PAYE & Real Time Information (RTI)

Pay As You Earn (PAYE) is the United Kingdom’s official system for collecting Income Tax and National Insurance Contributions (NICs) directly from employees’ wages, salaries, and pensions at the point of payment. Administered by HM Revenue and Customs (HMRC), PAYE applies to virtually every UK employer that pays staff above the Lower Earnings Limit, has employees with another job, or provides taxable benefits.

Real Time Information (RTI) is the digital reporting framework that powers modern PAYE. Introduced by HMRC in April 2013, RTI requires employers and pension providers to report payroll data to HMRC every time employees are paid, rather than at the end of the tax year as under the legacy system. RTI submissions include earnings, tax deducted, NICs, student loan repayments, statutory payments, and pension contributions, ensuring HMRC always holds up-to-date and accurate payroll records for every UK worker.

Together, PAYE and RTI form the foundation of UK payroll compliance, and they are central to how every employer interacts with HMRC. Global payroll providers like Mercans help UK and multinational businesses navigate these obligations with HMRC-recognized technology and in-country payroll experts.

How Does PAYE Work in the UK?

Under PAYE, the employer is responsible for calculating and deducting the correct amount of Income Tax and National Insurance from every employee’s pay before they are paid. The deduction is based on the employee’s PAYE tax code (such as the standard 1257L code), Personal Allowance, taxable income, and applicable NIC category letter.

The employer then pays the deducted Income Tax and NICs to HMRC, usually on a monthly basis, along with any Apprenticeship Levy, student loan deductions, and postgraduate loan deductions. PAYE also covers the reporting and taxation of benefits in kind, expenses, statutory sick pay (SSP), statutory maternity pay (SMP), and other statutory payments.

What is Real Time Information (RTI) Reporting?

RTI replaced the older annual end-of-year payroll reporting process with a continuous, pay-period-based reporting model. Each time an employer runs payroll, they must submit data to HMRC on or before the date employees are paid. This is known as the “on-or-before” rule, a core compliance requirement under RTI.

RTI reporting is conducted exclusively through HMRC-recognized payroll software. Employers cannot submit RTI returns manually, which is why investing in robust, RTI-ready UK payroll software is critical for every business. Mercans’ UK payroll software is HMRC-recognized and supports batch RTI e-filing, automated tax code updates, and full FPS, EPS, NVR, and EYU submissions.

Key RTI Submission Types

RTI is composed of several submission types, each serving a specific purpose:

• Full Payment Submission (FPS): The primary RTI return sent to HMRC on or before each payday, containing employee-level pay and deduction data, tax codes, NIC categories, year-to-date totals, and starter and leaver information.
• Employer Payment Summary (EPS): Filed monthly to report adjustments such as recovered statutory payments (SMP, SPP, SAP, SPBP), Employment Allowance claims, CIS deductions suffered, or to inform HMRC that no employees were paid during a period. Learn more on the Mercans Employer Payment Summary glossary page.
• Earlier Year Update (EYU) / Year-to-Date FPS Correction: Used to correct payroll data submitted in a previous tax year, ensuring HMRC’s records remain accurate.
• NINO Verification Request (NVR): Submitted when an employer needs to verify or obtain an employee’s National Insurance number.
• Employer Alignment Submission (EAS): Historically used by very large employers when joining RTI, to align HMRC records with the employer’s payroll data.

RTI Compliance: The “On-or-Before” Rule

The defining principle of RTI is that the FPS must reach HMRC on or before the date the employee is paid. Late FPS submissions trigger automatic penalties, which scale with the size of the employer’s PAYE scheme. Penalties can range from £100 to £400 per late submission, with additional 5% tax-based penalties for repeated lateness or unpaid PAYE balances.

A limited easement remains for micro employers under specific circumstances, but the general rule applies to almost every UK employer today.

Key UK Payroll Forms Linked to PAYE and RTI

Several statutory forms work alongside RTI to complete the PAYE compliance picture:

• P45: Issued to employees when they leave employment, showing total pay and tax deducted in the current tax year.
• P60: Issued to all current employees by 31 May after the end of the tax year, summarising annual pay and deductions.
• P11D: Reports taxable benefits in kind and expenses provided to employees and directors.
• P11D(b): Declares Class 1A NIC payable on benefits.
• P46(Car): Notifies HMRC of company car changes.
• PSA (PAYE Settlement Agreement): Allows employers to settle tax on certain minor or irregular benefits on behalf of employees.

Mercans’ UK payroll platform supports HMRC recognized e-filing for P11D, P46(Car), CT600, CIS300, and full RTI returns, with intelligent data conversion into the required XML formats.

PAYE and RTI Deadlines

Key UK payroll deadlines to remember:

• FPS submission: On or before each payday.
• EPS submission: By the 19th of the following tax month (5th to 4th).
• PAYE payment to HMRC: By the 22nd of the following month if paying electronically (19th if paying by post).
• P60 issuance: By 31 May after the end of the tax year.
• P11D and P11D(b) filing: By 6 July following the end of the tax year.
• Final FPS or EPS for the tax year: By 19 April.

