Free Payroll Software for Small Business UK (2025 Guide)

Running payroll for a small business in the UK doesn’t have to break the bank or consume countless hours each month. With the right free payroll software, you can automate calculations, ensure HMRC compliance, and streamline your entire payroll process without the hefty subscription fees that come with premium solutions.

The challenge for UK small businesses is finding payroll software that combines affordability with compliance requirements. Between Real Time Information (RTI) submissions, auto-enrolment obligations, and constantly changing tax codes, manual payroll processing is not only time-consuming but also risky. One mistake can lead to HMRC penalties, employee disputes, and significant administrative headaches.

This comprehensive 2025 guide examines the top 7 free payroll software options specifically designed for UK small businesses. Whether you’re a startup with just a few employees or an established SME looking to cut costs, you’ll discover genuinely free solutions that handle everything from basic pay calculations to complex statutory payments, all while keeping you compliant with UK legislation.

Why Small Businesses in the UK Need Payroll Software

Common Payroll Challenges for Small Companies

Manual Calculation Errors Small business owners often start by calculating payroll manually using spreadsheets or calculators. This approach becomes problematic as businesses grow, with common errors including incorrect tax calculations, missed National Insurance contributions, and pension deduction mistakes. These errors can result in HMRC penalties and unhappy employees.

HMRC Compliance Complexity UK payroll compliance involves numerous requirements including Real Time Information (RTI) submissions, P45/P60 generation, and Construction Industry Scheme (CIS) calculations. The complexity increases with auto-enrolment obligations, where employers must assess employees for workplace pension eligibility and manage contributions accordingly.

Time-Consuming Administrative Tasks Manual payroll processing can consume 2-4 hours per employee each month when done correctly. This includes calculating gross pay, deductions, generating payslips, updating records, and preparing HMRC submissions. For small business owners, this time could be better spent growing their business.

Benefits of Using Free Payroll Software

Automated Calculations Modern payroll software eliminates calculation errors by automatically computing gross pay, Income Tax, National Insurance, and pension contributions based on current HMRC rates and thresholds. The software updates automatically when rates change, ensuring continued accuracy without manual intervention.

Built-in Compliance Features Free payroll solutions designed for the UK market include RTI submission capabilities, auto-enrolment assessment tools, and statutory payment calculations. This ensures your business remains compliant with HMRC requirements without requiring deep payroll expertise.

Time and Cost Savings Automated payroll processing reduces monthly payroll time from hours to minutes while eliminating the need for expensive accountant fees or payroll bureau services. Free software options provide professional-level functionality without ongoing subscription costs.

Compliance with HMRC (UK-Specific Requirements)

Real Time Information (RTI) Submissions All UK employers must submit payroll information to HMRC in real-time through Full Payment Submissions (FPS) and Employer Payment Submissions (EPS). Free payroll software recognized by HMRC can handle these submissions automatically, ensuring compliance with reporting deadlines.

Auto-Enrolment Obligations The Pensions Regulator requires employers to assess all workers for workplace pension eligibility and automatically enrol eligible employees. Compliant payroll software includes auto-enrolment assessment tools and can manage communications with pension providers.

Statutory Payment Management UK employers must handle various statutory payments including Statutory Sick Pay (SSP), Statutory Maternity Pay (SMP), and Statutory Paternity Pay (SPP). Free payroll software calculates these payments correctly and includes them in RTI submissions to HMRC.

Best Free Payroll Software for Small Business UK

BrightPay Free

Overview and Features BrightPay offers one of the most comprehensive free payroll solutions available to UK small businesses. The desktop version includes full RTI submission capabilities, auto-enrolment functionality, and support for unlimited employees at no cost. The software handles complex payroll scenarios including directors’ National Insurance, multiple pay frequencies, and Construction Industry Scheme calculations.

