Who it's for: anyone posting or reviewing payroll journals in a UK SaaS or tech finance team, from finance assistant to financial controller.
What you'll get: the payroll journal line by line, how to reconcile the payroll control accounts, how to accrue bonuses and holiday pay, UK rates as at October 2026, worked examples and a risks-and-controls table.
Reading time: about 12 minutes. Keep it open next to the payroll report on Day 1.
Why payroll deserves more than one line in the close
For most SaaS companies, people are the biggest cost by a distance. A payroll journal posted as one lump to "wages" hides employer National Insurance, pensions and liabilities to HMRC that need paying on time. Bonuses add a second problem: the cost builds up all year, but the cash goes out once, often months later.
Get both right and your P&L shows the true monthly cost of the team, and your balance sheet shows exactly what you owe and to whom. Get them wrong and you find out at year-end, usually in front of the auditor.
Key terms
- Gross pay: what an employee earns before any deductions.
- PAYE (Pay As You Earn): the system for deducting income tax and National Insurance from pay and paying it to HMRC.
- Employee (primary) National Insurance: NI deducted from the employee's pay.
- Employer (secondary) National Insurance: NI the company pays on top of gross pay. It's a cost to the company, not a deduction from the employee.
- Auto-enrolment: the legal duty to put eligible staff into a workplace pension and pay at least a minimum contribution.
- Net pay arrangement / salary sacrifice: two common ways pension contributions are taken. Under salary sacrifice, the employee gives up salary and the employer pays the equivalent into the pension, which also saves NI.
- Payroll control account: a balance sheet account that holds an amount owed (net wages, HMRC, pension) until it's paid. Once paid, it should clear back to zero.
- Bonus accrual: booking the expected bonus cost month by month as staff earn it, before it's paid.
UK payroll rates that drive the journal (as at October 2026)
These are for the 2026 to 2027 tax year, from HMRC's rates and thresholds for employers and the Pensions Regulator. They change, usually each April, so check gov.uk before relying on them.
| Item | 2026 to 2027 (as at October 2026) |
|---|---|
| Employer Class 1 NI rate | 15% |
| Employer NI secondary threshold | £417 a month (£5,000 a year) |
| Employer NI relief for under-21s and apprentices under 25 | 0% employer NI on earnings up to £4,189 a month (£50,270 a year) |
| Employee NI (category A) | 8% between £1,048 and £4,189 a month; 2% above that |
| Employment Allowance | Up to £10,500 a year off employer NI, for eligible employers |
| Class 1A NI on benefits in kind | 15% |
| Apprenticeship Levy | 0.5% of the pay bill, less a £15,000 annual allowance |
| Auto-enrolment earnings trigger | £10,000 a year (£833 a month) |
| Auto-enrolment qualifying earnings band | £6,240 to £50,270 a year (£520 to £4,189 a month) |
| Auto-enrolment minimum contributions | 8% of qualifying earnings in total, of which the employer pays at least 3% |
| PAYE payment deadline (monthly, electronic) | 22nd of the next tax month |
Two changes already announced are worth having on your radar. Mandatory payrolling of some benefits in kind (company cars, fuel, vans and medical benefits) is due to start from 6 April 2027. And from April 2029, NI relief on pension contributions made through salary sacrifice is due to be capped at £2,000 per employee per year. Check gov.uk for the latest position on both.
Step by step: the monthly payroll journal
| Task | What "done" looks like | |
|---|---|---|
| ☐ | Agree payroll inputs before the run: starters, leavers, pay changes, overtime, commission | HR, payroll and finance work from the same list |
| ☐ | Get the payroll summary report from the payroll provider or system | Totals for gross pay, tax, employee NI, employer NI, pensions, student loans and net pay |
| ☐ | Check the report against last month and the headcount | Movements explained by starters, leavers, pay rises or one-offs |
| ☐ | Post the payroll journal, split by cost centre or department | Gross pay, employer NI and employer pension in the right P&L lines |
| ☐ | Post the net pay payment from the bank | Net wages control clears to zero |
| ☐ | Post the HMRC payment when it goes out | PAYE/NI control equals only the current month's liability |
| ☐ | Post the pension payment when it goes out | Pension control equals only the current month's contributions |
| ☐ | Book accruals: bonus, commission, holiday pay, and any pay earned but not yet processed | The P&L carries the full month's people cost |
| ☐ | Reconcile every payroll control account | Each balance is explained, evidenced and signed off |
Departmental splits matter in SaaS. Engineering, sales and customer success salaries typically flow to different lines (R&D, sales and marketing, cost of sales), and that split feeds gross margin, CAC and R&D tax relief claims. Keep the mapping in the payroll system, not in someone's head.
AI shortcut: give an approved AI tool this month's and last month's payroll summaries by employee (using IDs rather than names if your policy prefers) plus the HR starters and leavers list. Ask it to list every employee whose gross pay moved by more than 5%, and anyone paid who isn't on the HR list. A person checks each item before the journal is posted. Payroll data only ever goes into tools your company has approved for it.
