If you run a UK business, accounts and payroll are two things you cannot avoid. Get them right and your business runs smoothly, you pay the right tax, and you sleep at night. Get them wrong and you face HMRC penalties, late filing fines, and a lot of stress.

This guide covers the essentials. We will look at what accounts and payroll mean for different business structures, how to set up payroll properly, what your year-end obligations are, and how to keep bookkeeping simple. As ICAEW qualified accountants, we work with limited companies, sole traders, and partnerships across the UK. This is the advice we give our own clients.

What Do Accounts and Payroll Actually Mean?

Accounts refers to the financial records of your business. For a limited company, this means statutory accounts filed at Companies House and a corporation tax return (CT600) filed with HMRC. For a sole trader or partnership, it means a self assessment tax return (SA100 for sole traders, SA800 for partnerships) showing your profit or loss.

Payroll is the system you use to pay your employees (including yourself if you are a limited company director). It involves calculating pay, deducting tax and National Insurance, reporting to HMRC in real time through RTI (Real Time Information), and issuing P60s and P45s at the right times.

Many business owners treat these as separate tasks. In practice, they overlap constantly. Your payroll costs feed into your accounts. Your accounts determine how much corporation tax you pay. Getting both right means understanding how they connect.

Setting Up Payroll for a Limited Company Director

If you are a director of a limited company and pay yourself a salary, you need a payroll system. You cannot just transfer money from the business account to your personal account and call it done. HMRC requires you to report salary payments through RTI on or before the day you pay them.

The most common approach for a director of a small limited company is to take a salary set at the personal allowance threshold (£12,570 for 2025/26). This avoids income tax and employee National Insurance. The employer NI on this salary is £nil if you claim the Employment Allowance, or roughly £480 if you do not. Most small companies with one director do claim it.

You then take the rest of your income as dividends. Dividends are not payroll. They come from post-tax profits and are declared through your personal tax return, not through payroll. The dividend allowance for 2025/26 is just £500. Above that, you pay dividend tax at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate).

You need payroll software to run payroll correctly. FreeAgent, Xero, and BrightPay are all common choices. If you use FreeAgent or Xero for your bookkeeping, the payroll module is built in. BrightPay is a standalone payroll package that integrates with most accounting software.

What If You Are a Sole Trader or Partnership?

If you are a sole trader or a partner in a partnership, you do not need to run payroll for yourself. Your drawings are not salary. You pay tax through self assessment on your total profit, regardless of when you take money out of the business.

However, if you employ anyone else, you must run payroll for them. The same RTI rules apply. You must register as an employer with HMRC before the first payday. You can do this online through your Government Gateway account.

Payroll Deadlines You Cannot Miss

Missing payroll deadlines triggers automatic penalties. Here are the key ones:

  • RTI submission: On or before each payday. Late by one day and HMRC can issue a penalty. The first late filing in a tax year may get a warning. Subsequent late filings start at £100 per month per 50 employees.
  • P60 issue to employees: By 31 May following the end of the tax year. The tax year ends 5 April. Your P60 must be with employees by 31 May.
  • P11D and P11D(b): By 6 July following the tax year. These report benefits in kind and Class 1A National Insurance. If you provide a company car, private health insurance, or interest-free loans over £10,000, you need to file these.
  • Full Payment Submission (FPS): Every payday. This is the RTI submission itself.
  • Employer Payment Summary (EPS): By 19 April after the tax year end. This reports any reductions in your total liability, such as statutory maternity pay recoveries or Employment Allowance claims.

If you use a payroll software package, most of these are automated. The software will generate the P60 and P11D data for you. You just need to check the figures and submit.

Bookkeeping: The Foundation of Accounts and Payroll

Good accounts and payroll start with good bookkeeping. If your bookkeeping is a mess, your payroll figures will be wrong, your year-end accounts will take longer, and your tax bill will be a guess rather than a calculation.

Bookkeeping means recording every financial transaction. Every sale, every expense, every dividend payment, every director's loan repayment. You need to categorise them correctly. A business lunch is not the same as client entertainment. Software costs are not the same as capital allowances on a new laptop.

Most small businesses use cloud accounting software. Xero and FreeAgent are the two most common for limited companies. QuickBooks dominates with sole traders and contractors. Sage 50 is still common in trade and manufacturing businesses. The right choice depends on your business type, your budget, and whether you need payroll built in.

If you do your own bookkeeping, set aside a regular time each week. Thirty minutes every Friday is better than a frantic weekend every quarter. Reconcile your bank accounts against the software. Check that your payroll entries match your bank payments. If something does not balance, find the error while you still remember the transaction.