Key Features:

Full RTI submissions to HMRC
Auto-enrolment assessment and management
Statutory payments (SSP, SMP, SPP, SAP, ShPP)
P45, P60, and P11D generation
Unlimited employees and companies
Payroll journal integration with accounting software
Mobile app for employee self-service

Pros:

Completely free forever with no employee limits
Comprehensive feature set rivaling paid solutions
Excellent UK customer support
Regular updates for legislation changes
No hidden costs or upgrade pressure

Cons:

Desktop-based (though cloud version available)
Requires manual software updates
Limited cloud collaboration features

Best For: Small to medium businesses seeking comprehensive payroll functionality without ongoing costs. Particularly suitable for businesses with complex payroll requirements or multiple companies to manage.

HMRC Basic PAYE Tools

Overview and Features HMRC Basic PAYE Tools represents the government’s official free payroll software, designed specifically for businesses with fewer than 10 employees. As the official HMRC solution, it provides guaranteed compliance with all UK payroll regulations and RTI submission requirements.

Key Features:

Official HMRC software ensuring compliance
RTI submissions (FPS and EPS)
Tax and National Insurance calculations
Payslip generation
P45 and P60 creation
Student loan deductions
Integration with HMRC systems

Pros:

Completely free from HMRC
Guaranteed compliance with UK regulations
Direct integration with government systems
No employee limits within the 10-employee restriction
Regular updates from HMRC

Cons:

Limited to businesses with fewer than 10 employees
Basic functionality compared to commercial alternatives
No auto-enrolment support (requires separate toolkit)
Limited reporting capabilities
Not suitable for payroll bureaus or agents

Best For: Very small businesses with simple payroll needs and fewer than 10 employees. Ideal for startups prioritizing compliance over advanced features.

Sage Business Cloud Payroll (Free Trial + Entry Plans)

Overview and Features Sage Business Cloud Payroll offers a 30-day free trial with full functionality, followed by affordable entry-level plans starting at £8 per month for 1-5 employees. While not permanently free, the trial period allows comprehensive testing, and the entry pricing makes it accessible for microbusinesses.

Key Features:

30-day free trial with full functionality
4-step automated payroll process
HMRC compliant with RTI submissions
Auto-enrolment support
Payslip generation and distribution
Leave management
Integration with Sage Accounting
24/7 customer support

Pros:

Generous free trial period
User-friendly interface
Strong customer support
Seamless integration with accounting software
Cloud-based accessibility

Cons:

Not permanently free (paid plans after trial)
Limited functionality in lowest-priced tier
Requires ongoing subscription commitment

Best For: Microbusinesses willing to pay modest monthly fees for professional payroll software with excellent support. Suitable for businesses requiring integration with existing Sage accounting systems.

FreePayroll.uk

Overview and Features FreePayroll.uk is a completely free, cloud-based payroll solution that combines payroll processing with auto-enrolment management. As an HMRC-recognized software provider, it offers comprehensive functionality without requiring any payment or subscription fees.

Key Features:

Completely free forever
Cloud-based accessibility
HMRC-recognized software
Auto-enrolment integration
RTI submissions
Payslip generation
Pension management
Multi-company support

Pros:

Entirely free with no hidden costs
Cloud-based for remote access
Includes auto-enrolment functionality
HMRC recognition ensures compliance
No employee limits

Cons:

Relatively new platform with limited track record
Fewer advanced reporting features
Limited third-party integrations

Best For: Small businesses seeking a completely free, cloud-based solution that includes auto-enrolment management. Ideal for businesses comfortable with newer software platforms.

PayFit (Free Trial Options)

Overview and Features PayFit offers free trial periods for their cloud-based payroll platform, which is specifically designed for UK SMEs. While the platform transitions to paid plans after the trial, the free period provides access to comprehensive payroll features including advanced reporting and HR functionality.

Key Features:

Free trial with full feature access
Automated payroll calculations
RTI submissions to HMRC
Employee self-service portal
Leave management
Reporting and analytics
API integrations
Mobile app access

Pros:

Modern, intuitive interface
Comprehensive feature set during trial
Strong automation capabilities
Good customer support
Regular feature updates

Cons:

Not permanently free
Higher costs after trial period
May be overkill for very small businesses

Best For: Growing businesses that want to test advanced payroll features before committing to paid solutions. Suitable for companies planning to scale rapidly.