Worked example 1: MonthEndClub Co Ltd's October payroll
MonthEndClub Co Ltd is a fictional UK SaaS company with 20 employees, each on £6,000 a month. Everyone is over 21 and on NI category A. Pensions use a net pay arrangement: employees pay 5% and the company pays 5%, both on basic salary. Two staff repay Plan 2 student loans. The company doesn't qualify for the Employment Allowance. Figures are rounded to the nearest pound.
Employer NI, checked by hand: (£6,000 − £417) × 15% = £837.45 per person. × 20 = £16,749.
Employee NI, checked by hand: (£4,189 − £1,048) × 8% = £251.28, plus (£6,000 − £4,189) × 2% = £36.22. Total £287.50 per person. × 20 = £5,750.
| Payroll summary, October | £ |
|---|---|
| Gross pay | 120,000 |
| Less: PAYE income tax (per payroll report) | (24,653) |
| Less: employee NI | (5,750) |
| Less: employee pension (5% × £6,000 × 20) | (6,000) |
| Less: student loan deductions (per payroll report) | (638) |
| Net pay | 82,959 |
| Employer NI | 16,749 |
| Employer pension (5% × £6,000 × 20) | 6,000 |
The payroll journal:
| Account | Dr | Cr |
|---|---|---|
| Salaries (P&L, by department) | £120,000 | |
| Employer NI (P&L) | £16,749 | |
| Employer pension (P&L) | £6,000 | |
| Net wages control | £82,959 | |
| PAYE/NI control (owed to HMRC) | £47,790 | |
| Pension control (owed to pension provider) | £12,000 | |
| Total | £142,749 | £142,749 |
The HMRC figure is tax £24,653 + employee NI £5,750 + student loans £638 + employer NI £16,749 = £47,790. The pension figure is £6,000 employee + £6,000 employer = £12,000. The total cost of the team for October is £142,749, not the £120,000 headline salary bill.
When payments go out: net pay of £82,959 leaves on payday (Dr net wages control, Cr bank). The £47,790 is paid to HMRC by 22 November (Dr PAYE/NI control, Cr bank). The £12,000 is paid to the pension provider on its collection date (Dr pension control, Cr bank). At 31 October, the balance sheet should show £47,790 owed to HMRC and £12,000 owed to the pension provider, and nothing in net wages control.
Reconciling the payroll control accounts
| Account | What the balance should be | Evidence |
|---|---|---|
| Net wages control | Zero after payday | Payroll report net pay and the bank payment |
| PAYE/NI control | This month's liability only | Payroll report and the HMRC online account showing what's due |
| Pension control | This month's contributions only | Pension provider's contribution schedule |
| Bonus and holiday accruals | Supported by a calculation | Bonus model and holiday balances report |
An old balance on a control account means something didn't match: a payment posted to the wrong account, a payroll correction not journaled, or an Employment Allowance claim not reflected. Old payroll balances get harder to explain every month.
AI shortcut: export the last 12 months of transactions on each payroll control account and ask an approved AI tool to match each month's liability to the payment that cleared it, and list anything unmatched. You review the list and agree it to the payroll reports.
Worked example 2: accruing the annual bonus
Under FRS 102 (Section 28) and IFRS (IAS 19), a bonus is a short-term employee benefit. The cost is typically recognised as employees earn it, when the company has a present obligation (legal, or because past practice makes paying it expected) and can estimate it reliably. In practice, many teams accrue it evenly across the bonus year and adjust as the expected outcome changes.
MonthEndClub Co Ltd's bonus year runs January to December, paid in March. The target pool is £96,000. Employer NI on the bonus is accrued too, at 15%, because every employee is already above the secondary threshold. The bonus isn't pensionable.
January to September: finance expected an 80% payout: £96,000 × 80% = £76,800. Monthly bonus accrual £76,800 ÷ 12 = £6,400, plus NI of £6,400 × 15% = £960. Total £7,360 a month, so £66,240 accrued by 30 September.
October: the forecast improves to a 90% payout: £86,400 bonus plus £12,960 NI = £99,360. Ten months of the year have passed, so the accrual at 31 October should be £99,360 × 10/12 = £82,800. The October charge is the catch-up: £82,800 − £66,240 = £16,560.
| Account | Dr | Cr |
|---|---|---|
| Bonus expense (P&L, by department) | £14,400 | |
| Employer NI on bonus (P&L) | £2,160 | |
| Accruals: bonus and NI | £16,560 |
Check: bonus £86,400 × 10/12 = £72,000, less £57,600 already accrued = £14,400. NI £12,960 × 10/12 = £10,800, less £8,640 already accrued = £2,160. Together, £16,560. Note the catch-up in your variance commentary, or someone will ask why October's people costs jumped.
In March: the bonus goes through payroll as normal. The payroll journal posts it to the accrual account rather than the P&L, and any difference between the accrual and the final payout goes to the P&L in that month.
Holiday pay: the accrual people forget
Under FRS 102 and IFRS, holiday earned but not taken at the reporting date is typically accrued. Many teams do this at least at year-end, and monthly if the holiday year doesn't match the financial year. A common method: days earned but not taken × daily pay × (1 + employer NI rate). Your HR system's holiday balances report is the evidence.
