Do You Need to Register for PAYE When Paying Yourself? A Guide to the UK PAYE Payroll System
- TBA
- 3 days ago
- 4 min read
In the UK, whether you are employed or run your own company, PAYE (Pay As You Earn) is crucial and relevant to everyone.
For employees, this system is used to deduct Income Tax and National Insurance contributions. Every time an employer processes a payroll, they must correctly report PAYE; errors can lead to trouble.
For UK company directors, even if you are the only director, you must set up PAYE and run a payroll system if the company pays a salary exceeding the threshold.
Generally, sole traders or self-employed individuals do not need to manage payroll because they are not employees of their own business.
However, if you employ staff, you must register as an employer and comply with the PAYE rules described below.
Who needs to register for and set up PAYE
A company must register as an employer and use the PAYE system if it pays any employee (including the director themselves) an annual salary that exceeds the minimum income threshold of £6,500 (for the 2025/26 tax year), or if it provides taxable benefits (such as a company car).
Even if you are the company's only employee, HM Revenue and Customs (HMRC) requires payroll information to be reported through the Real Time Information (RTI) system.
It is worth noting that if you plan to use a mixed income model of 'low salary + dividends' (a common practice for many limited company directors), you must still register for PAYE if the salary component exceeds the National Insurance (NI) earnings threshold.
How to register as an employer
Registration can be completed on the HMRC official website, requiring only basic company information. Registration typically takes two weeks to process, so it is recommended to complete it before your first payday, rather than leaving it until the last moment.
Once registration is successful, HMRC will send you two unique reference numbers via post:
PAYE Reference Number
Accounts Office Reference
These two sets of numbers will be used for every payroll submission and tax payment.
Selecting the appropriate payroll management software
When submitting reports to HMRC, you must use payroll software that complies with the Real Time Information (RTI) requirements.
Below are some popular options suitable for small limited companies or sole traders:
FreeAgent: Has a built-in payroll module, suitable for single-person companies.
Xero: Integrates accounting and payroll management.
QuickBooks, Sage, BrightPay: Comprehensive features, suitable for businesses with multiple employees.
HMRC Basic PAYE Tools: Free but limited in functionality, only suitable for very small employers.
Alternatively, you may choose to hire a professional accountant to register the most suitable PAYE system and handle related tax filings on your behalf.
Paying yourself as a director
Most limited company directors choose the 'low salary + dividends' method to receive income, aiming to minimise Income Tax and National Insurance contributions while fully utilising their Personal Allowance.
The three most common salary levels for the 2025/26 tax year are as follows:
£6,500: Almost no tax reporting burden; no Income Tax or employee National Insurance is due, but some employer National Insurance is payable, and Corporation Tax relief is lower. This amount still counts towards the state pension qualifying years.
£9,100: Slightly below the Secondary National Insurance threshold, meaning neither the employee nor the employer pays National Insurance. This also counts towards pension qualifying years. This level is suitable for single-director companies that do not qualify for the Employment Allowance.
£12,570: Equal to the Personal Allowance. This is often the most overall tax-efficient option, especially if the company can claim the Employment Allowance. While this amount triggers Employer National Insurance Contributions (NIC), the additional salary qualifies for Corporation Tax relief, which usually compensates for the difference.
Example
If the company qualifies for the Employment Allowance (e.g. has two or more employees/directors), the first £10,500 of Employer National Insurance is waived, meaning a salary of £12,570 is completely tax-free and requires no National Insurance contributions.
Even if the company does not qualify (e.g. only one director), paying a salary of £12,570 is still more advantageous. You would pay £1,135.50 in Employer National Insurance Contributions but save approximately £1,326.25 in Corporation Tax, resulting in a net gain of about £190.75.
Key reporting requirements
Whether you are paying yourself, your employees, or both, you must comply with HMRC's reporting requirements, including the following key forms:
P45: Provided when an employee leaves the company.
P60: The annual earnings summary given to the employee at the end of the tax year.
P11D: Used to report benefits in kind.
Starter Checklist: Used when a new employee joins and has not provided a P45 form.
In addition, you need to submit Real Time Information (RTI) reports:
Full Payment Submission (FPS): Submitted every time employee wages are paid. Includes details of wages, tax, National Insurance, and student loans.
Employer Payment Summary (EPS): Used to report statutory payments (such as maternity pay) or claim deductions (e.g., Employment Allowance). Submitted when no payment is made or when an adjustment is needed.
The view from TB Accountants
Once you have completed PAYE registration and submitted payroll data, you must pay all due payroll tax and National Insurance by the deadline, or you may be charged interest or penalties for late payment.
Please also note that if you choose to pay electronically, the payment date is the date the funds arrive, not the date you initiate the payment.
We have also summarised a few simple tips for staying compliant:
Keep employee and director payroll records for at least three years.
If you stop paying wages or no longer employ staff, notify HMRC promptly to close your PAYE account.
Set reminders for P60, P11D, and tax payment deadlines.
Ensure all Benefits in Kind are correctly valued and reported.
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