If you have employees, you need to run payroll. That is not optional. The real question is whether you need an accountant for payroll, or whether you can handle it yourself with software.

The answer depends on three things: how many people you pay, how complex their pay is, and how much your time is worth. Let us walk through it.

What Does a Payroll Accountant Actually Do?

A payroll accountant handles the full cycle of paying your staff and reporting to HMRC. That includes calculating gross pay, deducting tax and National Insurance, processing pension contributions, and filing RTI (Real Time Information) returns to HMRC on or before each pay day.

They also handle the less obvious bits. P11D forms for benefits in kind. P45s for leavers. Student loan deductions. Attachment of earnings orders. Holiday pay calculations for irregular hours workers. And the year-end P60s and P32 summaries.

If you use a payroll accountant, they typically run the payroll each month or week, check the figures, submit the RTI return, and tell you exactly how much to pay each person and what to transfer to HMRC.

Can You Do Payroll Yourself?

Yes. And many small business owners do. Software like FreeAgent, Xero, QuickBooks, BrightPay, and Sage 50 all include payroll modules. For a sole director taking a small salary with no other staff, the built-in payroll in FreeAgent or Xero is perfectly adequate.

The software calculates the figures automatically. You enter the hours or salary amount, the software works out PAYE, NI, and pension deductions, and submits the RTI return to HMRC with one click.

But here is where it gets tricky. The software only works correctly if you set it up properly and keep it updated. HMRC changes tax codes, NI thresholds, and pension rules every year. If your software is not on the latest version, or if you enter the wrong starter declaration, the figures will be wrong.

And HMRC does not accept "the software did it" as a defence. The employer is responsible for every RTI submission.

When Self-Service Works

You can reasonably handle payroll yourself if:

  • You have 1-3 employees on straightforward salaries
  • No one has variable hours, overtime, or commission
  • No one receives benefits in kind (company cars, private medical insurance, gym memberships)
  • No one has student loan deductions or court orders
  • Everyone is on the same pension scheme with standard contributions
  • You are confident using the software and understand basic PAYE rules

If that describes your business, you probably do not need a dedicated accountant for payroll. You can use your existing bookkeeping software or a low-cost payroll-only tool like BrightPay.

When You Need a Payroll Accountant

You should seriously consider using a payroll accountant if any of the following apply:

  • You have 5 or more employees
  • Anyone works variable hours, shift patterns, or overtime
  • You offer benefits in kind like company cars, health insurance, or interest-free loans
  • You have employees on different pension schemes
  • You employ apprentices or people on government schemes
  • You have directors taking irregular dividends alongside salary
  • You are in the construction industry and need CIS deductions
  • You simply do not want the hassle and risk of getting it wrong

Each of these adds complexity. A single mistake on a P11D can trigger an HMRC compliance check. A late RTI submission triggers an automatic penalty. A wrong tax code means an employee underpays tax and blames you.

How Much Does a Payroll Accountant Cost?

Pricing varies by firm and by what is included. Here are typical ranges for UK small businesses as of 2025/26:

  • Basic payroll only (monthly processing, RTI submissions, P60s): £15 to £30 per month per employee
  • Payroll plus pension admin: £25 to £50 per month per employee
  • Full payroll, pension, P11Ds, and year-end: £40 to £75 per month per employee
  • Fixed fee for a small payroll (1-5 employees, all basic): £50 to £100 per month total

Many accountants bundle payroll with annual accounts and tax returns. If you already use an accountant for your year-end, adding payroll is often cheaper than going elsewhere. A typical bundle for a small limited company with one director and one employee might be £150 to £250 per month for accounts, tax, and payroll combined.

Compare that to the cost of a single HMRC penalty. Late filing of an RTI return: £100 per month per 50 employees (pro-rata for smaller payrolls). Incorrect P11D: up to £3,000 per form. A penalty for not auto-enrolling a pension-eligible employee: £400 plus ongoing daily fines.

The cost of a payroll accountant often pays for itself in avoided penalties alone.

Accounting and Payroll: Where Do They Overlap?

This is where many business owners get confused. Accounting and payroll are related but not the same thing.

Payroll is the process of calculating pay, deducting tax and NI, and reporting to HMRC. Accounting is the process of recording those payroll transactions in your books, reconciling them to bank statements, and reporting the totals in your annual accounts and corporation tax return.

A good accounting and payroll service handles both. The payroll figures feed directly into your bookkeeping. The gross salaries appear as staff costs in your profit and loss account. The employer NI appears as a separate expense. The pension contributions are recorded correctly.

If your payroll and accounting are handled by different people, you need to make sure the numbers reconcile. That is an extra step that can introduce errors.

At Holloway Davies, our ICAEW qualified team handles accounting and payroll together. The payroll runs each month, the figures flow into your bookkeeping automatically, and your year-end accounts are accurate because the payroll data is already reconciled. No double entry. No mismatched totals.

