HMRC’s Basic PAYE Tools is a free product that does the basics and is used by a lot of UK small businesses. The question worth answering isn’t whether it works, it does, but whether what it doesn’t do is costing you more in time and risk than a paid alternative would cost in money.
HMRC Basic PAYE Tools
What does the HMRC Tools do? HMRC Basic PAYE Tools calculates PAYE and National Insurance correctly. It submits RTI returns to HMRC on time, assuming you use it properly. It produces the year-end forms you’re legally required to issue. For a business with a handful of employees on simple, fixed monthly salaries, that’s the entire legal requirement, covered.
What it doesn’t do is the longer list: no payslip generation, no auto-enrolment management, no employee self-service, no accounting integration, minimal reporting, and an interface that hasn’t meaningfully changed in over a decade. None of these gaps are illegal to live with. All of them create manual work somewhere else.
There’s still manual work
Payslips have to come from somewhere else — a template, separate software, or by hand. For one employee, a few minutes a month. For ten, a recurring task that paid software would simply fold into the same pay run you’re already doing.
Auto-enrolment is the bigger issue. Any employee earning over £10,000 a year and aged between 22 and state pension age must be assessed for a workplace pension, and Basic PAYE Tools doesn’t do this at all. You need a separate process — manual assessment, a standalone pension tool, or your pension provider’s own portal. The Pensions Regulator doesn’t care that your intentions were good if the assessment was missed.
Then there’s time, which is the easiest cost to underestimate because each individual gap feels small. Across twelve pay runs a year, the payslip workaround and the auto-enrolment workaround add up to real hours that paid or free-commercial software would simply absorb. If your time is worth anything close to what you charge clients, the case for switching usually arrives well before it feels urgent.
And more manual steps means more places for something to go wrong — a payslip that doesn’t match the RTI submission, a missed auto-enrolment assessment, a year-end form that’s inconsistent with what was actually paid.
When it’s a good solution
This isn’t a blanket case against Basic PAYE Tools. If you’re running payroll for one or two people on fixed salaries, nobody’s near the auto-enrolment threshold, and you don’t mind a simple payslip template — the free tool covers the legal requirement and the manual workload is genuinely minor. A sole trader paying themselves a small PAYE salary alongside drawings, with no other staff, may never have a real reason to upgrade.
It’s not bad software. It’s deliberately minimal, and minimal is the right trade-off only as long as your payroll stays simple.
What’s the difference with paid (or free commercial) software?
Even the cheapest paid option closes the core gaps. Moneysoft Payroll Manager, around £72 a year for unlimited employees, adds payslips, auto-enrolment with NEST integration, and statutory pay calculations for roughly £6 a month. Free commercial tools like Employment Hero or Shape Payroll close the same gaps at no cost, trading a small employee cap or a slightly steeper interface for it.
The real comparison isn’t free versus paid — it’s manual admin you do yourself versus software that does it for you. Framed that way, even a modest monthly fee usually wins once you have more than a couple of employees or anyone approaching the auto-enrolment threshold.
Why switch?
One or two employees on fixed pay, nobody near the pension threshold: Basic PAYE Tools is defensible. Three or more, or anyone on variable pay: the manual workload starts to outweigh the hassle of switching.
If anyone qualifies for auto-enrolment, or is likely to soon, that alone is reason enough to move — it’s the single biggest practical gap in the free tool. And if payroll is regularly taking you more than half an hour to an hour per pay period because of all the manual workarounds stacked on top of it, the time saved by switching is usually worth more than what switching costs.
If you’re planning to hire, it’s also far less disruptive to change payroll software while you have one or two employees than once you have eight.
For most UK small businesses past the very smallest scale, the free commercial alternatives — Employment Hero, Shape Payroll — close the payslip and auto-enrolment gaps at no cost, with only a modest learning curve as the price. If you outgrow those, Moneysoft’s annual licence is cheap enough that the upgrade barely needs justifying.
The cases where Basic PAYE Tools is genuinely still the right call are narrower than its continued popularity suggests: very small, very simple, no pension obligations, someone comfortable with manual payslips. Outside that, free upgrade options solve the actual problems at no extra cost — so there’s rarely a financial reason left to stay on it.
For the full range of free alternatives, see our guide to free payroll software for UK small businesses. For paid options, the cheapest payroll software guide breaks down what you get at each price point.
