If you run a limited company on your own, you might be wondering: do I need to set up PAYE just to pay myself?
It’s a common question for solo directors.
The answer is, it depends on how you pay yourself and how much you want to pay yourself.
In this guide, we’ll break it all down in plain English so you know exactly when PAYE is needed and how to keep things simple and compliant.
What Is PAYE?
PAYE stands for Pay As You Earn and it’s the system HMRC uses to automatically collect Income Tax and National Insurance (NI) from wages.
If your company pays you (or any employees) a salary, and that salary goes over certain limits, you need to:
- Register for PAYE with HMRC
- Report wages through payroll software
- Deduct tax and NI where required
But not every salary needs PAYE. Let’s look at the thresholds.
At Legacy Figures Accountancy, we focus on your finances so you can focus on your business.
Want to learn more? Let’s have a chat.
When Does a Sole Director Need to Register for PAYE?
If you’re the only person working in the business and you’re paying yourself a low salary, you might not need to register at all.
Here are the key thresholds (based on 25/26 tax rates):
| Threshold | Weekly | Monthly | Yearly |
|---|---|---|---|
| Lower Earnings Limit (NI record) | £123 | £533 | £6,396 |
| Primary Threshold (pay NI) | £218 | £946 | £11,388 |
| Personal Allowance (pay tax) | £241 | £1,048 | £12,570 |
If you pay yourself below £6,396 per year,
- You don’t need to register for PAYE
- You won’t build up National Insurance credits
If you pay yourself between £6,396 and £11,388 per year:
- You do not owe NI or tax
- But you do need to register for PAYE to report it
If you pay yourself over £11,388 per year:
- You must register for PAYE
- You’ll deduct and pay tax and NI through payroll
Why Pay Yourself a Small Salary?
Many directors choose to pay themselves a small salary (often around £12,000 per year) and top up with dividends. Why?
- Salaries are counted as a business expense which reduces your company’s profit, lowering its Corporation Tax bill
- Paying above the Lower Earnings Limit (£6,396 per year) gives you National Insurance credits for your future State Pension
It’s a smart mix that gives you tax efficiency and long-term benefits, as long as you follow the rules.
Setting Up PAYE for a One-Person Company
If you decide to pay yourself above the NI reporting thresholds, you’ll need to:
- Register for PAYE online with HMRC
- Choose and set up payroll software (e.g. BrightPay, FreeAgent, Xero)
- Report your wages each month to HMRC using a Full Payment Submission (FPS)
- Pay any tax and NI to HMRC by the 22nd of the following month
It sounds like a lot, but once set up, it’s a simple monthly process.
Can I Avoid PAYE If I Only Take Dividends?
Yes, if you don’t take a salary at all and only take dividends (from profits), you don’t need to register for PAYE.
But keep in mind:
- Dividends don’t count towards your National Insurance record
- Dividends must come from retained profits (after Corporation Tax)
Some directors choose this route early on, but it can impact their State Pension later.
How We Help
At Legacy Figures Accountancy, we help solo directors like you keep things clear and compliant. We can:
- Advise the most tax-efficient salary/dividend mix
- Set up and run PAYE for your limited company
- Help you stay within the thresholds and meet deadlines
- Keep payroll records and submissions accurate and stress-free
Whether you’re paying yourself or planning to grow, we’ll help you do it right.
