If you pay employees — including yourself as a director — you need to operate PAYE (Pay As You Earn). This means deducting Income Tax and National Insurance from wages before paying staff, and sending deductions to HMRC.
When Do You Need PAYE?
Register as an employer with HMRC if any employee earns above the Lower Earnings Limit (£6,396/year) or has another job or pension. If you pay yourself a salary from your limited company, you almost certainly need PAYE.
How to Register
- Register at gov.uk up to 2 months before first payday
- Receive your employer PAYE reference and Accounts Office reference
- Choose payroll software — HMRC Basic PAYE Tools (free), Xero, QuickBooks or FreeAgent
- Set up each employee with tax code, NI number and start date
What You Deduct
- Income Tax — based on employee tax code
- Employee NI — 8% on earnings £12,570-£50,270, then 2%
- Employer NI — 13.8% on earnings above £9,100 (company cost)
- Student loan repayments if applicable
- Workplace pension — minimum 3% employer, 5% employee
Real Time Information (RTI)
Every payday, submit a Full Payment Submission (FPS) to HMRC reporting each employee's pay and deductions. You may also need an Employer Payment Summary (EPS) for adjustments.
Director Payroll Strategy
Most small company directors pay a salary at the NIC threshold (£12,570) and take the rest as dividends. See our Corporation Tax guide for the maths. Use CalcPad to model splits.
Paying HMRC
PAYE and NIC deductions are due by the 22nd of the following month. Small employers paying less than £1,500/month can pay quarterly.