How to Outsource UK Payroll to India for Small Businesses — RTI, PAYE, and Pension Compliance

What UK Payroll Involves — and What Can Be Outsourced to India

UK payroll has more moving parts than most small business owners expect. Running payroll for even 3–5 employees involves PAYE calculations, National Insurance contributions at multiple rates, statutory payments for illness and maternity, pension auto-enrolment assessments, RTI filings with HMRC each pay period, and year-end P60 production. Getting any of these wrong triggers HMRC penalties.

The division of work between an Indian payroll team and a UK-side submission process is straightforward:

For most UK small businesses with payroll software already set up — Xero Payroll, Sage Payroll, or BrightPay — the Indian team works within or alongside the software, preparing all figures for review. The submission click stays with you or your accountant.

Real Time Information (RTI) — Who Submits and How It Works

RTI is HMRC's system for receiving payroll data each time employees are paid, rather than annually. Every employer must submit a Full Payment Submission (FPS) on or before each pay date. Missing or late submissions trigger automatic penalties.

An Indian payroll team can prepare all RTI data — but the submission must go through an HMRC-recognised system:

• Via your payroll software: Xero Payroll, Sage Payroll, and BrightPay all connect directly to HMRC for RTI. Your Indian team prepares payroll data within or alongside the software; you authorise and submit.
• Via a UK-registered payroll agent: If your Indian CA firm holds HMRC payroll agent registration (some do for UK client work), they can submit RTI directly on your behalf after you grant agent authorisation through your HMRC online account.
• Via your UK accountant: Your accountant acts as payroll agent, submitting RTI data prepared by your Indian team. A common arrangement for businesses already using a UK accountant for Corporation Tax.

PAYE, National Insurance, and Payslip Preparation

The calculation work is where an Indian CA team adds the most value. PAYE and National Insurance calculations change each tax year — tax codes, NI thresholds, and statutory payment rates are updated by HMRC every April. Keeping across these changes is time-consuming for a small business owner managing payroll manually.

Your Indian payroll team tracks these changes and applies them correctly each pay period. They handle:

• PAYE using current tax codes — including emergency codes, BR codes, cumulative and week 1 basis
• Employee National Insurance at the correct rate (Category A, B, C, H, M, V, or Z depending on employee age and status)
• Employer National Insurance including the Employment Allowance claim where applicable
• Director NI using the annual earnings period method — different from the standard cumulative method
• Salary sacrifice arrangements — pension, cycle to work, childcare vouchers
• Compliant payslips meeting the requirements of the Employment Rights Act 1996 — itemised deductions, net pay, year-to-date figures

Payslips are produced in your preferred format and shared for distribution to employees. Most Indian teams use cloud-based payslip portals or share via secure PDF — no paper, no printing.

Pension Auto-Enrolment — What Your Indian Payroll Team Handles

Workplace pension auto-enrolment has been mandatory for all UK employers since 2018. Every pay period, you must assess whether each employee meets the eligibility criteria and deduct the correct pension contributions.

An Indian payroll team handles the full assessment and calculation process:

• Eligibility assessment: Each pay period, checking whether each employee is a worker, aged 22–State Pension Age, and earning above the auto-enrolment earnings trigger (£10,000/year in 2025/26)
• Postponement management: Applying 3-month postponement for new starters and tracking the enrolment window
• Contribution calculations: Employee and employer contributions on qualifying earnings above the lower threshold (£6,240 in 2025/26)
• Contribution schedules: Preparing the monthly contribution schedule for your pension provider — Nest, The People's Pension, Smart Pension, or other qualifying schemes
• Opt-out management: Tracking opt-outs and re-enrolment dates (every 3 years)
• Re-declaration of compliance: Preparing data for your 3-yearly re-declaration submission to The Pensions Regulator

Cost: UK Payroll Bureau vs Indian CA Firm

UK payroll bureaus typically charge per employee per month plus a base fee. Indian CA firms bundle payroll into their wider bookkeeping package or price it separately at significantly lower rates.

Combined bookkeeping and payroll from an Indian CA firm typically runs £120–£250 per month for a small limited company with up to 10 employees — covering transaction coding, reconciliation, VAT preparation, and full payroll. A UK firm charging separately for both services typically runs £400–£700 per month for the same scope.

How to Set Up Indian Payroll Outsourcing for Your UK Business

1. Agree the submission route. Confirm whether your Indian firm holds HMRC payroll agent registration (they submit), or whether you will submit via payroll software (they prepare, you click submit). Agree this before the first pay date.
2. Sign the Data Processing Agreement. Payroll data is highly personal — employee NI numbers, bank details, salaries. The DPA with UK SCCs must be signed before sharing any payroll data.
3. Share employee details securely. Current employee list with name, NI number, start date, tax code, salary, pension enrolment status, and any current deductions. Share via secure cloud link — not email attachments.
4. Confirm the pay schedule. Monthly, weekly, or fortnightly. Pay dates and the cut-off for receiving payroll instructions (typically 5 working days before pay date).
5. Set up pension provider access. Share your pension portal login or confirm the process for receiving contribution schedules from your Indian team.
6. Review the first payroll run carefully. The first run under any new payroll arrangement needs close review — confirm tax codes are correct, NI categories match, and pension deductions align with your scheme rules.

Frequently Asked Questions