Payroll for a Small UK Business: Spreadsheet or Software?

By Constantin · 2026-10-25 · 2 min read

When you take on your first employee, payroll can look like a simple sum: hours times rate, minus tax. In practice, it is a set of legal reporting jobs that repeat every pay day. That is why it so often ends up eating a whole day a month.

What payroll involves in the UK

Whatever tool you use, an employer generally needs to:

Register as an employer with HMRC before the first pay day.
Calculate pay and deductions, including Income Tax, National Insurance, student loans and pension contributions.
Report to HMRC on or before each pay day through Real Time Information (RTI), using payroll software that can submit to HMRC.
Give each employee a payslip.
Handle workplace pension auto-enrolment for eligible staff.
Keep payroll records, which HMRC expects you to keep for several years.

GOV.UK has a step-by-step guide to running payroll that covers each of these. HMRC also offers free payroll software (Basic PAYE Tools) for employers with fewer than 10 employees.

Why spreadsheets break down

A spreadsheet can calculate pay. The trouble is everything around it:

You cannot report to HMRC from a spreadsheet. You still need payroll software for RTI submissions.
Data lives in several places. Holiday requests in email, contracts in a folder, hours in a chat. Each copy is a chance for mistakes.
Changes are manual. New tax codes, a pay rise, a leaver, statutory sick pay: each one means editing formulas by hand.
It depends on one person. If the person who understands the spreadsheet is off sick, payroll stops.

When to switch to software

Software is usually worth it when any of these is true:

You have more than two or three employees.
People work variable hours or shifts.
You spend more than an hour or two on each pay run.
You also manage holiday, rotas or onboarding in separate places.

What to look for

HMRC-recognised payroll that handles RTI submissions automatically.
Pension integration so contributions flow to your provider without re-keying.
Employee self-service: staff see payslips and request leave themselves.
HR basics in the same system: contracts, documents, holiday and onboarding.
Accounting integration so payroll journals reach your books automatically.

How to test a tool properly

Do not judge payroll software on a generic demo. Before you sign up:

Write down one real pay run: the people, the hours, anyone joining or leaving, any sick pay.
Ask the provider to walk through exactly that scenario.
Ask how they handle corrections after a submission has been sent.
Check what support you get, and how fast, on pay day.

The short version

Payroll is a reporting job as much as a maths job. If you are re-keying data between a spreadsheet, HMRC tools and email every month, an all-in-one payroll and HR platform will usually give you that day back.

Your next step

Payroll and HR admin take forever?

For teams of roughly 1 to 50, most payroll pain comes from spreadsheets, re-keying and chasing paperwork. An all-in-one HR and payroll platform removes most of it.

See the fastest fix

Want numbers for your own business? Try the admin time calculator or the AI readiness quiz.