What limited companies need to do for payroll — director salary, PAYE registration, RTI filing, pension duties and why most director-only companies are quietly getting the monthly process wrong.
A UK limited company must run payroll through PAYE if any director takes a salary above the Lower Earnings Limit (£6,396 per year). The company registers as an employer with HMRC, processes monthly payroll for the director and any employees, and files a Full Payment Submission (RTI) with HMRC on or before every pay date. If no payment is made in a month, an Employer Payment Summary must still be filed. Both are monthly requirements without exception.
Not every limited company runs payroll, but most do. A limited company only avoids payroll registration if no director takes a salary — relying entirely on dividends — and has no other employees.
In practice, most limited company directors take a salary for two reasons: the salary is deductible as a company expense (reducing corporation tax), and it maintains National Insurance contribution records for state pension qualification. A zero-salary, dividends-only approach has its own tax implications that an accountant should review.
Once any salary is paid — even a director salary of £1,047 per month — the company is an employer. PAYE registration is required before the first payment. The monthly payroll obligations begin immediately.
Most limited company directors pay a salary at or near the personal allowance of £12,570. This eliminates income tax on the salary while keeping the director on record for National Insurance and state pension purposes.
The exact optimal salary depends on:
Salary strategy is accountant territory. The payroll bureau runs the number correctly once the number is confirmed. Getting the number wrong — or not running payroll at all — is a different and more expensive problem.
The monthly RTI obligation — two filings every month, every year, whether or not a salary was paid — is where most director-only companies fall down.
Accountants who review payroll quarterly or at year end are not meeting the monthly obligation. Payroll software that sits unused for three months before a catch-up run is not filing RTI monthly. HMRC records the gaps and calculates penalties. These appear in due diligence when the company is sold, reviewed for investment or subject to a PAYE compliance check.
A managed payroll bureau files every month without the director needing to think about it. For a director-only company, that service starts from £79 per month.
When a limited company takes on its first employee, payroll complexity increases. The company now processes PAYE for two different types of worker — directors (whose NI is calculated annually) and employees (whose NI is calculated monthly). Starters and leavers, holiday pay, sick pay and pension assessments all add to the monthly process.
This is the point at which most directors who were self-managing payroll through software decide to hand it to a bureau. The monthly time commitment becomes significant, and the compliance risk grows with every additional employee.
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