Payroll Errors and UK Employment Law: What Accountants Should Know

When it comes to payroll, accuracy isn’t optional. Every missed RTI deadline, every wrong tax code, and every underpaid holiday hour can turn into a compliance issue. And in the UK, non-compliance with UK payroll regulations doesn’t just mean a slap on the wrist—it means real money out of your clients’ pockets, and potentially out of yours.

Let’s Start with the Cost of Getting it Wrong

HMRC doesn’t have much patience when it comes to payroll errors UK. They expect businesses, and by extension – their accountants, to get it right, every time.

• Late RTI submissions can trigger monthly penalties of up to £400, depending on the number of employees.
• Incorrect tax calculations may result in backdated liabilities, interest, and scrutiny that no client wants.
• Failure to pay the National Minimum Wage (even accidentally) can lead to penalties of up to 200% of the arrears, capped at £20,000 per worker – not to mention being named and shamed publicly.
• Auto-enrolment breaches, such as missing a re-enrolment window, can cost clients £50 to £10,000 per day, depending on company size.

Now imagine you’re managing payroll for 15+ clients and one of these errors slips through. It’s not just your client’s finances at risk, it’s your firm’s reputation, too.

Common Payroll Mistakes in the UK Accountants Should Watch For

Even with the best intentions, payroll is a minefield. It’s complex, fast-moving, and often pushed to the bottom of the priority list until something goes wrong.

Here are the most common issues we’ve seen when working with accountancy firms across the UK:

1. Incorrect Tax Codes

A surprisingly common mistake. If HMRC issues a new code and it’s not applied correctly, employees are either over- or under-taxed. Either way, your client ends up fielding complaints or fixing problems after payday.

2. Mismanagement of Benefits in Kind (BIKs)

Failure to report BIKs, like company cars or private health insurance, on a P11D or via payroll means incorrect tax and NI calculations. Clients face fines and, more importantly, loss of trust.

3. Late or Incomplete RTI Submissions

Every payroll report must be submitted to HMRC on or before payday. Miss the window, and you’re instantly looking at fines, even if the payment itself is correct.

4. Misclassifying Employees

Whether it’s incorrectly labelling someone as self-employed or applying the wrong National Insurance category for under-21s or apprentices, these errors can result in long-term underpayments and backdated penalties.

5. Holiday Pay Miscalculations

After the Harpur Trust v Brazel ruling, businesses must base holiday pay on actual hours worked. Many firms still calculate holiday pay using outdated methods, especially for part-time or zero-hour workers.

6. Pension Auto-Enrolment Failures

This one stings. Missing an enrolment date or not re-enrolling eligible employees every three years leads to automatic fines. And let’s not forget the admin nightmare of fixing it.

The UK Payroll Landscape: What the Law Requires

When it comes to payroll compliance for accountants, here’s the non-negotiable framework your processes need to comply with:

• Real-Time Information (RTI): Mandatory electronic submission to HMRC every time employees are paid.
• National Minimum and Living Wage: Regularly updated and must be met based on age and role.
• Pension Auto-Enrolment: Obligatory for all eligible employees. Must be monitored and re-assessed regularly.
• Holiday Pay Compliance: Must reflect variable pay and work patterns accurately, according to updated legislation.
• Statutory Payments: SSP, SMP, SPP and other entitlements need to be processed accurately and on time.
• Year-End Reporting: P60s, P11Ds, and final EPS submissions must be accurate and delivered without delay.

Why Many Accountants are Turning to Payroll Outsourcing

Let’s be honest: payroll is low-margin, high-risk work. It’s also incredibly admin-heavy. Yet clients expect 100% accuracy and timeliness every month, no excuses.

That’s why more UK accountancy firms are turning to payroll outsourcing services. Not because they can’t do it in-house, but because doing it right, consistently, eats into profitability, time, and headspace.

The Business Case for Outsourcing Payroll

• Reduced Risk: You gain access to payroll experts trained specifically in UK regulations, reducing the chances of human error and non-compliance.
• Time Saved: Free up your internal team to focus on advisory, growth, and billable client work, not data entry or chasing HMRC.
• Scalability: Win more clients without needing to hire more staff. Your outsourced payroll team grows with you.
• Cost-Efficiency: Save on recruitment, training, software, and system upgrades.

It’s not just theory—it works in practice.

Bright Partnership: A Real-World Example of Payroll Outsourcing in Action

When Bright Partnership began working with QX Accounting Services, they had one goal: build a leaner, more profitable accounting operation. Over 18 years, outsourcing became central to their success.

• 300% revenue growth
• Expanded service offering without increasing internal headcount
• Improved turnaround time and client satisfaction
• More partner time for client-facing, high-margin work

Read the full case study here.

This isn’t a one-off story. We’ve seen similar results across dozens of UK firms that chose to hand over the payroll grind and focus on value-adding services.

The Bottom Line for UK Accountants

HMRC payroll errors carry a cost – financial, reputational, and operational. But getting payroll right every time is not easy, especially when employment law keeps evolving and clients want fast, affordable service.

Outsourcing isn’t just a way to save time. It’s a strategic move that reduces risk, increases efficiency, and helps you build a scalable, profitable payroll offering.

Want to explore outsourcing payroll the smart way?

Let’s talk. At QX Accounting Services, we support over 350 accountancy firms like yours with reliable, compliant, and scalable payroll solutions powered by experienced professionals who live and breathe payroll. Call us at +44 208 146 0808 or submit the form below to learn more or request a free trial.