PAYE and Employer Obligations for UK Limited Companies Paying Directors

When PAYE Registration Is Required

A company must register as an employer with HMRC before making its first PAYE-liable payment. This applies if any employee or director is paid above the Lower Earnings Limit (£6,396 per annum in 2024/25), or if any employee has another job, receives a company pension, or is given expenses and benefits. The registration can be done online via HMRC's PAYE Online service and typically takes up to five working days to activate.

Many director-only companies pay a small salary (often set just above or at the Lower Earnings Limit to maintain a National Insurance contribution record without triggering income tax) and take the remainder as dividends. Even a minimal payroll triggers PAYE registration — the threshold is the LEL, not the personal allowance. Confirm the optimal salary level for your circumstances with your accountant.

Real Time Information Reporting

Under Real Time Information (RTI), a Full Payment Submission (FPS) must be sent to HMRC on or before each payment to employees. The FPS records the pay, tax, and National Insurance deducted for each employee. An Employer Payment Summary (EPS) is filed when the company has not paid anyone in a tax month, or to claim statutory payment recoveries, the Employment Allowance, or CIS deductions.

Late or missing FPS submissions trigger automatic penalties. HMRC's RTI system matches expected submissions against received ones and generates automated late-filing notices. Payroll software (or outsourced payroll) generally handles the submissions automatically on the pay date — the key is ensuring the software is set up correctly and that the pay date in the system matches the actual payment date.

Employer National Insurance and the Employment Allowance

Employers pay National Insurance contributions (NICs) at 13.8% on earnings above the Secondary Threshold for each employee. Directors who are also sole employees of their company can still be subject to employer NICs on their own salary above the threshold. From April 2024, the Employment Allowance increased to £5,000 per annum, offsetting employer NICs for eligible businesses — specifically those whose total employer NIC bill was under £100,000 in the prior tax year.

Single-director companies where the director is the only employee are not eligible for the Employment Allowance. If your company has other employees (including part-time staff), the allowance may be available. The Employment Allowance is not applied automatically — it must be claimed through your payroll software or FPS submission.

Benefits in Kind and P11D

Where the company provides non-cash benefits to directors or employees — company cars, private medical insurance, interest-free loans above £10,000, and certain expenses — these are generally reportable on form P11D by 6 July following the tax year end. The company also pays Class 1A NICs at 13.8% on the taxable value of the benefits, due by 22 July (electronic payment).

Alternatively, benefits can be processed through a PAYE Settlement Agreement (PSA) or payrolled through the payroll run rather than reported on P11D. Payrolling benefits requires prior registration with HMRC before the start of the tax year and simplifies the year-end process. Your payroll provider or accountant can advise which approach suits your benefit profile.