The Real Cost of DIY Payroll Mistakes

Let us look at a real scenario. A 4-employee software consultancy in Manchester, turning over £420,000. The director decided to run payroll himself using the built-in module in Xero.

He entered the wrong starter declaration for a new employee. Instead of "Statement A" (first job since 6 April, no previous P45), he selected "Statement B" (this is the only job, but another job since 6 April). The employee ended up on an emergency tax code. HMRC sent a letter to the employee, who then complained to the director.

Fixing it took three phone calls to HMRC (45 minutes each), a corrected RTI submission, and a manual tax refund to the employee. The director estimated it cost him about four hours of his time. At his effective hourly rate of £85, that is £340 of lost billable time. Plus the stress and the awkward conversation with his employee.

A payroll accountant would have spotted the error before submission and fixed it in two minutes.

Accountancy Payroll vs Payroll Only: Which Service Do You Need?

Some firms offer accountancy payroll as a standalone service. Others include it as part of a broader package. Here is how to decide which you need.

Payroll only makes sense if you already have an accountant for your annual accounts and tax returns, and you just want someone to run the payroll each month. Your existing accountant may offer this as an add-on, or you can use a specialist payroll bureau.

Accountancy payroll (combined service) makes sense if you want one provider handling everything. The payroll data flows into your bookkeeping. Your year-end accounts reflect the correct staff costs. Your corporation tax return includes the right figures for employer NI and pension contributions. Everything connects.

For most small businesses, the combined service is more efficient and less prone to error. You are not paying two different providers to check each other's work.

What About Sole Traders and Partnerships?

If you are a sole trader or partnership with employees, the same principles apply. You still need to run payroll, submit RTI returns, and handle pensions. The main difference is that you cannot pay yourself through payroll as a sole trader. Your drawings are not a salary. But any employees you have must be on the payroll.

If you are a sole trader with no employees, you do not need payroll at all. You report your profits through self assessment (SA100 and SA103). No RTI, no PAYE, no employer NI.

Partnerships are similar. Partners are not employees. Their profit shares are not salary. But any non-partner staff must be on the payroll.

How to Choose a Payroll Accountant

If you decide to outsource, here is what to look for:

  • ICAEW or ACCA qualified. That means they are regulated and carry professional indemnity insurance. If they make a mistake, you have recourse.
  • Uses modern software. They should use cloud-based payroll software that integrates with your bookkeeping. BrightPay, Xero Payroll, or Sage Payroll are standard. If they are still using spreadsheets, walk away.
  • Handles auto-enrolment. Pension duties are not optional. Your payroll accountant should manage enrolment, contributions, and re-enrolment cycles.
  • Offers P11D support. If anyone in your business has benefits in kind, you need P11Ds filed by 6 July each year. Not all payroll services include this.
  • Transparent pricing. They should tell you exactly what is included and what costs extra. P11Ds, pension admin, and year-end tasks are often separate.

At Holloway Davies, we offer accounting and payroll services that cover all of this. Our ICAEW qualified team runs payroll for businesses across every sector, from 1-employee contractors to 50-person teams. We use Xero and BrightPay, integrate with your bookkeeping, and handle everything from RTI submissions to P11Ds and pension compliance.

Making Tax Digital and Payroll

MTD for ITSA (Making Tax Digital for Income Tax Self Assessment) does not directly affect payroll. Payroll already submits RTI returns digitally. That has been mandatory since 2013.

But MTD does affect how you record and report your business income and expenses. If you use a combined accounting and payroll service, your payroll data feeds into your MTD-compatible software automatically. That saves you from manually entering staff costs when you submit your quarterly MTD updates.

From April 2026, MTD for ITSA becomes mandatory for self-employed people and landlords with qualifying income over £50,000. If you are a limited company director, you are already filing your corporation tax return (CT600) digitally through your accountant. MTD for Corporation Tax is on the horizon but not yet mandated.

Your payroll accountant should be ready for these changes. If they are not, find one who is.

Final Verdict: Do You Need an Accountant for Payroll?

If you have one or two employees on simple salaries and you are confident using payroll software, you can do it yourself. Just keep your software updated, check HMRC notices regularly, and be prepared to spend a few hours each month on it.

If you have more than a handful of staff, variable pay, benefits, or simply do not want the risk, a payroll accountant is worth the cost. The peace of mind alone justifies the fee. And when you factor in the cost of your own time and the potential penalties for mistakes, it is usually cheaper to outsource.

If you are already using an accountant for your annual accounts, ask them about adding payroll. It is often the most cost-effective option.

If you are looking for a new provider, our team at Holloway Davies can help. We offer accounting and payroll services tailored to your business size and complexity. Contact us to discuss your payroll needs.