- A one-director company is not legally required to run payroll, but PAYE is usually needed once you take a salary above the £5,000 threshold.
- For 2026/27 a £12,570 salary remains the common choice, though a sole director without Employment Allowance pays around £1,135 in employer NI to use it.
- Once you pay anyone through PAYE you must register with HMRC, report in real time on or before payday, and issue payslips.
Payroll for limited companies in the UK means running PAYE to pay yourself or your staff, reporting each payment to HMRC in real time.
If you are a sole director, you are not legally forced to run payroll at all, but most directors set it up to take a tax-efficient salary alongside dividends. You can manage your own payroll services or pay for help.
The right approach depends on whether it is just you or you have employees. The rules, costs and deadlines change as your team grows.
Unsure whether you even need payroll for a company that is just you?
Do you need payroll for a limited company if it is just you?
A one-director company with no other staff is not legally required to operate PAYE unless the director earns above the reporting threshold. You only need to register for PAYE once you pay yourself a salary above £5,000 a year, or you take on an employee earning above that level.
Many sole directors still choose to run payroll. The reason is tax efficiency: a small salary plus dividends usually leaves you better off than dividends alone. You can compare both routes in our guide to the most tax-efficient way to withdraw money from your company.
A salary is a deductible business expense, so it reduces your Corporation Tax bill. Dividends are not deductible, but they carry no National Insurance. Balancing the two is the core of director pay.
One honesty point worth stating plainly. Sole traders cannot run payroll for themselves. A sole trader is not an employee of a company, so there is no PAYE scheme to pay into. Drawing money from a sole trader business is not a salary and is never processed through payroll.
How does director payroll work and what is the optimal salary?
Director payroll works by paying a set salary through a PAYE scheme, with Income Tax and National Insurance calculated against annual thresholds. The salary level you choose decides how much tax and NI the company and you personally pay.
Three thresholds matter for 2026/27:
Threshold | Annual figure | What it triggers |
Secondary threshold | £5,000 | Employer NI of 15% starts above this |
Lower Earnings Limit | £6,708 | Salary counts towards your State Pension |
Personal allowance / primary threshold | £12,570 | Income Tax and employee NI start above this |
For most directors, a salary of £12,570 remains the common choice for 2026/27. It uses the full personal allowance, earns a qualifying year towards your State Pension, and the Corporation Tax saved usually beats the National Insurance it triggers.
The catch is Employment Allowance. A sole director with no other employees cannot claim it, so a £12,570 salary triggers around £1,135 in employer National Insurance. The company still comes out ahead overall, but the cost is real. A company with two or more people on the payroll can usually claim Employment Allowance and wipe that employer NI out entirely.
Some sole directors instead pay around £6,708, the Lower Earnings Limit. This protects your State Pension record while keeping employer NI close to zero, with the rest of your income taken as dividends. Our guide to how National Insurance is calculated breaks the bands down further.
Never declare a dividend the company cannot cover from profit. A dividend paid without sufficient retained profit becomes an illegal dividend and is treated as a director's loan, which creates its own tax charge.
How do you register as an employer with HMRC?
You register as an employer by setting up a PAYE scheme through HMRC, which you must do before the first payday. Registration is free and is usually done online, after which HMRC issues your employer PAYE reference and accounts office reference.
Follow these steps:
- Register for PAYE online through your HMRC business tax account.
- Wait for your employer PAYE reference number to arrive, which can take up to 15 working days.
- Choose payroll software that is recognised by HMRC for Real Time Information reporting.
- Add yourself and any employees, with salary, tax code and NI category.
- Run your first payroll on or before the first payday.
Do not leave registration to the last minute. You cannot send your first real time submission without the reference, and the delay can push you past your first payday. Keep the PAYE reference number safe, as you will need it for every submission and payment.
How do you run payroll month to month?
Running payroll month to month means calculating pay, deducting tax and NI, reporting to HMRC, and paying both staff and HMRC on time. The system that governs this is Real Time Information, or RTI, which requires you to report each payment as it happens.