If you report under US GAAP (ASC 606)
Payroll doesn't fall under ASC 606, which covers revenue. Under US GAAP, bonuses and compensated absences sit under ASC 710. The broad approach, accruing as employees earn it when payment is probable and estimable, is similar. Some groups have specific rules on when unused holiday must be accrued, so check your group's policy.
Common mistakes and audit watch-outs
- Posting employer NI to the same line as salaries. It hides the true cost per head and muddles budgets.
- Control accounts that never clear. An old balance on PAYE/NI control usually means an unposted payment or correction.
- Forgetting employer NI on the bonus accrual. At 15%, it's a material slice of the cost.
- No catch-up when the bonus forecast changes. Spreading the new total over the remaining months distorts each month; a catch-up keeps the year-to-date figure right.
- Using last year's rates. Thresholds and rates change each April. Update payroll models and accrual workings then.
- Payroll data in unapproved AI tools. Salaries and personal details are among the most sensitive data a finance team holds. Approved tools only, and ideally anonymised extracts.
- Accepting an AI variance list as complete. AI can miss a change or misread a column. Reconcile its totals back to the payroll report.
Tools that can help
Payroll software or providers produce the summary report and, in many cases, a ready-made journal for Xero, QuickBooks, Sage or NetSuite. HR systems hold holiday balances and starter and leaver dates. A bonus model in Excel or Google Sheets, kept with the working papers, makes the accrual easy to evidence. Tools speed up the posting; they don't replace the review and reconciliation.
Key risks and controls
| Risk | Control | How to evidence it |
|---|---|---|
| Ghost or incorrect employees paid | Payroll reviewed against HR starters and leavers before approval | Signed payroll approval with the HR list attached |
| Payroll journal doesn't match the payroll | Journal totals agreed to the payroll summary | Payroll report saved with the journal |
| Late or wrong HMRC and pension payments | Monthly reconciliation of control accounts | Reconciliation showing liability and matching payment |
| Bonus cost in the wrong period | Monthly accrual from a reviewed bonus model | Model with forecast payout %, approved by the controller |
| Payroll data exposed through AI | Approved AI tools only; anonymised extracts | AI use policy and tool approval list |
Rates, thresholds and rules in this guide
Figures were checked against the pages below in October 2026. They change regularly (often each April or at Budget time), and we can't guarantee they're still current or right for your situation. Always check the official page before relying on them.
- Rates and thresholds for employers 2026 to 2027 (GOV.UK, HMRC): employer and employee NI rates and thresholds, under-21 and apprentice relief, Employment Allowance, Class 1A NI and the Apprenticeship Levy
- Automatic enrolment earnings thresholds (The Pensions Regulator): the auto-enrolment earnings trigger and qualifying earnings band
- Workplace pensions: what you, your employer and the government pay (GOV.UK): auto-enrolment minimum contributions
- Pay employers' PAYE (GOV.UK): the monthly PAYE payment deadline
- Eligibility for Employment Allowance: further employer guidance (GOV.UK, HMRC): who can claim the Employment Allowance
- Mandatory payrolling of taxable benefits-in-kind to be phased in from April 2027 (Chartered Institute of Taxation): which benefits are due to be payrolled from 6 April 2027
- Salary sacrifice reform for pension contributions (GOV.UK, HMRC): the £2,000 NI cap on salary-sacrificed pension contributions from 6 April 2029
Key takeaways
- Split the payroll journal: gross pay, employer NI and employer pension, by department.
- Every payroll control account should clear to zero or to this month's liability only.
- Accrue bonuses as they're earned, include employer NI, and catch up when the forecast changes.
- Don't forget the holiday pay accrual, especially at year-end.
- Rates and thresholds change each April. The figures here are as at October 2026; check gov.uk.
- AI is good at spotting payroll movements and matching payments; a person reviews and signs off.
FAQs
Where does the Employment Allowance go in the accounts?
It reduces employer NI payable, so a common approach is to credit the employer NI cost line as the allowance is used, which reduces the PAYE/NI liability. Eligibility rules apply, so check gov.uk before assuming you can claim.
Should the bonus accrual include employer pension?
Only if the bonus is pensionable under your scheme rules. If it is, accrue the employer pension contribution alongside the bonus and NI.
Can AI prepare the payroll journal?
It can draft it from the payroll summary and flag unusual movements, and many payroll systems already produce a journal file. A person still checks it against the report, reviews the movements and approves it.
What if payroll runs before month-end and something changes after?
Late changes are usually processed in next month's payroll. If the amount is material, many teams accrue it in the current month so the cost lands in the right period.
Related guides
- Accruals and Prepayments: A Practical Guide with Examples
- Capitalising Sales Commissions (Contract Costs)
- Share Options and EMI Schemes: The Month-End Basics
- Balance Sheet Reconciliations: What Good Looks Like
More in Costs and Accruals guides.
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This guide is general information about common practice. It isn't tailored to any business, and standards, tax rules and figures change. Check your own circumstances, the latest rules and, where needed, a qualified professional before acting.
Last reviewed: October 2026.