By: Money Navigator Research Team
Last Reviewed: 16/01/2026
FACT CHECKED
Quick Summary
Payroll can usually still be processed (calculations, payslips, and reporting) even if a business bank account is being closed or restricted – but whether staff can actually be paid on time depends on what the bank allows on the payment rails (most commonly Bacs Direct Credit or Faster Payments).
If the account is restricted, outgoing payments may be blocked entirely. If the account is closing, payroll may still run during the notice period, but payments can fail once the account is no longer able to send funds or if a payment is “in flight” when access changes.
This article is educational and not financial advice.
“Running payroll” vs “paying payroll” (why the wording matters)
In practice, there are two separate layers:
Payroll processing: calculating gross-to-net pay, generating payslips, and producing the payment file or payment instructions.
Payroll funding: the bank actually releasing money to employees via Bacs, Faster Payments, or (less commonly) CHAPS.
A bank account closure or restriction tends to affect funding first. Payroll processing can continue even if the bank later refuses or blocks outgoing payments.
How payroll is typically paid in the UK
Bacs Direct Credit (common for payroll)
Many employers pay staff through Bacs Direct Credit, which uses a three-day processing cycle (input day, processing day, entry day). The Bacs scheme also describes submission windows and that payments are credited to recipients and debited from the payer on entry day. Bacs Direct Credit (how the processing cycle works)
Practical implication: if a business account becomes restricted or effectively unusable after a file is submitted, the outcome depends on where the payment is in the cycle and whether the bank allows it to proceed.
Faster Payments (often used for ad-hoc payroll or corrections)
Faster Payments are commonly near-instant, though Pay.UK notes some can take longer and may take up to two hours in typical cases. Pay.UK explanation of how Faster Payments work
Practical implication: restrictions can prevent sending Faster Payments at all; closures can stop access to the sending channel even if the account still exists in back-office systems.
CHAPS (less common for payroll)
CHAPS is generally used for same-day, time-critical sterling payments and is operated within defined opening hours. Bank of England overview of CHAPS
Practical implication: CHAPS may still be blocked if the account is restricted, and it is rarely the default method for paying a large employee list.
What “restricted” usually means for payroll
A restriction can be anything from “outgoing payments blocked” to “some payment types allowed, others paused”, depending on the bank’s controls and the reason for the restriction.
With restrictions, the operational risk is that the bank refuses payment orders (including bulk payroll files), or allows only limited activity.
If standing orders or scheduled payments are affected, the same pattern can apply to payroll-like regular transfers, even if the underlying mechanism differs.
Related background on how restrictions affect scheduled payments: Direct debits and standing orders when a business account is frozen
What “being closed” usually means for payroll
Closure often happens in phases
Many closures include a notice period where the account is still technically open but day-to-day access can change (for example, payment features reduced, cards stopped, or limits applied).
The Financial Ombudsman Service explains that banks should usually give at least two months’ notice (with exceptions), and that business accounts may have different rules in their terms. Financial Ombudsman Service guidance on bank account closures
Notice periods are changing for some new contracts from April 2026
HM Treasury has said new rules are expected to apply for relevant new contracts from April 2026, increasing the minimum notice period to 90 days and requiring a written explanation (with exceptions in certain circumstances). HM Treasury announcement on new notice rules for account closures
Once closure takes effect, payment initiation may stop
After the account is no longer able to send payments, payroll can still be “run” in software, but payments may be rejected or never initiated on the banking rails. If a payment was already submitted and then the account becomes unavailable, outcomes depend heavily on the payment stage.
For the “in-flight” angle: Outgoing payments if an account is closed mid-processing
HMRC payroll reporting still exists even when payments are disrupted
HMRC’s guidance on RTI reporting states that employers send a Full Payment Submission (FPS) on or before employees’ payday, and it sets out handling for early or late reporting scenarios. HMRC guidance: reporting to HMRC (FPS timing)
Practical impact: when payroll funding is disrupted, the question becomes how the actual pay event is treated and recorded, and whether later corrections or exceptions apply under HMRC’s RTI rules (which are separate from bank processing).
Employment-law implications: late or missing wage payments
ACAS states that, by law, employers must pay wages on an agreed pay day, and that not paying on time can lead to legal action. ACAS guidance: if wages are not paid
This is why account restriction/closure can become urgent operationally: payroll funding is a banking issue, but the consequences may sit in employment obligations and workforce relations.
Summary table
| Scenario | Outcome | Practical impact |
|---|---|---|
| Account is restricted before payroll is submitted | Payment orders may be refused | Staff may not receive wages on the expected date |
| Account is restricted after a Bacs file is submitted | Outcome depends on bank controls and payment stage | Some payments may fail; reconciliation and re-issuance work increases |
| Account is in notice period for closure | Payroll may still be initiated until access changes | Timing risk increases near the closure date |
| Account becomes unusable while a payment is “in flight” | Payment may be rejected, returned, or never executed | Employees may see no credit; business may see unclear status until confirmed |
| Bank closes the account and returns remaining funds later | Funds movement can lag operational need | Payroll funding may be constrained until replacement arrangements exist |
Scenario-level / process-level / outcome-level
| Scenario-level | Process-level | Outcome-level |
|---|---|---|
| Restriction triggered by compliance controls | Bank may pause outgoing rails (Bacs/Faster Payments) pending checks | Payroll file accepted but not executed, or rejected at initiation |
| Closure during notice period | Access channels may be reduced before legal closure date | Payroll can be disrupted even “before closure” |
| Bulk payroll via Bacs | Three-day cycle creates a window of dependency | A mid-cycle block can cause partial or full non-payment |
| Ad-hoc wage corrections via Faster Payments | Near-real-time rail, but still subject to bank permission | Payments may fail immediately if sending is disabled |
| Payroll reporting continues | HMRC RTI timing rules remain separate | Reporting may not align neatly with disrupted pay events |
What employees typically see when payroll is disrupted
When payroll payments fail, employees may experience one or more of these outcomes:
No credit received on expected payday (common where payment initiation is blocked).
