Payroll software: Simplify payroll and HMRC compliance for your business

Published Friday 23 January 2026

Table of contents

• What payroll software does for your business
• HMRC compliance made simple
• Key features that save you time
• Why cloud-based payroll works better
• Giving your employees what they need
• Making the switch to payroll software
• Streamline your business operations
• FAQs on payroll software

Key takeaways

• Implement cloud-based payroll software to automate salary calculations, tax deductions, and HMRC Real Time Information submissions, which eliminates manual errors and ensures compliance with changing tax legislation.
• Prioritise payroll systems that integrate directly with your accounting software to automatically record wages and taxes in your general ledger without manual data entry.
• Utilise employee self-service features that allow staff to update their personal information, apply for leave, and submit expense claims directly through the system to reduce administrative workload.
• Apply automated pension auto-enrolment and statutory payment calculations to stay compliant with workplace pension regulations and claim available HMRC relief such as Small Employers' Relief at 108.5%.

What payroll software does for your business

Payroll software manages, maintains, and automates payments to your employees. It helps you stay compliant with tax laws and other financial regulations, which reduces costs and saves you time.

Instead of handling payroll manually with spreadsheets, the software automates calculations for wages, tax, and pensions. This means you can pay your people accurately and on time, every time, with far less administrative work.

HMRC compliance made simple

Staying on top of tax laws and regulations is a major concern for small businesses. Good payroll software simplifies this by automatically submitting Real Time Information (RTI) to HMRC every pay run.

The software stays up to date with changes in tax and pension legislation, so you don't have to. It can also help you claim relief from HMRC, such as Small Employers' Relief. According to GOV.UK, eligible businesses can reclaim 108.5% of statutory payments, ensuring you are compliant and taking advantage of available support.

Key features that save you time

The right payroll software comes with features designed to make your life easier and give you back valuable time. These tools automate repetitive tasks so you can focus on running your business.

• Automatic calculations: The software automatically calculates pay, tax, and pension contributions, reducing the risk of human error
• Payslips for employees: Generate and share payslips with your employees through a secure online portal or app, cutting down on admin
• Pension auto-enrolment: Assess and automatically enrol eligible employees into a workplace pension scheme, keeping you compliant with pension regulations
• Integrated accounting: Connect your payroll directly to your accounting software, so your financial records are always accurate and up to date without manual data entry

Why cloud-based payroll works better

Using online payroll software, also known as cloud payroll software, lets you hand off software maintenance and updates. Your provider stores your data securely online and manages it remotely, which reduces support costs and removes the need for expensive upgrades.

You can access your payroll information from anywhere, at any time, using a laptop, tablet, or smartphone. This gives you the flexibility to approve payments or check figures without being tied to the office.

Giving your employees what they need

Reliable payroll systems ensure employees are paid accurately and on time, which improves morale and productivity. Key features your payroll software should provide:

• Automated direct payments: Guarantee salary deposits on scheduled dates without manual intervention or delays
• Automatic tax code updates: Handle changes in employee tax codes instantly when legislation or personal circumstances change
• Precise tax calculations: Calculate PAYE deductions correctly to help avoid underpayment penalties or employee financial hardship
• Letting your employees help: As your business grows you may have dozens of employees or more. Each time they move home or change their personal status, that information must be updated in your system. It can help to give employees limited access to their own information so they can make changes directly. You can still set checks so that any changed information is reviewed before it is updated.
• Managing holiday accounting: Your payroll system should track the number of days each year that an employee has been on leave, their total leave allowance, and any carry-over from the previous year. You can improve efficiency by letting employees apply for leave directly within the system. Their applications can then be approved or declined by their manager without extra paperwork.
• Process expenses and travel claims quickly: These are costs your employees pay on behalf of your business. Make sure your employees are reimbursed as quickly as possible. This helps avoid stress.
• Making regular healthcare, pension or superannuation contributions: These payments may not be very large, but they add up over time, and so do any errors. Good payroll accounting software will take care of these payments automatically. Benefits, overtime and sickness pay should also be handled quickly and efficiently to keep your employees happy.

Making the switch to payroll software

Moving to a new payroll system can feel like a big step, but modern software makes the process straightforward. You can import existing employee data to get set up quickly.

Modern payroll software combines employee management with business efficiency features. Essential capabilities include:

• Automated tax reporting: Generate RTI submissions and year-end returns automatically by pulling data from your accounting system
• Employee lifecycle management: Handle starter and leaver processes with guided workflows and automatic form generation
• Reduce IT costs: Cloud payroll software handles updates and backups for you, which cuts support costs and avoids large upgrade projects
• Access from anywhere: Sign in securely from any device so you can approve payments or check payroll figures even when you are away from the office
• Stay up to date: Tax laws change, income tax rates vary, and employee benefits law isn't set in stone. For instance, the UK government is introducing mandatory payrolling of benefits in kind from April 2027. Quality payroll software can make life easier for you by incorporating changes like this when they occur and rolling them out to your employees.
• Claim relief: Payroll software can help businesses easily claim relief from HMRC such as Small Employers' Relief.

Streamline your business operations

Reliable payroll software protects your business reputation while ensuring employee satisfaction. Accurate, on-time payments reduce administrative burden and let you focus on growing your business. Ready to simplify how you run payroll? Try Xero for free and see how automation can save you time each pay run.

FAQs on payroll software

Here are answers to some common questions about payroll software.

What are the main types of payroll systems?

There are four main approaches to payroll: manual processing using spreadsheets, outsourcing to a payroll service, using dedicated payroll software, and working with a Professional Employer Organisation (PEO). Payroll software is often the best fit for small businesses looking for control, automation, and affordability.

Is it possible to use Excel for payroll?

While you can use Excel for payroll, it's a manual process that is prone to errors and doesn't automatically update with tax law changes. For businesses with fewer than ten employees, HMRC provides free Basic PAYE Tools as a starting point, but dedicated software offers greater accuracy, compliance, and time savings for growing companies.

How does payroll software integrate with accounting?

Most payroll software integrates directly with accounting platforms like Xero. This means that once you run payroll, all the financial data, such as wages and taxes, is automatically recorded in your general ledger, keeping your books accurate without extra work.