Plain-English definitions for the UK payroll terms small businesses actually need to know. PAYE, RTI, P60s, tax codes — explained the way an accountant would explain them to a friend.
35 terms · Updated May 2026
A UK law that requires every employer to put eligible staff into a workplace pension and pay into it on their behalf. Most employees aged 22 to State Pension age earning over £10,000 a year qualify. Employees can opt out, but the employer must re-enrol them roughly every three years.
See also: Salary sacrificeWorkergov.uk →
BACS (Bankers' Automated Clearing Services) is the UK system that moves money between bank accounts in batches, usually taking three working days. Most UK employers use BACS to pay wages, which is why "BACS" often appears on bank statements next to salary credits. Setting up a BACS run is part of running payroll, separate from emailing payslips.
CIS is HMRC's tax-deduction scheme for construction. Contractors deduct money from subcontractor payments — usually 20%, sometimes 30% — and send it to HMRC as advance payments toward the subcontractor's tax and National Insurance. Contractors must give every subcontractor a monthly CIS statement showing what was paid and deducted.
A company director is treated differently from a regular employee for National Insurance. NI is worked out across the whole tax year rather than each pay period, which often means a director pays nothing for several months and then a lump sum once their year-to-date earnings cross the threshold. Directors still need to be on the payroll if they're paid more than nil.
An emergency tax code is what HMRC tells your employer to use when they don't yet know your full tax history — usually after a job change. The common emergency codes for 2026/27 are 1257L W1 or 1257L M1 (sometimes shown as 1257L X). They treat each pay period in isolation, so you can end up over- or under-paying tax until HMRC sends an updated code.
See also: Tax codeP45Starter Checklist
Employment Allowance is a relief that lets eligible UK employers reduce their employer's National Insurance bill by up to £10,500 a year (2026/27 rate). It applies to most small businesses with employer NI under £100,000 in the previous tax year, but not to single-director companies with no other employees. You claim it by ticking a box in your payroll software.
See also: National InsuranceDirectorgov.uk →
An EPS is a monthly submission to HMRC that reports things which aren't covered by an FPS — like statutory pay being reclaimed, the Employment Allowance, or that no payments were made this month. It's filed alongside or instead of the FPS, depending on what happened in the period.
An FPS is the core payroll submission to HMRC, sent on or before every payday. It tells HMRC who you've paid, how much, and how much tax and National Insurance you've deducted. Most payroll software files it automatically as part of running payroll.
Gross pay is the total an employee earns before any deductions — salary or hourly pay, plus overtime, bonuses, commission, holiday pay, and statutory pay. It's the first number on a payslip. What lands in the employee's bank account is net pay — gross pay minus tax, National Insurance, pension, and any other deductions.
HMRC stands for His Majesty's Revenue and Customs — the UK government department that collects tax. For an employer, HMRC is who you pay PAYE and National Insurance to every month, who you file FPS and EPS submissions to, and who issues things like tax codes, employer PAYE references, and P60s/P45s.
See also: PAYERTITax codeHMRC.gov.uk →
Holiday pay is the wage an employee receives while they're on annual leave. UK workers are entitled to a statutory minimum of 5.6 weeks' paid holiday a year (28 days for a five-day-week worker), including bank holidays unless the employment contract treats them separately. Holiday pay should reflect what the employee normally earns, including regular overtime and commission.
Income tax is what UK individuals pay on most of their income above their personal allowance. For employees, it's deducted automatically from each payslip through PAYE. The 2026/27 rates for England, Wales, and Northern Ireland are 20% (basic), 40% (higher), and 45% (additional); Scotland has its own rates and bands.
See also: PAYETax codePersonal allowance
IR35 (now usually called the "off-payroll working rules") is HMRC's test for whether a contractor working through their own limited company should really be treated as an employee for tax. If the rules apply, the client deducts PAYE and National Insurance as if the contractor were on payroll, even though they're invoicing through a company. The rules mainly affect medium and large clients in the private sector and all public-sector clients.
National Insurance is a separate UK contribution most workers and employers pay alongside Income Tax. It funds the State Pension and certain benefits, and is calculated on earnings above set thresholds. For 2026/27, employees pay 8% on earnings between £242 and £967 a week and 2% above that, while employers pay 15% on earnings above £96 a week.
See also: PAYENINOEmployment allowance
These are the legal minimum hourly rates UK employers must pay. The National Living Wage (NLW) is the higher rate that applies to workers aged 21 and over. The National Minimum Wage (NMW) applies to younger workers and apprentices, and is split into age bands. Rates change every April.
See also: WorkerHoliday paygov.uk →
Net pay is what an employee actually receives in their bank account on payday — their gross pay minus Income Tax, National Insurance, pension contributions, and any other deductions. It's the "take-home" figure. The number appears at the bottom of every payslip.
A NINO is a unique reference like AB 12 34 56 C (stored without spaces as AB123456C) that HMRC uses to track an individual's National Insurance contributions, tax, and benefits. Every UK worker needs one; employers are required to record it for every employee. Treat NINOs as confidential — they're a strong identity signal that shouldn't be shared casually.
A P11D is the annual form an employer files for each employee who received taxable benefits-in-kind that weren't taxed through payroll — things like a company car, private medical insurance, or interest-free loans. The deadline to file P11Ds and give copies to employees is 6 July following the tax year. Many employers now process most benefits through payroll instead and only need P11Ds for a shorter list.
See also: HMRCPayroll year endgov.uk →
A P45 is the form an employer gives an employee when they leave. It shows total pay and tax in the current tax year up to the leaving date, plus the employee's tax code, so the next employer can pick up PAYE correctly. The employer also sends the leaving information to HMRC as part of the next FPS.