Each pay run involves the same cycle:
- Calculate gross pay, then deduct Income Tax and employee National Insurance.
- Send a Full Payment Submission to HMRC on or before the day you pay.
- Give each person a payslip, which is a legal requirement.
- Send an Employer Payment Summary if you are claiming Employment Allowance or have no payments to report.
- Pay HMRC what is due by the 22nd of the following month if paying electronically.
Miss an RTI deadline and HMRC can charge penalties, which rise with the number of employees. For a single-director company the amounts are small, but repeated late filing draws attention and can trigger interest.
If this feels like a lot of admin for one salary, you are not alone. Many directors hand it over rather than learn the software, which is where payroll outsourcing comes in.
What changes when you take on employees?
Taking on employees adds new legal duties around minimum wage, pension auto-enrolment, and the real cost of employer National Insurance on each salary. Your payroll stops being a single fixed figure and becomes a variable monthly cost that scales with your team.
The main changes to plan for:
- Employer NI of 15% applies to each employee’s pay above the £5,000 secondary threshold.
- You must assess staff for pension auto-enrolment and contribute if they qualify.
- You become responsible for Statutory Sick Pay, holiday pay and other statutory entitlements.
- You may now qualify for Employment Allowance, worth up to £10,500 against your employer NI bill.
The true cost of a hire is well above their salary. Once you add employer NI and pension contributions, budget for more than the headline wage. Our guide to the cost of employing someone sets out the full picture.
There is one upside for growing companies. Adding a second person to the payroll can unlock Employment Allowance, which removes employer NI on the first £10,500 and can more than offset the cost of a modest second salary.
How Sleek helps with limited company payroll
Sleek runs payroll for UK limited companies end to end, from registering your PAYE scheme to filing RTI and issuing payslips. For a single-director company that means your optimal salary is set correctly and reported on time, every month, without you touching payroll software.
As you hire, the same service scales to handle employer NI, auto-enrolment and statutory pay. Payroll also sits neatly alongside your accounting services, so your salary, dividends and Corporation Tax all line up.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
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FAQs on payroll for limited companies
Does a limited company have to run payroll?
No, not always. A company with no staff and a director earning below £5,000 a year has no obligation to operate PAYE. Once anyone is paid above the secondary threshold, or you want a tax-efficient director salary, you must register a PAYE scheme and report payments to HMRC in real time.
What is the most tax-efficient director salary for 2026/27?
For most directors, £12,570 is the common choice because it uses the full personal allowance and the Corporation Tax saving outweighs the National Insurance. A sole director without Employment Allowance pays around £1,135 in employer NI to do this. Some sole directors prefer £6,708 to protect their pension while keeping employer NI minimal.
Can a sole trader run payroll for themselves?
No. A sole trader is not an employee, so there is no employment relationship and no PAYE scheme to pay through. Money taken from a sole trader business is drawings, not salary, and is taxed through Self Assessment. Only a limited company can pay a director or employee through payroll.
When do I need to register for PAYE?
You need to register before your first payday once you pay anyone, including yourself, above £5,000 a year. Registration can take up to 15 working days for the reference to arrive, so start early. You also need PAYE if an employee already has another job or receives a pension.
What is RTI in payroll?
RTI stands for Real Time Information, the system requiring employers to report pay and deductions to HMRC on or before each payday. You send a Full Payment Submission for every pay run rather than reporting once a year. This keeps tax codes and records current and is mandatory for all employers running payroll.
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How much does employer National Insurance cost in 2026/27?
Employer National Insurance is charged at 15% on earnings above the £5,000 secondary threshold for 2026/27. There is no upper cap, so the cost rises with salary. Eligible employers can reduce this using Employment Allowance, worth up to £10,500, though sole directors with no other staff cannot claim it.
Can I run limited company payroll myself?
Yes. HMRC-recognised payroll software lets you run payroll, calculate deductions and file RTI submissions yourself. It is workable for a single director on a fixed salary. As you add staff and deal with pensions, sick pay and varying hours, many directors outsource payroll to avoid errors and penalties.
