Payroll Software vs HMRC Basic PAYE Tools: Which Should You Use?
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Why Pay for Payroll When HMRC Gives It Away?
If you have just taken on your first employee, HMRC’s Basic PAYE Tools looks like an obvious answer. It is free, it comes from HMRC itself, and it files what the law requires you to file.
For a narrow set of employers, it genuinely is enough. For most, it runs out of road sooner than expected, and the gaps are not features you can shrug off. Two of them are legal duties that Basic PAYE Tools does not touch at all.
This guide covers what the free tool does, where it stops, what paid software adds, and what that actually costs once you account for how payroll is really priced.
What Basic PAYE Tools Is
Basic PAYE Tools, usually shortened to BPT, is free desktop payroll software from HMRC, available for Windows, Mac and Linux. It is provided for employers with fewer than 10 employees, and that is an eligibility line rather than a suggestion.
It installs on one computer and stores your data locally. There is no cloud access, no mobile app and no employee login. Updates are not automatic: you download the new version yourself, particularly at the start of each tax year when rates and thresholds change.
What It Does
Record employee details, work out Income Tax, National Insurance and student or postgraduate loan deductions, work out what you owe HMRC each month or quarter, and send Real Time Information, both Full Payment Submissions and Employer Payment Summaries. That last point matters, because the EPS is how you tell HMRC about a month with no payments and how you claim the Employment Allowance.
What It Does Not Do
Payslips. BPT does not produce them, and payslips are a legal requirement, issued on or before payday. They must show gross pay, fixed and variable deductions, net pay, and the number of hours worked where pay varies with time worked. If you use BPT you are building those yourself, every pay period, for every worker.
Auto enrolment. No assessment, no contribution calculation, no communications, no connection to a pension provider. More on this below, because it is the gap that rules BPT out for most employers.
Deductions outside PAYE. Attachment of earnings orders and similar deductions are not supported.
Corrections after submission. Changes to information such as a start or leave date, once submitted, are not handled in the software.
Anything touching your accounts. No integration with Xero, QuickBooks, FreeAgent or anything else, so payroll figures are re-keyed by hand.
It is also built for employers running their own payroll rather than for agents or bookkeepers acting for clients.
The Auto Enrolment Gap
This is the deal-breaker, and it is worth being precise about why.
Auto enrolment duties begin with your first member of staff. There is no headcount exemption. You must assess every worker in every pay period, because people move between categories when hours or bonuses change.
For 2026/27, a worker aged 22 to State Pension age earning more than £10,000 a year must be enrolled automatically. A worker earning between £6,240 and £10,000, or one outside that age band but above the trigger, can ask to join, and if they do you must enrol them and pay employer contributions. Minimum contributions are 8% in total, of which at least 3% comes from you, calculated on earnings between £6,240 and £50,270.
On top of the maths, there is a declaration of compliance due within five months of your duties start date, re-enrolment every three years with a fresh declaration, and record-keeping of six years for most records and four for opt-out notices.
Basic PAYE Tools does none of it. If you have auto enrolment duties, using BPT means running a second process alongside it, either in your pension provider’s portal or by hand, and carrying the risk that the two never quite line up.
The narrow exception is a company whose only worker is a director without an employment contract. That situation sits outside auto enrolment entirely. It is not the same as the director opting out, which is something only an enrolled worker does, and it disappears the moment a second person with a contract joins the payroll.
The Risk That Comes With Doing It Yourself
BPT submits RTI perfectly well. What it does not do is stop you making a mistake, or remind you that a deadline is coming.
Your FPS must reach HMRC on or before payday. Late filing penalties are banded by employer size, and for the one-to-nine bracket, which is everyone eligible for BPT, that is £100 for each month with a late report. There is no penalty for your first failure in a tax year, none where all payments on the late FPS fall within three days of payday, and none for a new employer’s first FPS sent within 30 days of paying someone. After that, they bite. Late payment of the tax is charged separately again.
Two more practical risks. Because updates are manual, running last year’s version into the new tax year produces wrong calculations that look entirely normal. And because data sits on one machine, a dead laptop takes your payroll history with it, at a point where you are required to keep PAYE records for three years.
What Paid Payroll Software Adds
Payslips generated on every run, usually as PDFs or through an employee portal, which discharges the legal obligation without a separate document.
Auto enrolment, assessed every pay period, with contributions calculated and submitted to the pension provider. Automatic submission usually covers the big schemes such as NEST, Smart Pension or The People’s Pension, so check that yours is on the list.
Statutory payments calculated rather than logged: maternity, paternity, adoption, shared parental, parental bereavement and neonatal care pay, plus SSP, which changed in April 2026 and is now payable from the first day of absence with the waiting days and the lower earnings limit removed. Good software also handles recovery, including Small Employers’ Relief at 100% plus 9% compensation where you qualify.
Variable pay, several rates and overtime, handled properly rather than worked out on the side.
