Payroll for a One-Director Limited Company: Do You Need It?

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Last updated 23 October 2026. Written by the Limited Company Accountant UK team, part of Accotax. Figures are for the 2026/27 tax year; always check GOV.UK for the latest rates.

Short answer: If you pay yourself a salary above the lower earnings limit, your company must operate PAYE and report through Real Time Information. If you pay yourself nothing, or only dividends, you generally do not need payroll. Most sole directors register for PAYE and pay a small salary, because it protects State Pension credits and is tax-efficient.

Key facts

Salary paid?	Payroll needed if above £6,708 (LEL) or paying NI
Dividends only	No payroll needed
Employment Allowance	Not available for sole-director companies
Reporting	RTI each pay date
Penalties	Late FPS can incur fines

When must a director run payroll?

A company needs to register as an employer when it pays an employee, including a director, above the lower earnings limit, or when it needs to report payments for other reasons. The lower earnings limit for National Insurance is £6,708 a year. Paying a salary at or above this level earns a qualifying year for the State Pension even if no National Insurance is actually due. If you pay yourself nothing, or only dividends, there are no employment payments to report and no payroll is required. The choice depends on your plans for pay, pensions and tax.

The rule for one-director companies

A company with a single director and no other employees is not treated as having employees for National Insurance purposes. This means the director follows special rules: there is no requirement to pay minimum wage, and National Insurance is calculated on an annual rather than monthly basis for directors. You still have to operate PAYE properly if you pay a salary. Many sole directors choose to pay themselves a salary at a level that keeps National Insurance costs low while earning State Pension credits.

Choosing a salary level

Common salary levels are around the primary threshold, where no employee National Insurance is payable, or around the lower earnings limit. The best level depends on your other income and the company profit, and on how employer National Insurance affects the company. A salary is deductible for Corporation Tax, which makes it a cost-effective way to use your personal allowance. Review the level every tax year as thresholds change, and use an accountant to model different combinations of salary and dividends.

Employment Allowance for sole directors

The Employment Allowance reduces employer National Insurance bills but is not available to a company where the director is the only employee paid above the secondary threshold. If you employ someone else, such as a spouse or staff member on a real contract, you may qualify, provided your employer National Insurance liability was under the annual limit. Because eligibility rules are detailed, check them before claiming, and keep proper records for any additional employees.

Setting up PAYE as a director

To run payroll you register as an employer with HMRC, get PAYE and accounts office references, choose payroll software and set up your tax code and National Insurance category. You then submit a Full Payment Submission on or before each pay date. Most sole directors pay themselves monthly. Registration usually takes a few days, so start before the first payment. Many accountants offer payroll services for a small monthly fee.

Real Time Information and deadlines

Every time you pay yourself, the company must send an FPS to HMRC. If no payment is made in a period, an Employer Payment Summary may be needed to say so, unless you have told HMRC you pay irregularly. Tax and National Insurance deducted are normally paid over by the 22nd of the following month when paid electronically. Late or missed submissions can lead to penalties, so set reminders and keep a payroll calendar.

Pension auto-enrolment duties

A company with a sole director and no other employees is normally exempt from auto-enrolment duties, though you may still choose to set up a pension for yourself. If you later employ staff, you must assess them for auto-enrolment and enrol eligible workers. Employer pension contributions can be paid directly into your own pension from the company and are usually tax-deductible, which is often more efficient than taking extra salary.

Year-end tasks

At the end of the tax year, submit your final FPS or EPS by 5 April, provide a P60 to yourself, and keep payroll records for at least three years. If you have benefits or expenses to report, you will need forms such as the P11D by 6 July. Your salary also needs to appear in the company accounts and on your personal tax return, so keep payslips and reconcile them with the bank.

Common payroll mistakes

Typical mistakes include forgetting to register as an employer before the first payment, filing the FPS late, paying National Insurance incorrectly because the annual versus monthly method was misunderstood, and mixing up salary and director’s loan withdrawals. Another is not reviewing thresholds each April. A simple checklist and payroll software reduce the risk of fines and make year-end filing easier.

Worked example for 2026/27

Suppose your company pays you a salary at the personal allowance level, with the rest taken as dividends. The salary is a deductible expense, saving Corporation Tax, and no income tax arises on it. Depending on the National Insurance thresholds, a salary at the secondary threshold may also avoid employer National Insurance, while a salary above the lower earnings limit still earns a qualifying year. The remaining profit can then be taken as dividends within the basic-rate band at 10.75%. Compare this with taking dividends only: you lose the deductible salary and may forgo a qualifying year, so the combined cost is usually higher.

Payroll software and costs

Free HMRC-recognised software exists for businesses with fewer than ten employees, such as the HMRC Basic PAYE Tools, and many cloud accounting packages include payroll for a small monthly fee. Accountants often include payroll for sole directors within a package. Choose a tool that handles real-time submissions, payslips, year-end forms and auto-enrolment where needed, and make sure you can export your records if you change provider.

What to do when you stop paying a salary

If you stop paying yourself, tell HMRC through an Employer Payment Summary or close the scheme if you will not pay anyone again. Failing to notify can lead to estimated bills. Keep records for at least three years, and remember to reactivate or re-register if you start again. If you employ others, you must continue payroll for them even if the director takes only dividends.

Directors versus ordinary employees

Directors have special National Insurance rules because their earnings are measured over the whole tax year, not each month. This can make mid-year payments complicated, and it is a common cause of underpayment or overpayment. Using software configured for directors, or having your accountant run payroll, helps avoid errors. Also remember that salary paid to a director must be properly approved and recorded in minutes.

Frequently asked questions

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