Revealed: 84% of small business owners make payroll errors

Are ever-changing tax regulations making the process too complicated for the average small business owner? New data from payroll software Employment Hero suggests this is the case – with 84 per cent of small business owners revealing they’ve made errors on their payroll.

The survey of 1,000 small business owners also reveals that almost half (40 per cent) have received penalties for these payroll issues.

The most common payroll errors made by small business owners include:

‘A compliance minefield’

With recent updates to the national minimum wage, as well as increased National Insurance contributions, it’s no wonder that small business owners are making errors in their payroll reporting.

Employment Hero UK managing director Kevin Fitzgerald says: “With the rising national minimum wage, increased National Insurance contributions, and tougher enforcement of employment law, there’s never been a more complicated time to be a small employer.  

“Our research shows payroll has become a compliance minefield. SMEs are trying to do the right thing, but outdated systems and limited resources are costing them dearly.”

SMEs still rely on outdated payroll processes

For many, the problem seems to come from how small business owners are managing their payroll – with 70 per cent of small business owners revealing they’re worried about keeping up with changing payroll technology.

The data also reveals that 31 per cent of small business owners still rely on spreadsheets to calculate wages – which rises to 44 per cent for those with fewer than 20 employees.

Read more: Best payroll software for small businesses in the UK

HMRC launches new PAYE service

Data from the latest Simply Business 2025 SME Insights Report supports these findings – with 27 per cent of small business owners revealing they want the tax system simplified.

Fortunately, HMRC has recently announced many changes set to simplify the tax process as part of their transformation roadmap. July saw the government launch a new PAYE service to simplify the tax system for 35 million people, allowing users to check and update their income, allowances, reliefs, and expenses.

JP Marks, HMRC’s Chief Executive and First Permanent Secretary, says: “The government’s ambition is for a simpler tax and customs system and this roadmap sets out how HMRC will deliver a first-class experience that feels different to their customers.

“By 2030, UK citizens will experience a tax administration system that is more automated, more focused on self-service, and better set up to get things right first time so they can fulfil their tax obligations.”

More staff and payroll guides

• Employment Rights Bill – what do small business owners need to know?
• HR toolkit: what HR tools do growing businesses need?
• Payslip template for small businesses
• The 8 best self-employed accounting software for 2025