Software comparison

Xero vs Sage Payroll UK (2025/26)

Xero and Sage are two of the most widely used payroll software platforms for UK small and medium businesses. Both handle HMRC RTI submissions, auto-enrolment pension, and PAYE calculations. The main differences are in ecosystem (Xero suits businesses already using Xero accounting; Sage suits those already on Sage), pricing structure, and the level of payroll complexity each handles out of the box. Xero Payroll is generally preferred for businesses wanting a modern, app-driven experience. Sage is often preferred by accountants and larger businesses needing more granular payroll controls or CIS management.

UK scope: England, Scotland, Wales and Northern Ireland employer payroll planning for the 2025/26 tax year.

Sample total cost

£40,363

£3,364 per month on £35,000 salary

Employer NI

£4,500

15% above £5,000 secondary threshold (2025/26)

Pension + overheads

£863

Baseline employer pension plus configured overheads

Key assumptions — UK 2025/26

Employer NI: 15% on earnings above the £5,000 secondary threshold

Employer pension: minimum 3% on qualifying earnings £6,240–£50,270

Employment Allowance: up to £10,500 off the NI bill for eligible employers

Worked examples: £30k salary → £34,464/yr · £35k → £40,363/yr · £50k → £58,063/yr

What this page helps you check

Both handle HMRC RTI, auto-enrolment pension, PAYE, NI and CIS (Construction Industry Scheme).
Xero Payroll is bundled with Xero accounting — best for businesses already using Xero for bookkeeping.
Sage Payroll (including Sage 50 Payroll) has more feature depth for complex payroll — preferred by many UK accountants.
Xero pricing is subscription-based (from ~£7/mo). Sage pricing varies by employee count.
Both integrate with major pension providers including NEST, The Peoples Pension, and Smart Pension.
Neither calculates employer NI for you at offer stage — use the employer cost calculator first.

Use the live tools

Calculate employer cost before choosing software Compare all payroll software Cost of employing by salary Employer NI by salary Auto-enrolment pension calculator

UK assumptions used

Employer NI

15% above £5,000 secondary threshold for 2025/26.

Auto-enrolment pension

Minimum employer contribution 3% on qualifying earnings.

Employment Allowance

Up to £10,500 relief in 2025/26 for eligible employers.

Official UK references

HMRC rates and thresholds Employment Allowance Pensions Regulator guidance Our methodology Our source list

Frequently asked questions

Is Xero or Sage better for payroll in the UK?

It depends on your existing accounting software and business complexity. Xero Payroll is the better choice if you already use Xero for accounting — the integration is seamless and the app experience is modern. Sage is often preferred by accountants and businesses needing more detailed payroll reporting, cost centre coding, or CIS subcontractor management. For businesses with fewer than 10 employees looking for simplicity, Xero is generally easier to use.

Can I run payroll on Xero without having Xero accounting?

Technically yes — Xero Payroll can be run without the full Xero accounting subscription, but it is designed to work best within the Xero ecosystem. If you use a different accounting platform (QuickBooks, Sage Accounting, Xero), you would typically use that provider's payroll module to avoid manual journal entries.

Does Sage or Xero support Employment Allowance?

Both Sage and Xero support Employment Allowance for eligible employers. You declare eligibility in the payroll settings and the software automatically offsets employer NI against the £10,500 annual allowance across the year. Both systems flag when the allowance is exhausted.

UK coverage only. Last reviewed: 04 April 2026. Estimates use 2025/26 assumptions and are for planning, not legal or tax advice.