Delayed credit (common where the bank later executes after a pause, or where the payment is reissued by the employer through another rail).
Mixed outcomes (some paid, some not) if different payment routes were used, or if a bulk file partially fails.
Where incoming credits are attempted to a closed account (for example, reimbursement flows, corrections, or reversals), they may bounce or return depending on the stage and rail: Incoming payments when a business account is closed
Restriction vs closure: they are not the same event
A restriction is often a control state that can change day-to-day. Closure is an end of the account contract, which may follow a notice process and still involve restrictions before the final date.
For definitions and the practical differences: Difference between a frozen and closed business bank account
For broader operational impacts during freezes: Can a business still trade if a bank account is frozen?
Compare Business Bank Accounts
If payroll resilience is a concern, banks differ in operational features that can matter during disruption (for example: multi-user controls, payment approval flows, limits, support channels, and how clearly they communicate restrictions/closures). We compare providers and account types here: Business bank accounts
Frequently Asked Questions
Not necessarily. Payroll processing (calculations, payslips, and producing payment instructions) can be completed without any money moving.
Payment happens only if the bank executes the outgoing payments (for example via Bacs Direct Credit or Faster Payments). Those rails can be blocked or refused during restrictions or near closure.
It often can, because the account may remain open during the notice period. However, access can change before the closure date (for example, payment permissions reduced), which can disrupt payroll even while the account is technically open.
The Financial Ombudsman Service explains that banks should usually give notice before closing an account (with exceptions), and disputes often turn on notice, fairness, and what the terms allowed. Financial Ombudsman Service guidance on bank account closures
Bacs Direct Credit follows a staged processing cycle. If a restriction is applied after submission, the outcome can depend on whether the bank allows the cycle to complete or intervenes before settlement.
Bacs sets out the three-day cycle and the point at which accounts are debited/credited, which helps explain why timing matters when access changes mid-cycle. Bacs Direct Credit processing cycle
Faster Payments are typically near-instant, which reduces the multi-day exposure window seen with Bacs. But a restriction can still prevent sending the payment in the first place.
Pay.UK notes Faster Payments are usually available almost immediately (sometimes up to two hours), but execution still depends on the sending bank allowing the payment order. Pay.UK: how Faster Payments work
CHAPS is a same-day sterling system typically used for high-value or time-critical payments, and it runs within stated operating hours.
However, if the underlying issue is that the account is restricted from making outgoing payments, CHAPS may be blocked in the same way as other rails. Bank of England overview of CHAPS
HMRC’s guidance says the Full Payment Submission (FPS) is sent on or before employees’ payday, and it describes early and late reporting, including that there are some exceptions where an FPS can be sent after payday. HMRC guidance: reporting to HMRC (FPS)
When bank disruption changes real-world pay events, the technical reporting position is about what is recorded as the pay date and whether corrections or permitted exceptions apply under RTI rules (separate from banking timelines).
ACAS states that employers must pay wages on an agreed pay day, and not paying on time can lead to legal action. ACAS guidance: if wages are not paid
This is why bank restrictions can create second-order risk: even if the underlying cause is a banking control, the practical consequence may still be assessed through employment rights and contractual pay terms.
Banks may provide limited detail, especially where financial crime controls are involved. In complaints contexts, limited explanation is not unusual, and the focus often shifts to whether the bank followed the account terms, gave the required notice (where applicable), and handled communications and access fairly.
The Financial Ombudsman Service publishes how it approaches closure complaints, including notice periods and how it resolves disputes about closures and related issues. Financial Ombudsman Service guidance on account closures
Some scheduled payment mechanisms can be cancelled or fail when an account is frozen or closed, but payroll is often sent as Bacs Direct Credit rather than standing orders.
The shared point is that restrictions/closure can interrupt any outgoing payment instruction that relies on the account remaining active and permitted to send.
For how banks’ controls affect scheduled payments, see: Direct debits and standing orders when a business account is frozen
The government has said new rules are expected to apply for relevant new contracts from April 2026, requiring at least 90 days’ notice and a written explanation (with exceptions). HM Treasury announcement on new notice rules
Even with longer notice, payroll disruption can still happen if payment permissions change during the notice period or if a restriction is applied. Notice periods affect time to respond, not the mechanics of whether a restricted account can execute payments.
Payroll disruption during restriction or closure usually isn’t about payroll software – it’s about permission to move money on specific rails.
Bacs adds timing exposure because it is a staged cycle; Faster Payments reduce timing exposure but remain permissioned; and closure often happens in phases where practical access changes before the account contract ends.
The “hidden mechanism” is that businesses experience one event (“the account is closing”), while banks operate multiple control layers (“what payment types are allowed today”), and payroll sits right at the point where those layers collide.