Payroll Software vs Accountant for UK Small Business: Which Is Right for You?

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Introduction

If you’re running a small business in the UK and you’ve just taken on your first employee — or you’re drowning in payroll admin for a handful of staff — you’ve probably asked whether to buy payroll software and do it yourself, or hand it to an accountant.

The right answer depends on how many people you employ, how straightforward your pay arrangements are, how confident you are with numbers, and, critically, how well you understand where legal responsibility sits when something goes wrong.

This article covers the real costs on both sides, the compliance picture, and a practical framework for deciding.

The Real Cost of Payroll Software

What You’ll Pay for the Subscription

Payroll software for UK small businesses is genuinely cheap — cheaper than most people assume.

Confirmed entry points:

• Sage Payroll from £1.20 a month ex-VAT — the lowest confirmed price here, and a natural pairing if you already use Sage Accounting
• FreeAgent includes payroll for small limited companies at £33 a month ex-VAT — or free if you bank with NatWest, Royal Bank of Scotland, Ulster Bank or Mettle
• HMRC’s Basic PAYE Tools is free, but only for employers with up to 10 employees, and it’s deliberately basic — no payslip generation to speak of, and limited support for anything unusual
• Xero Payroll sits as an add-on to a Xero subscription, which starts at £16 a month ex-VAT for Ignite
• QuickBooks Payroll is likewise an add-on; QuickBooks itself starts at £10 ex-VAT for Sole Trader Plus
• BrightPay and Moneysoft are widely used by small businesses and accountants — check current pricing directly

The headline point: if you bank with NatWest Group or Mettle, or you’re already on Sage, your payroll software cost is somewhere between zero and a couple of pounds a month. The subscription is rarely the deciding factor.

The Hidden Cost: Your Time

This is the number most people forget. Even with good software, payroll isn’t a five-minute job once you factor in:

• Running payroll each pay period
• Submitting Real Time Information to HMRC accurately and on time
• Managing statutory payments — SSP, SMP, Statutory Paternity Pay
• Starters and leavers, P45s and P60s
• Year-end tasks and reconciliation
• Pension auto-enrolment, which is a separate legal duty with its own assessment, communication and re-enrolment obligations
• Keeping up with National Minimum Wage rates, tax codes and National Insurance thresholds

For five employees on straightforward monthly salaries, expect one to two hours a month. Add variable hours, shift workers or multiple pay rates and it becomes a meaningful chunk of your week.

Put a realistic hourly value on your time. That’s the true cost of doing it yourself, and it dwarfs the £1.20 subscription.

The Risk of Getting It Wrong

HMRC operates a penalty system for late RTI submissions, with penalties depending on employee numbers and how often it happens, plus interest on underpaid PAYE and National Insurance. Current rates are published on GOV.UK.

Beyond the money, payroll errors damage your relationship with employees and can take months to untangle.

The Real Cost of an Accountant or Payroll Bureau

What They Typically Charge

Accountants and specialist bureaux usually price per employee per month, or as a flat monthly fee. The figures below are broad market estimates rather than published rates — they vary substantially by region, provider and complexity, so treat them as a starting point for getting quotes rather than a benchmark:

• 1–5 employees: roughly £20–£50 a month for a managed service
• 6–15 employees: roughly £50–£120
• 15–50 employees: roughly £120–£300 or more

Some accountants bundle payroll into a broader monthly package covering bookkeeping, VAT and accounts. If that’s you, ask them to separate out the payroll element so you can compare like for like.

Payroll bureaux — specialists who do nothing else — are often cheaper than full-service accountants for the same headcount, and are a sensible middle ground if you want your time back without paying for services you don’t need.

What You Get for the Fee

A good accountant or bureau will run payroll to your schedule and handle RTI submissions, manage starters and leavers including P45s and P60s, process statutory payments, provide payslips, handle year-end and auto-enrolment reporting, and keep up with legislative changes.

They also bring pattern recognition. A bureau processing hundreds of payrolls a month spots problems a first-time employer wouldn’t know to look for.

The Liability Question Most Employers Get Wrong

This deserves its own section.

If you outsource payroll, you — the employer — remain legally responsible for the accuracy of your RTI submissions and the correct payment of PAYE and National Insurance.

HMRC’s relationship is with you, not your accountant. If your accountant makes a mistake, HMRC pursues you for underpaid tax, interest and penalties. You may have a claim against your accountant, particularly if they hold professional indemnity insurance as any reputable firm will, but that’s a separate matter and doesn’t protect you from HMRC in the first instance.

That doesn’t mean don’t outsource. It means don’t switch off. You still need to:

• Provide accurate information — hours, starters, leavers, pay changes
• Review payslips and payroll reports before they’re filed, not after
• Keep records of what you passed over and when
• Confirm your accountant uses HMRC-recognised payroll software

The employer is always in the chain of responsibility.

If You’ve Just Taken On Your First Employee

Two things sit alongside payroll that catch new employers out:

Employers’ liability insurance is a legal requirement for most UK businesses with staff, with penalties charged daily for going without. Sort it before your employee’s first day.