The UK tax year runs from 6 April to 5 April, and every employer must align payroll cycles with HMRC’s official calendar.

Consequences of Non-Compliance with PAYE and RTI

Failing to meet PAYE and RTI obligations carries serious consequences:

• Late filing penalties from £100 per month, scaling by employer size
• Late payment interest charges on overdue PAYE liabilities
• 5% penalties on unpaid amounts at 30 days, 6 months, and 12 months
• Inaccuracy penalties under Schedule 24 of the Finance Act 2007
• HMRC compliance inspections and reputational damage
• Issues with employees’ tax records, leading to under- or overpayment of tax

Mercans regularly tracks HMRC updates and statutory changes through its resource hub, including the latest HMRC Employer Bulletin and the UK Payroll Changes for tax year 2026/27, ensuring its clients remain compliant with every legislative update.

Why PAYE and RTI Matter for Global Employers

For multinational organizations employing UK based staff, PAYE and RTI compliance is far more complex than simply running payroll. Employers must manage expatriate tax positions, modified PAYE schemes, shadow payrolls for inbound assignees, off-payroll working rules under IR35, pension auto-enrolment, the Apprenticeship Levy, and the constant stream of HMRC legislative changes. A single missed FPS or incorrect tax code can ripple across HMRC records, employee tax bills, and corporate compliance ratings.

This is why outsourcing UK payroll to a recognized provider has become the standard for global employers seeking accuracy, scalability, and peace of mind.

How Mercans Simplifies PAYE and RTI Compliance in the UK

Mercans is one of the largest payroll outsourcing companies in the UK and is officially recognized by HMRC. With proprietary, RTI-ready payroll technology, in-country UK specialists, and global delivery across more than 160 countries, Mercans helps employers automate the entire PAYE lifecycle.

Mercans’ UK payroll services include:

• Fully automated FPS, EPS, NVR, and EYU submissions to HMRC
• Real-time PAYE tax and National Insurance calculations
• Automatic updates of P6, P9, and other HMRC tax code notices
• Integrated pension auto-enrolment assessment and reporting
• Statutory payment automation (SSP, SMP, SAP, SPP)
• P11D, P46(Car), CIS300, and CT600 e-filing in HMRC-compliant XML
• Roll-back, correction, and historical RTI fixes for up to six years
• Multi-currency, multi-jurisdiction payroll for global teams

For businesses hiring in the UK without a local entity, Mercans’ UK Employer of Record (EOR) solution provides full compliance with PAYE, RTI, IR35, pension auto-enrolment, and employment law from day one. For multinationals consolidating payroll across countries, Mercans’ global payroll outsourcing solutions deliver unified reporting, real-time visibility, and end-to-end compliance.

You can also explore Mercans’ detailed glossary entry on Real Time Information (RTI) for a deeper view of how RTI integrates with HMRC’s digital tax future.

Frequently Asked Questions (FAQs)

1. What is the difference between PAYE and Real Time Information (RTI)?

PAYE (Pay As You Earn) is the UK’s tax collection system that requires employers to deduct Income Tax and National Insurance Contributions from employees’ pay and remit them to HMRC. Real Time Information (RTI) is the digital reporting mechanism that supports PAYE by requiring employers to submit payroll data to HMRC each time they pay employees, rather than annually. In short, PAYE is the tax system, while RTI is the way employers report PAYE data to HMRC in real time.

2. What is a Full Payment Submission (FPS) and when must it be filed?

A Full Payment Submission (FPS) is the primary RTI return that reports employee-level payments and deductions to HMRC. It must be filed on or before the date employees are paid under the “on-or-before” rule. The FPS includes salaries, tax deducted, National Insurance, student loan repayments, statutory payments, and starter and leaver information. Late or missing FPS submissions trigger automatic penalties from HMRC.

3. When should an employer submit an Employer Payment Summary (EPS)?

An Employer Payment Summary (EPS) is submitted when an employer needs to report adjustments that are not part of the FPS. Common scenarios include claiming back statutory payments such as SMP or SPP, claiming the Employment Allowance, reporting CIS deductions suffered, or informing HMRC that no employees were paid during a particular tax month. The EPS is typically filed monthly by the 19th of the following tax month.

4. What happens if I miss an RTI submission deadline?

Late or missing RTI submissions trigger automatic penalties from HMRC, starting at £100 per month for small employers and rising based on the size of the PAYE scheme. Persistent lateness can lead to 5% tax-based penalties, interest charges, and HMRC compliance reviews. Employees may also experience incorrect tax codes or over- or underpayment of tax, which can damage employee trust. Using an HMRC-recognized provider such as Mercans helps eliminate this risk.

5. How does Mercans support PAYE and RTI compliance for UK employers?

Mercans is an HMRC-recognized payroll provider that delivers fully automated PAYE administration and RTI reporting for UK and global employers. Its UK payroll software handles FPS, EPS, NVR, and EYU submissions, automatic tax code updates, statutory payment calculations, pension auto-enrolment, and P11D, P60, and CIS filings. With in-country payroll experts, proprietary global payroll technology, and an ISO 27001-accredited platform, Mercans helps businesses stay fully compliant with HMRC requirements while reducing payroll cost and complexity.