Year-End Accounts: What You Need to File

For a limited company, the year-end process involves three main filings:

  • Annual accounts to Companies House: Due 9 months after your accounting year-end. For example, if your year-end is 31 March 2025, the accounts are due by 31 December 2025. Late filing penalties start at £150 for a private company and increase the longer you delay.
  • Corporation tax return (CT600) to HMRC: Due 12 months after your year-end. Corporation tax itself is due 9 months and 1 day after year-end. So you pay the tax before you file the return.
  • Confirmation statement to Companies House: Due every 12 months. This confirms your company's details are correct. It is not the same as your annual accounts.

For a sole trader or partnership, the year-end is 5 April (the tax year). Your self assessment return is due by 31 January following the end of the tax year. If you are a sole trader with turnover above the VAT threshold (£90,000 for 2025/26), you also need to submit VAT returns, typically quarterly.

What If You Have Employees?

If you have employees, your year-end payroll tasks include:

  • Checking all RTI submissions for the year are correct
  • Issuing P60s to all employees who were on your payroll on 5 April
  • Filing P11D and P11D(b) if you provided benefits
  • Submitting the final EPS for the tax year

Your payroll software should handle most of this. But you need to review the figures. A common error is forgetting to include a benefit like a company phone used privately, or a Christmas party that exceeds the £150 per head trivial benefits limit.

Making Tax Digital for Income Tax: What It Means for Accounts and Payroll

MTD for ITSA (Making Tax Digital for Income Tax Self Assessment) is coming. From April 2026, self-employed individuals and landlords with qualifying income over £50,000 must use MTD-compatible software to keep digital records and submit quarterly updates to HMRC. From April 2027, the threshold drops to £30,000. From April 2028, it drops to £20,000.

This changes how you manage accounts and payroll. Your bookkeeping software must be MTD-compatible. Xero, FreeAgent, and QuickBooks are all MTD-ready. You will need to send quarterly summaries of your income and expenses to HMRC, then a final declaration at year-end to confirm the figures.

Payroll itself is not directly affected by MTD for ITSA. But the quarterly submissions will pull data from your bookkeeping. If your payroll costs are not recorded accurately in your software, your quarterly submissions will be wrong. This is another reason to keep your bookkeeping and payroll aligned.

Common Accounts and Payroll Mistakes to Avoid

Here are the errors we see most often when new clients come to us:

  • Not registering as an employer before paying staff. You must register with HMRC before the first payday. If you pay someone without registering, you are breaking the law.
  • Mixing director's loan with salary. If you take money from the company without running it through payroll or declaring it as a dividend, it goes into your director's loan account. If the balance is not repaid within 9 months and 1 day of year-end, the company pays S455 tax at 33.75% on the outstanding amount.
  • Ignoring the dividend allowance. The allowance is now £500. Many directors still think it is £2,000. If you take dividends above £500, you must report them on your personal tax return and pay the appropriate tax.
  • Not reconciling payroll to bank payments. Your payroll software shows what you paid. Your bank statement shows what left the account. They must match. If they do not, you have a problem.
  • Filing the wrong type of accounts. Small companies can file abridged or micro-entity accounts, which show less detail. But you must meet the eligibility criteria. Filing the wrong format can delay your filing and trigger queries from Companies House.

When to Get Professional Help

You can manage accounts and payroll yourself if your business is straightforward. A sole trader with no employees and simple income can handle everything through FreeAgent or QuickBooks. A limited company director paying themselves a salary and dividends can do the same.

But there are points where professional help becomes valuable:

  • Your turnover crosses the VAT threshold and you need to register
  • You take on your first employee and need to set up payroll properly
  • You provide company cars or other benefits in kind
  • Your business structure changes (sole trader to limited company, or adding a partner)
  • You are unsure about a specific tax treatment, like R&D tax credits or capital allowances

As ICAEW qualified accountants, we help businesses across the UK with accounts and payroll. We set up your systems, review your returns, and handle the filing. You focus on running your business.

If your payroll setup is more than a year old, or you are about to hire your first employee, now is the time to review your process. Get it right from the start and you avoid penalties, stress, and unnecessary tax payments.

Final Thoughts

Accounts and payroll are not optional. They are the backbone of your business's financial compliance. Get the basics right: register with HMRC on time, use proper software, keep your bookkeeping up to date, and file your returns by the deadlines.

If you need help, contact our team. We work with limited companies, sole traders, and partnerships across every sector. We can take your accounts and payroll off your hands, or we can set you up to manage them yourself with confidence.