Staffology Payroll by IRIS (Entry Level Options)

Overview and Features Staffology Payroll offers competitive entry-level pricing with occasional free trial promotions. The platform focuses on simplicity and compliance, making it accessible for small businesses without complex payroll requirements.

Key Features:

Simple, intuitive interface
HMRC compliant RTI submissions
Auto-enrolment support
Payslip generation
Basic reporting
Employee self-service
Cloud-based platform

Pros:

Simple setup and operation
Good value for money
HMRC compliance guaranteed
Suitable for non-payroll experts
Regular software updates

Cons:

Limited advanced features
Paid plans required for ongoing use
Fewer integrations than competitors

Best For: Small businesses seeking simple, compliant payroll software without complex requirements. Ideal for businesses with straightforward pay structures and minimal HR needs.

Xero Payroll (Included in Accounting Plans)

Overview and Features Xero includes payroll functionality in their higher-tier accounting plans, starting at £33 per month for the Grow plan. While not free standalone, businesses already using Xero for accounting get payroll capabilities included, making it cost-effective for existing users.

Key Features:

Integrated with Xero accounting
RTI submissions to HMRC
Auto-enrolment support
Payslip generation
Leave tracking
Expense management
Reporting and analytics
Third-party integrations

Pros:

Seamless accounting integration
Single platform for finance and payroll
Strong reporting capabilities
Regular updates and support
Extensive third-party integrations

Cons:

Requires paid Xero accounting subscription
Not standalone payroll solution
Higher cost for payroll-only needs

Best For: Businesses already using Xero for accounting who want integrated payroll functionality. Suitable for companies requiring combined financial and payroll management.

How to Choose the Right Payroll Software

Number of Employees Supported

Small Team Considerations (1-10 employees) For businesses with fewer than 10 employees, HMRC Basic PAYE Tools provides a completely free, government-backed solution. However, businesses expecting growth should consider more scalable options like BrightPay Free or FreePayroll.uk that don’t impose employee limits.

Growing Business Needs (10+ employees) As businesses grow beyond 10 employees, solutions like BrightPay Free become essential, as they offer unlimited employee support without additional costs. Paid solutions like Sage or PayFit may become worthwhile for their additional features and support.

HMRC Compliance / RTI Submissions

Mandatory Requirements All UK payroll software must support RTI submissions, including Full Payment Submissions (FPS) after each payroll and Employer Payment Submissions (EPS) when required. Ensure your chosen software is HMRC-recognized and regularly updated for legislative changes.

Auto-Enrolment Obligations Most businesses require auto-enrolment functionality to comply with pension regulations. While HMRC Basic PAYE Tools requires a separate toolkit, solutions like BrightPay and FreePayroll.uk include integrated auto-enrolment management.

Cloud-Based vs Desktop

Cloud-Based Advantages Cloud-based solutions offer accessibility from anywhere, automatic updates, and better collaboration features. They’re ideal for remote teams or businesses requiring multi-location access. Examples include FreePayroll.uk and Sage Business Cloud Payroll.

Desktop Benefits Desktop solutions like BrightPay provide robust functionality, work offline, and offer greater control over data security. They’re suitable for businesses with stable office locations and consistent payroll processing routines.

Customer Support in the UK

Support Quality Importance Payroll mistakes can be costly, making quality customer support crucial. Look for providers offering UK-based support during business hours, comprehensive documentation, and responsive help desk services.

Training and Resources Choose software providers offering training materials, video tutorials, and implementation support. This is particularly important for businesses transitioning from manual payroll processing or switching from other systems.

FAQs on Free Payroll Software in the UK

Is HMRC PAYE software free for small businesses?

