they accurately calculate tax and NI, offer auto enrolment and are RTI compliant. You can find the full list of HMRC approved payroll solutions here.

Xero – Best small business payroll software UK

Has many good features and is easy to customise for any type of small business. Directly integrates into their accounting software which is a plus.

The Xero mobile app offers a self-service option employees can use to view their payslips, submit timesheets or apply for leave.

30-day free trial. Standard pricing starts at £5 / mo in addition to your package fees for up 5 payroll employees. Each additional employee £1 extra per month.

Xero UK Payroll Overview

QuickBooks – Best payroll software for medium-sized business UK

A leader in the cloud space and a good option if you are already running the QuickBooks accounting package. Have increased their number of integrations in 2020 to 700+ business apps. It’s very comprehensive and covers all of the bases.

It also includes a mobile app and portal where employees can change their details, access payslips or request leave. Offer direct integrations with supported pensions providers and can handle CIS or salary sacrifice schemes and even court order deductions.

30-day free trial. Standard payroll is £4 / mo + £1 per paid employee per month. Advanced payroll is £8 / mo. Must be combined with a QuickBooks subscription.

QuickBooks UK payroll dashboard

Sage Business Cloud Payroll – Simple payroll for small business UK

A comprehensive web-based solution from one of the best accounting software firms. It integrates easily with Sage’s other systems for faster financial management.

Alternatively, you can run payroll on it’s own in the cloud. Has some direct integration to popular AE pension providers. You can also print or email your payslips, P60s and reports to save yourself from all that paper clutter.

It’s easy to amend previous pay runs and adjustments are handled automatically.

Try it free for 30 days, then standard pricing starts at £7 per month + VAT if you have between 1 and 5 employees. It’s important to note that all features are included even in the basic plan. Pricing changes according the number of employees.

Sage Cloud Payroll UK dashboard

BrightPay – Best desktop payroll software UK

BrightPay positions itself as ‘a breath of fresh air’ for those tired of other payroll products. It has won Payroll Software of the Year 2018 and Payroll Software of the Year 2019.

Although a desktop solution, BrightPay still manages to bring cloud functionality to those that need it through their optional Connect add-on.

This will get small business owners get automated cloud backup, online employer dashboards, annual leave management, client payroll entry and approval and an employee self-service portal.

In addition, you can event connect to the most popular cloud account software such as Xero, Sage or Quickbooks through their API.

It also has a good-looking interface, is easy to use and offers free support.
Pricing starts at £69 for firms with 3 employees and fewer. Cloud functionality through BrightPay is available as an add-on and starts at £0.60 per month per employee.

BrightPay Payroll Report

MoneySoft – Easy to use desktop payroll software

MoneySoft’s Payroll Manager is a comprehensive and RTI compliant payroll software, designed to be easy to use so data entry is intuitive and straightforward.

Automatic Enrolment of Workplace Pensions come standard. If you’re not ready to move your payroll to the cloud this is a viable option.
MoneySoft’s payroll manager is only available as a desktop package.

The plus side is that it integrates with their bookkeeping software, Money Manager 7 which is a one off purchase of only £125 + VAT. It can be used for any number of businesses and personal accounts.

Pricing starts is £78 per year for one company with up to 20 employees.

MoneySoft Payroll Manager

KashFlow – Comprehensive accounting software

The payroll package can be used on it’s own or integrates with KashFlow’s own online accounting software, making it easy to transfer payment details between the two.

A self-service feature means employees can access payslips and their individual data from anywhere and at any time. The downside is Automatic Enrolment is not included an costs extra.

Payroll core starting at £6.75 for up 5 employees or combined with accounting at £22.50 per month. Pricing for additional employees is £1.13. Automatic enrolment module is £1 / mo / employee.

Kashflow Payroll Dashboard

Basic PAYE Tools – Best free payroll software for small businesses.

This is HMRC’s own software. Good for firms with 1 or 2 employees who want the most cost-effective solution. It performs most payroll tasks but can’t produce payslips.


Changing payroll systems

Some packages will obviously be a better fit for your business than others, so it makes sense to take advantage of a free trial to try out different ones and what each has to offer.

If you already run payroll software and change to another package, you may not be able to use the same Payroll IDs on the new system. If you try to, then you may end up with duplicated records and wrongly calculated PAYE.

Your business could be in serious trouble if you aren’t paying the right amount of tax. You can find more information on changing payroll software systems on the HMRC website.

Payroll is an essential task for every employer, so making sure you have the right system in place will benefit your business. For example, having the right payroll expenses included as part of the business budget can help determine if there will be enough to cover wages in the coming months.

If you’re in the process of deciding on a solution for your business BrooksCity can help. Our team of accountants in London can help advise you on the payroll package that will work best for your business and even set it up. Getting it right in the first place can save you a lot of headaches later. For more information you can contact us or request a quote directly here.