See also: P60Starter Checklistgov.uk →
A P60 is the end-of-tax-year summary an employer must give every employee who was still employed on 5 April. It shows total pay for the tax year, total Income Tax and National Insurance deducted, and the employee's tax code. The deadline to issue P60s is 31 May.
See also: P45Payroll year endgov.uk →
PAYE is HMRC's system for collecting Income Tax and National Insurance directly from employees' wages before the money reaches them. The employer deducts the right amount based on the employee's tax code and pays it to HMRC every month. It's why most UK employees never need to file their own tax return.
See also: RTITax codePAYE on gov.uk →
Payroll is the process of working out how much each worker is owed for a period, deducting the right amount of tax and National Insurance, paying everyone, and reporting it all to HMRC. It usually includes producing payslips, filing FPS and EPS submissions, paying PAYE and NI to HMRC, and keeping records.
See also: Payroll year endPAYEOur payroll software comparisons
The UK tax year runs from 6 April to 5 April. "Payroll year end" is the work an employer does to close one tax year and open the next: running the final pay period, filing the last FPS marked "Final submission", issuing P60s to every current employee by 31 May, updating tax codes for the new year, and (if applicable) filing P11Ds by 6 July.
A payslip is the document showing what an employee was paid for a specific period — usually a week or a month. UK employers must give every employee an itemised payslip on or before payday, showing gross pay, deductions, and net pay. Most are issued as PDFs.
See also: Net payGross payHow Ghugi works
The personal allowance is the amount of income most UK individuals can earn each tax year before paying Income Tax. For 2026/27 it's £12,570 — frozen at that level until April 2028. The personal allowance is reflected in your tax code (the standard 1257L code means £12,570 of tax-free income).
See also: Tax codeIncome tax
"Pro-rata" means proportional — a part-share of something based on a fraction of the usual period. In payroll it most often comes up when an employee starts or leaves part-way through a pay period (so they get a part-month salary), or when a part-time worker's holiday entitlement is calculated as a fraction of full-time leave.
See also: Holiday payPayroll Calendar Generator
RTI is the system HMRC introduced in 2013 that requires employers to report payroll information on or before every payday, instead of once a year. The two main RTI submissions are the FPS (who got paid, how much) and the EPS (anything that needs reporting outside an FPS).
Salary sacrifice is an arrangement where an employee agrees to give up part of their salary in exchange for a non-cash benefit — most commonly extra employer pension contributions, but also cycle-to-work schemes and electric-car leases. Because the sacrificed amount never counts as salary, both employee and employer save National Insurance on it.
A Starter Checklist is the form a new employee fills in if they don't have a P45 from a previous job — so the employer knows which tax code and student-loan settings to use. It replaced the old P46 form in 2013. Most payroll software has the questions built into its new-starter wizard.
See also: P45Tax codeEmergency tax code
SMP is the minimum pay a UK employer must give an eligible employee on maternity leave, for up to 39 weeks. The first 6 weeks are paid at 90% of the employee's average weekly earnings; the remaining 33 weeks are paid at the lower of the statutory weekly rate (set annually by the government) or 90% of average weekly earnings. Employers can usually reclaim most of this from HMRC.
SPP is the minimum pay a UK employer must give an eligible employee on paternity leave — currently 1 or 2 weeks, which (since the 2024 paternity-leave reforms) can be taken as two separate one-week blocks within 52 weeks of the birth or adoption placement. It's paid at the lower of the statutory weekly rate (set annually) or 90% of average weekly earnings. Employers can usually reclaim most of it from HMRC.
SSP is the minimum sick pay a UK employer must give an eligible employee who's off work sick for 4 or more days in a row (the first 3 days are "waiting days"). It's paid at a fixed weekly rate set by the government, for up to 28 weeks per illness. Many employers offer enhanced contractual sick pay on top.
See also: WorkerStatutory Maternity Paygov.uk →
A tax code tells your employer (through PAYE) how much tax-free income you're entitled to in the tax year. For 2026/27 the standard code is 1257L — the "1257" means £12,570 of tax-free personal allowance, and the "L" means you get the standard amount. Codes starting with K, BR, 0T, or ending in W1/M1 mean something different is going on; HMRC issues a new code when your circumstances change.
A UTR is the 10-digit reference HMRC issues to anyone registered for Self Assessment, including sole traders, limited-company directors who file a return, and most landlords. Companies have a separate "Company UTR". You'll need it on most HMRC correspondence and in things like CIS verification.
In UK employment law, "worker" is a broader category than "employee". A worker has a contract to do work personally for someone, while an employee has a full employment contract with extra rights like statutory redundancy and full unfair-dismissal protection. The distinction matters for holiday pay, auto enrolment, statutory sick pay, and the minimum wage (which apply to both) versus things like statutory redundancy (employees only).
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Yes. We review it once a tax year (April) and update any thresholds, rates, or rules that have changed. Specific weekly statutory rates (SMP, SPP, SSP) are deliberately left general because they're set by the government annually — check gov.uk for the current rate.
No. It's plain-English definitions of terms you'll meet in UK payroll, so you understand what your payroll software, accountant, or HMRC is talking about. For specific situations, ask your accountant or HMRC directly.
We started with 35 of the most common UK payroll terms. If something's missing, get in touch — we add new entries when we see them coming up repeatedly. The aim is breadth that's actually useful, not exhaustive jargon.
Yes — every term has its own anchor. Hover any term to reveal a # icon, right-click it to copy a link like ghugi.com/glossary#paye that opens directly to that definition.
No. Ghugi sits one step after payroll — emailing the payslip PDFs your payroll software has already produced. Use BrightPay, Sage, Xero, or your accountant to run PAYE; use Ghugi to deliver the payslips, P60s, and P11Ds to your employees.