Yes, HMRC provides Basic PAYE Tools completely free for businesses with fewer than 10 employees. This official government software handles essential payroll calculations and RTI submissions but has limitations compared to commercial alternatives. Businesses exceeding 10 employees or requiring advanced features need alternative solutions.

The software is regularly updated by HMRC to reflect current tax rates and legislation changes, ensuring compliance without additional costs. However, it lacks auto-enrolment functionality, requiring the separate use of The Pensions Regulator’s toolkit for workplace pension obligations.

What’s the best payroll software for 1–5 employees?

For micro-businesses with 1-5 employees, several excellent options exist:

BrightPay Free offers the most comprehensive feature set with unlimited employees, making it ideal for businesses planning to grow. The software includes auto-enrolment, statutory payments, and full RTI functionality at no cost.

HMRC Basic PAYE Tools provides essential functionality with government backing, ensuring compliance for businesses with simple payroll needs. However, it lacks auto-enrolment support and advanced features.

FreePayroll.uk combines payroll and auto-enrolment in a cloud-based platform, suitable for businesses preferring web-based solutions over desktop software.

Can I process payroll manually in the UK?

While technically possible, manual payroll processing in the UK is highly discouraged due to compliance complexity and error risk. Manual processing requires:

Calculating Income Tax using current tax codes and bands
Computing National Insurance contributions across multiple categories
Managing auto-enrolment assessments and pension contributions
Submitting RTI information to HMRC in the correct format
Handling statutory payments according to current rates

The time investment and potential for costly errors make free payroll software a more practical solution for virtually all UK businesses.

Do I need payroll software if I use an accountant?

Using an accountant doesn’t eliminate the need for payroll software, though it may change your requirements. Consider these factors:

Accountant-Managed Payroll: If your accountant handles complete payroll processing, you may not need standalone payroll software. However, this typically costs £5-15 per employee monthly, making it expensive for growing businesses.

Collaborative Approach: Many businesses use payroll software for day-to-day processing while accountants handle year-end returns and complex compliance issues. This approach provides cost savings while maintaining professional oversight.

Data Access: Having your own payroll software ensures immediate access to employee data, payslips, and reports without waiting for accountant availability.

Final Thoughts — Best Free Payroll Tools for UK Small Businesses

After comprehensive analysis, three solutions stand out as the top recommendations for UK small businesses:

Top Pick: BrightPay Free

Best Overall Free Solution BrightPay Free offers unmatched functionality for a free solution, including unlimited employees, auto-enrolment, and comprehensive RTI support. The desktop-based approach provides robust features and reliable performance, making it ideal for businesses seeking professional-level payroll management without ongoing costs.

Government Choice: HMRC Basic PAYE Tools

Best for Simplicity and Compliance For businesses with fewer than 10 employees and simple payroll needs, HMRC’s official software provides essential functionality with guaranteed compliance. While basic, it’s completely free and regularly updated by HMRC, ensuring continued regulatory compliance.

Cloud Leader: FreePayroll.uk

Best Free Cloud-Based Option FreePayroll.uk combines modern cloud-based accessibility with comprehensive features including auto-enrolment. As a newer platform, it offers contemporary design and functionality while remaining completely free for businesses preferring web-based solutions.

Key Decision Factors:

Choose BrightPay Free if you want maximum features without cost restrictions
Choose HMRC Basic PAYE Tools for guaranteed compliance with minimal complexity
Choose FreePayroll.uk for cloud-based processing with modern interfaces

The UK small business payroll landscape in 2025 offers excellent free options that rival expensive commercial solutions. By selecting software aligned with your business size, complexity, and growth plans, you can achieve professional payroll management while maintaining compliance with UK regulations.

Start with free solutions to understand your requirements, then upgrade only if specific advanced features become necessary for your business operations. The money saved on payroll software can be better invested in growing your business while maintaining full HMRC compliance.

Important Note: Payroll regulations and software features change regularly. Always verify current compliance requirements with HMRC and test software thoroughly before implementing for live payroll processing. Consider consulting with a qualified accountant for complex payroll situations or when transitioning between systems.