Director-only payroll is a PAYE payroll for a limited company whose only employees are its directors. If the company pays you a salary, it normally needs to be registered as an employer, report every payment to HMRC through Real Time Information (RTI), and work out your National Insurance using the special rules for directors. Pensions and the Employment Allowance also work differently when the director is the only person on the payroll.
This guide explains what limited company directors need to know about paying themselves through payroll, from registering a PAYE scheme to the year-end paperwork.
Why a director-only company may need a PAYE scheme
As a director of a limited company, any salary you take is paid by the company and goes through payroll like any other employee’s pay. GOV.UK is clear that you must register as an employer even if you’re only employing yourself, for example as the only director of a limited company. You must register before the first payday, and you cannot register more than 2 months before you start paying anyone.
Running a salary through payroll also matters for your National Insurance record. Where earnings are at or above the Lower Earnings Limit but below the point where employee contributions start, GOV.UK says contributions are treated as having been paid to protect your National Insurance record.
Dividends are different. They are paid to you as a shareholder, not as an employee, so they are not processed through payroll or reported to HMRC on a payroll submission.
How directors’ National Insurance works
Most employees have their National Insurance worked out separately for each pay period. Directors are treated differently. HMRC’s guidance, CA44 National Insurance for company directors, says directors have an annual earnings period, so their NICs are worked out on a cumulative basis across the tax year.
In practice, each time you are paid, the NICs are calculated on your total earnings so far in the tax year, and the NICs already paid are deducted. The main points are:
- Directors at the start of the year: have an annual earnings period for the whole tax year.
- Directors appointed during the year: have a pro-rata earnings period, based on the number of tax weeks left from the week of appointment.
- Directors who resign during the year: keep the same earnings period. It does not change because they have stopped being a director.
There is also an alternative arrangement that lets the company pay NICs on account each pay period, much like an ordinary employee. It can be used if the director agrees, is paid in a regular pattern, and those payments normally exceed the Lower Earnings Limit. The two approaches compare like this:
| Annual earnings period | Alternative arrangement | |
|---|---|---|
| How NICs are worked out during the year | Cumulatively, on total earnings to date in the tax year | On account, based on each pay period (usually weekly or monthly) |
| What happens at the final payment | The cumulative calculation continues as normal | NICs must be reassessed on an annual (or pro-rata annual) basis |
| Effect on regular monthly pay | NICs can be uneven from month to month | NICs are spread more evenly through the year |
For 2026/27 the annual Primary Threshold is £12,570 and the annual Secondary Threshold is £5,000, according to HMRC’s rates and thresholds for employers.
RTI and how often to pay yourself
Being the only person on the payroll does not change the reporting rules. A Full Payment Submission (FPS) must be sent on or before payday every time you are paid. Directors usually choose one of two patterns:
- Monthly director payroll: a regular salary each month, with an FPS every payday. If there is a month when you do not pay yourself, you need to tell HMRC by sending an Employer Payment Summary (EPS), or you risk a late filing penalty.
- Annual director payroll: if you pay your employees only once a year, and all in the same tax month, you can register with HMRC as an annual scheme. You then report and pay once a year and do not need to send an EPS for the months when no one is paid.
If an annual scheme sends more than one FPS in a year, HMRC treats that as a sign the company no longer wants to be an annual scheme. Pick the pattern that matches how you actually intend to pay yourself.
Auto-enrolment and the Employment Allowance
The Pensions Regulator says a director without a contract of employment is not treated as a member of staff for automatic enrolment. A company generally has no automatic enrolment duties if:
- Directors without contracts: it only has directors without contracts of employment and no other staff; or
- One director with a contract: it only has one director with a contract of employment and no other staff.
Duties do apply once a director with an employment contract is joined by at least one other person who also has one, whether that is another director or a member of staff. If you have no duties and receive a letter from The Pensions Regulator, you need to tell them you are not an employer using their online form. Our pension auto-enrolment service covers the assessment when your company does have duties.
The Employment Allowance can reduce an employer’s annual National Insurance bill by up to £10,500 in 2026/27, but a company with one director who is its only employee paid above the Secondary Threshold cannot claim it. GOV.UK’s eligibility rules say that if your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance.
Salary or dividends?
How much to take as salary and how much as dividends is a tax planning decision that depends on your own circumstances, including your other income and the company’s profits. It is a question for your accountant, not your payroll provider.
Once you and your accountant have agreed a salary, a payroll bureau’s job is to process it correctly: the right tax code, the right directors’ NIC method, and an FPS on time every pay run.
Year end for director-only payrolls
The end of the tax year follows the same steps as any other payroll:
- Final FPS. The last payroll report of the year goes to HMRC on or before payday.
- NIC reassessment. If the alternative arrangement was used, NICs are recalculated on an annual basis at the final payment.
- P60. Each director on the payroll at the end of the year gets a P60 by 31 May.
- Expenses and benefits. Any reporting of expenses and benefits must be done by 6 July.
Frequently asked questions
Do I need a payroll if I only take dividends?
Dividends are not paid through payroll. Whether your company needs to operate PAYE depends on whether it pays you a salary, so agree your approach with your accountant first.
Can I run my director payroll once a year?
Yes, if all payments are made once a year in the same tax month, the company can register with HMRC as an annual scheme.
Does a sole director need a workplace pension?
Generally not. A company with one director and no other staff has no automatic enrolment duties, even if that director has a contract of employment.
What changes if I take on my first employee?
Your automatic enrolment duties are likely to start, so the new employee will need to be assessed. The Employment Allowance restriction may also no longer apply, depending on who is paid above the Secondary Threshold.
Director-only payroll, handled for you
Payroll Service (UK) Ltd runs director-only payrolls alongside our wider payroll services, with RTI submissions every pay run and P60s at year end. Pricing for monthly payrolls starts from £3.50 + VAT per payslip, with no setup fees or long-term contract. See our payroll pricing, or contact us for a free, no-obligation quote.
About Payroll Service (UK) Ltd: we are a Cardiff payroll bureau, established in 2011 and run by director Jack Lloyd-Lewis. We run weekly, fortnightly and monthly payrolls, pension auto-enrolment and CIS for UK employers, overseas companies with UK staff, and accountancy practices that outsource their clients’ payroll, using Sage 50 Payroll and BrightPay.