Pension auto-enrolment duties begin from your employee’s first day of employment, not when you get round to it. You’ll need to assess eligibility, write to them, and set up a qualifying scheme if they’re eligible.

Neither is optional, and neither is handled by payroll software running itself.

Making Tax Digital and Payroll

Some clarification, since these get conflated.

Payroll doesn’t run on Making Tax Digital. It runs on Real Time Information, in place since 2013, with Full Payment Submissions to HMRC on or before each payday. MTD is a separate programme covering VAT and Income Tax Self Assessment.

MTD for Income Tax began phasing in from April 2026 for sole traders and landlords with qualifying income above £50,000, dropping to £30,000 in April 2027. If you’re a sole trader who also employs someone, you may now be dealing with both regimes — quarterly MTD updates for your own income, and RTI submissions for your employee.

Both payroll software and managed payroll services keep you compliant with RTI and should keep pace with future changes.

Which Option Is Right for You?

Payroll software is likely the better fit if:

• You have fewer than 10 employees on simple, fixed monthly salaries
• You’re comfortable with numbers and confident learning new software
• Your payroll is straightforward — minimal variable hours, no complex statutory payments running
• You want to keep costs low and don’t mind a few hours a month
• You already use Xero, QuickBooks, Sage or FreeAgent, which have integrated payroll

An accountant or payroll bureau is likely the better fit if:

• You have 10 or more employees, or expect to grow quickly
• Your payroll is complex — shift workers, multiple pay rates, frequent churn, employees on statutory leave
• You don’t have time to stay on top of legislation changes
• You’ve had payroll problems before, or you’re anxious about getting it wrong
• You already use an accountant who offers payroll in a bundle
• You’re running the business alone and every admin hour is an hour not earning

The Middle Ground

Some owners run the software themselves but pay an accountant for a quarterly review, or for anything unusual — redundancy payments, disputed tax codes, a complicated maternity case. Day-to-day costs stay low and there’s someone to call when it gets awkward. For many small employers this is the sensible answer.

FAQ

Is payroll software difficult for a non-accountant?

Most modern payroll software is built for business owners rather than accountants, with step-by-step processes. HMRC’s Basic PAYE Tools is free and functional for up to 10 employees, though it’s noticeably more basic. If you’re comfortable with online banking or filing your own tax return, you can manage a small, straightforward payroll.

What happens if I make a mistake on an RTI submission?

Minor errors can often be corrected in your next payroll run. For errors in a tax year that has already closed, corrections are made by submitting a further Full Payment Submission with the corrected year-to-date figures, using the appropriate late reporting reason.

Note that the Earlier Year Update has been withdrawn. Guidance still referring to an EYU is out of date — HMRC no longer accepts them, and the FPS route replaced it. One practical difference: the old EYU reported the difference from what HMRC held, whereas an earlier-year FPS reports the corrected absolute year-to-date figures, which is considerably easier to get right. Corrections can generally be made for the previous six tax years.

Can I switch from DIY to an accountant mid-year?

Yes, at any point. You’ll need to hand over your payroll records to date — ideally exported from your software — plus employee details, tax codes and a record of statutory payments. Any competent bureau is used to taking over mid-year. The start of a new tax year on 6 April is simpler, but it isn’t essential.

Does outsourcing remove my liability with HMRC?

No, and this is the crucial point. You remain legally responsible for the accuracy of your payroll and the correct payment of PAYE and National Insurance regardless of who processes it. If your accountant submits incorrect information, HMRC’s dispute is with you. Recovering losses from your accountant is a separate matter. Review payroll reports before they’re submitted in your name.

What’s the cheapest way to run payroll?

If you bank with NatWest, RBS, Ulster Bank or Mettle, FreeAgent is free and includes payroll for small limited companies. Otherwise Sage Payroll from £1.20 a month ex-VAT is the cheapest confirmed option, or HMRC’s Basic PAYE Tools free for up to 10 employees if you can live without payslip generation and hand-holding.

Conclusion

For most UK small businesses with fewer than five employees on straightforward pay, payroll software is the sensible starting point. At £1.20 a month — or free with the right bank account — the subscription barely registers, and staying close to your own numbers is never a bad thing.

Once you’re employing ten or more people, dealing with variable hours, or finding payroll eats time you can’t spare, a bureau or accountant earns its fee. The expertise and time savings are real, and the cost per employee is reasonable against what those hours are worth to you.

But don’t mistake outsourcing for offloading responsibility. Stay involved, review what’s submitted in your name, and keep records. HMRC’s relationship is with you, and that doesn’t change because someone else presses submit.

This article is general information about payroll options, not tax, legal or accounting advice. Your PAYE obligations, auto-enrolment duties, statutory payment liabilities and penalty exposure depend on your circumstances — check current GOV.UK guidance and consult a qualified accountant or payroll professional about your specific position. Rates, thresholds and HMRC processes change; confirm the current position before acting.