Automatic updates to tax bands, National Insurance thresholds, statutory rates and the National Living Wage, applied without you downloading anything.
Accounting integration, so wages, employer National Insurance, pension contributions and the PAYE liability post to your books rather than being typed in twice.
What It Actually Costs
Payroll pricing is rarely a single monthly figure, which is why “from £4 a month” comparisons mislead.
Most products charge a base fee plus an amount per employee. QuickBooks Payroll Core, for instance, is £5 a month plus £1.50 per employee, excluding VAT, so five employees is £12.50 a month rather than £5. It also requires a QuickBooks Online subscription underneath it, from £16 a month for Simple Start, so the real comparison against free is closer to £30 a month than to a takeaway coffee. Xero Payroll works the same way, as a module on top of an accounting subscription.
Standalone payroll products, which is the fairer comparison if your books live elsewhere, are usually cheaper than a bundle, but they still price per employee at some point.
Two things to watch. Introductory discounts in this market are steep and short: QuickBooks currently runs 90% off for six months, but on the base fee only, with the per-employee charge at full rate throughout. And if you bank with NatWest, RBS, Ulster Bank or Mettle, FreeAgent comes free with the account, with Mettle requiring at least one transaction a month, so check whether payroll is included for your business type before paying for anything.
Payroll Is Not Making Tax Digital
Worth clearing up, because it appears in a lot of software marketing. Payroll reports to HMRC under Real Time Information, which has been running since 2013. Making Tax Digital is a separate programme covering VAT and Income Tax. No payroll product makes you MTD compliant, and no MTD deadline applies to payroll.
The connection, where there is one, is indirect: if you are a sole trader inside MTD for Income Tax, your wage costs are business expenses, so payroll posting into your accounting records keeps those records tidy. That is bookkeeping convenience, not compliance.
When Basic PAYE Tools Is Ruled Out
| Situation | Why BPT does not work |
|---|---|
| Any worker aged 22 to State Pension age earning over £10,000 | Auto enrolment duty, with no assessment or contribution support in the software |
| Nine or more employees | Outside what the software is provided for |
| Variable hours or several pay rates | Payslips must show hours where pay varies, and BPT produces no payslips at all |
| Statutory parental payments | Calculation and recovery support is limited |
| Attachment of earnings or other non-PAYE deductions | Not supported |
| Cloud accounting already in use | No integration, so double entry and reconciliation errors |
| Employees expect online payslip access | Not available |
If any of these apply, the free route costs more than it saves.
Which Paid Products to Look At
BrightPay, strong on auto enrolment and well regarded by accountants, with desktop and cloud options.
Xero Payroll, the obvious choice if your books are already in Xero.
QuickBooks Payroll, the same logic for QuickBooks users, with confirmed pricing of £5 a month plus £1.50 per employee on the entry tier.
Sage Payroll, long established and comprehensive, though compare its list price rather than the discounted rate on the banner.
IRIS Staffology, cloud-first with strong employee self-service.
Most offer a trial, so run a parallel pay period before you switch.
FAQ
Is Basic PAYE Tools really free?
Yes, with no charge from HMRC. The cost is the work it leaves you: payslips produced by hand, auto enrolment run somewhere else, and manual updates each April.
Can I use it if I have auto enrolment duties?
Not on its own. It performs no assessment, calculates no contributions and connects to no pension provider. You would need a separate process for all of it, which for most small employers is more effort than the software subscription it replaces.
Does it produce payslips?
No. Payslips are a legal requirement, so you would be producing them yourself for every worker every pay period, showing hours where pay varies with time worked.
What if I make a mistake?
The liability is yours. HMRC does not check your figures before you submit, and penalties apply for late or incorrect reporting. Paid software adds validation and reminders, which is most of what you are paying for.
I am a sole director. Is it enough?
Usually yes. A company whose only worker is a director without an employment contract has no auto enrolment duties, and with a fixed monthly salary the payroll is simple. You still need payslips if there is an employment contract in place, and you still need to file on time.
Basic PAYE Tools or Paid Software: The Bottom Line
Basic PAYE Tools suits one specific employer: a sole director on a fixed salary, no other staff, no pension duties, no variable pay. There it does the job and costs nothing.
Everyone else runs into the same two walls. Payslips are a legal requirement and BPT does not make them. Auto enrolment starts with your first employee and BPT does not touch it. Once you are working around both by hand, the free tool has stopped being free.
Price the alternatives properly before you switch: base fee, per-employee charge, and whether an accounting subscription is bundled underneath. Then compare that against the hours you currently spend, and the penalties you are exposed to.
Pricing and features correct at time of writing. Plans and capabilities are subject to change, so always confirm current details on the provider’s website before purchasing. Prices quoted exclude VAT. The payroll, pensions and employment law points here are general information rather than advice. Speak to a qualified accountant or payroll professional about your own obligations.