PAYE — Pay As You Earn — is the system HMRC uses to collect Income Tax and National Insurance from employees in real time, rather than waiting for an annual return. If you employ anyone, even just yourself through your own limited company, PAYE is your responsibility. Get it right and it ticks along quietly in the background. Get it wrong and the penalties, interest, and HMRC correspondence stack up quickly.

The 2026 tax year has brought more change to PAYE than most. New wage rates, adjusted employer reliefs, revised rules around expenses, and a significant shift in liability for businesses using umbrella companies all came into force on or around 6 April 2026. In our experience, most employers are aware that something changed — but far fewer have checked whether their payroll setup reflects those changes correctly.

This post walks through the key things that matter right now, and where the common mistakes tend to happen.

At its core, PAYE requires employers to calculate the correct amount of Income Tax and National Insurance for each employee every pay period, deduct it from their gross pay, and send that money to HMRC. The critical part is the reporting side: each time you pay an employee, you must submit a Full Payment Submission (FPS) to HMRC on or before payday. Not after — on or before.

That real-time reporting obligation is what HMRC calls RTI, or Real Time Information. It was introduced back in 2013 and by now most payroll software handles it automatically. But automatic does not mean infallible. One of the most common issues we see is an FPS that records the wrong payment date — the date the report was sent rather than the actual date the employee was paid. HMRC uses the payment date on the FPS to work out your liability, so a mismatch creates an incorrect bill and a reconciliation headache.

Alongside the FPS, there is the Employer Payment Summary (EPS). You use this to tell HMRC if you are claiming statutory payments, taking the Employment Allowance, or have no employees to pay in a given period. If you skip it when you should have sent it, your PAYE account will show an inflated balance that HMRC expects you to pay.

If your bill looks wrong after submission, you have until the 12th of the following tax month to contact HMRC before it becomes harder to resolve informally.

April 2026 was a busy month for payroll. The key changes employers need to have already acted on are:

• National Minimum Wage and National Living Wage: Both rates increased on 1 April 2026. If your payroll was not updated before the first pay run after that date, you may have underpaid affected employees — which is an HMRC compliance issue, not just an HR one.
• Small Employers’ Relief: The compensation rate for statutory payments (such as Statutory Maternity Pay) recovered through payroll increased from 8.5% to 9%. Small employers who qualify should ensure they are claiming the correct rate on their EPS.
• Homeworking expenses: Tax relief for non-reimbursed homeworking expenses was removed from 6 April 2026. This affects employees who had previously claimed the flat-rate deduction on their own tax return. However, if your business formally reimburses employees for homeworking equipment, eye tests, or flu vaccinations, new exemptions mean those reimbursements can now be made free of tax and National Insurance — provided they are properly structured.
• NI refund automation: HMRC is moving to automated processing for National Insurance refund claims involving multiple employees, with refunds going directly to the employer’s PAYE online account rather than by bank transfer. Worth knowing if you manage payroll for a larger team.

None of these changes are obscure. But in the busyness of running a business, it is easy for April to pass without double-checking that your payroll software and processes have kept pace.

If your business uses temporary workers sourced through recruitment agencies, and those workers are paid via umbrella companies, the rules shifted significantly from 6 April 2026. This is worth understanding even if you are not directly running payroll for those workers.

Under the new rules, recruitment agencies are now responsible for accounting for PAYE and Class 1 National Insurance on payments made to workers supplied through umbrella companies. Where there is no agency in the chain — meaning you engage umbrella workers directly — the responsibility falls to you as the end client.

The policy change is a direct response to years of non-compliant umbrella schemes leaving temporary workers with large, unexpected tax bills. HMRC’s stated intention is to close the gap between what those workers should be paying and what was actually being deducted. The practical effect is that more businesses in the supply chain now carry PAYE liability for people they may not formally think of as their employees.

If you use agency workers or have contractors operating through umbrella arrangements, it is worth reviewing those relationships now rather than waiting for HMRC to raise a query. For contractors themselves, the interaction between umbrella company rules and IR35 is increasingly relevant — the two frameworks overlap more than many people realise.

It happens more often than employers expect: the bill in your PAYE online account does not match what you thought you owed. Before assuming HMRC has made an error, it is worth working through a short checklist.

First, check whether your most recent FPS and EPS were submitted on time and contain the correct payment date — not the submission date. A one-day difference can cause HMRC’s systems to treat a payment as late or attribute it to the wrong period.

Second, check whether any employees have recently started or left. Incorrect reporting of starters or leavers is a common cause of duplicate records in HMRC’s system, which inflates the bill. HMRC’s guidance notes that these duplicates are often corrected automatically, but not always promptly.

Third, if the bill is still wrong after checking those two areas, contact HMRC directly. If you raise it before the 12th of the following tax month, there is usually a straightforward route to correction. After that point, it becomes a formal amendment process.

If your business is facing cashflow pressure and genuinely cannot pay a PAYE liability on time, a Time to Pay arrangement with HMRC is worth exploring. These allow payment in instalments over an agreed period — sometimes extended to 12 or 15 months depending on the employer’s circumstances. They are not guaranteed, but HMRC will generally engage if you contact them proactively rather than waiting for enforcement action.