If you pay yourself a salary, you need a PAYE scheme and you have to report it through Real Time Information — even when there is no tax and no National Insurance to pay.
There is no small-company exemption. But there is a lighter version of the obligation that most sole directors are eligible for and almost none use.
Do you need a PAYE scheme at all?
GOV.UK is explicit: you must register as an employer even if you are only employing yourself, for example as the only director of a limited company.
Registration is triggered if any of these applies to you in the current tax year:
- you are paid £96 or more a week (£417 a month, £5,000 a year)
- you get expenses and company benefits
- you are getting a pension
- you have had another job
- you have received Jobseeker’s Allowance, Employment and Support Allowance or Incapacity Benefit
In practice almost every director trips at least one — usually expenses or benefits, or having had another job earlier in the tax year.
If you take no salary at all and only dividends, you do not need a PAYE scheme. That is a real option — and a bad one for most people, for the reason below.
The £5,000 trap: why a nil-NIC salary now costs you a pension year
This changed on 6 April 2025 and a large amount of published advice has not caught up.
| 2026/27 threshold | Amount |
|---|---|
| Secondary (employer) threshold | £5,000 a year |
| Lower earnings limit | £6,708 a year |
| Primary (employee) threshold | £12,570 a year |
The lower earnings limit now sits above the secondary threshold. It did not used to.
Earnings at or above the lower earnings limit are treated as though National Insurance had been paid, which secures a qualifying year towards the State Pension, even though no contributions are actually due until £12,570. Below the lower earnings limit there is nothing to credit.
So a salary set at £5,000 — the level that costs the company nothing in employer National Insurance — is £1,708 short of earning a qualifying year. When the secondary threshold sat above the lower earnings limit, the National-Insurance-free salary and the pension-qualifying salary were the same figure and you got the qualifying year automatically. That is no longer true.
The payroll consequence: the qualifying year comes from what you actually report on the Full Payment Submission, not from what you intended. If the salary is set at or above £6,708 but the FPS is never filed, or is filed at the wrong figure, the National Insurance record does not show it. Reporting is the mechanism.
The separate question of the optimal salary figure — and the arithmetic behind it — is a different exercise. This article is about the reporting machinery once you have chosen a number.
The annual PAYE scheme
If you pay yourself once a year, all in the same tax month, you can register with HMRC as an annual scheme. You then report and pay annually rather than monthly.
How to register: contact HMRC’s employer helpline and tell them which month you pay. You need your 13-character Accounts Office reference number, which is on the letter HMRC sent when you registered as an employer. There is no online route.
What it gets you: one FPS a year instead of twelve, and no Employer Payment Summary for the months you do not pay anyone — which a standard monthly scheme would otherwise require. The single filing assumes a single payday. If anyone on the scheme is paid on a different day within that same tax month, an FPS is due on or before each of those paydays.
What it costs you: one of HMRC’s three late-filing concessions. HMRC does not charge a penalty for your first failure in the tax year to file on time — but that concession does not apply to employers registered as an annual scheme. Your single annual FPS has to be right and on time, first attempt. Miss it and the £100 monthly penalty for a one-to-nine-employee scheme applies immediately.
Two other rules to know. If you change the month you pay yourself, send the FPS in the month you are moving to. Only where that month is later than the month you usually pay do you also need an EPS for the usual month, telling HMRC you have not paid anyone. And if you send more than one FPS in a year, HMRC assumes you no longer want to operate as an annual scheme and writes to confirm.
Monthly scheme versus annual scheme
| Monthly scheme | Annual scheme | |
|---|---|---|
| FPS filings a year | 12 | 1, on a single annual payday |
| EPS for months with no pay | Required | Not required |
| First-failure penalty concession | Applies | Does not apply |
| Registration | Automatic | Phone the employer helpline |
| Salary paid | Spread across the year | Once, in one tax month |
| Cash flow | Even | Lumpy |
An annual scheme suits a director who takes a fixed salary and does not need it monthly. A monthly scheme suits everyone else, and gives you the safety net of the first-failure concession.
What you still have to do either way
- File the FPS on or before payday. Not after. The usual payday goes in the payment date field.
- Issue yourself a payslip on or before payday, showing earnings before and after deductions and the amount of any variable deduction. Electronic is fine.
- Give yourself a P60 by 31 May, because you are on the payroll on 5 April.
- Report expenses and benefits by 6 July on a P11D, with the P11D(b) by the same date and Class 1A National Insurance at 15% paid by 22 July (19 July by cheque). Directors’ benefits are a common source of these.
- Pay HMRC by the 22nd of the following month, or the 19th by post. Under £1,500 a month and you can arrange to pay quarterly.
The Employment Allowance point
A company whose only employee liable for secondary Class 1 National Insurance is its sole director cannot claim the Employment Allowance. GOV.UK states it directly: if your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance.
The allowance is £10,500 for 2026/27. Claiming it when you are not entitled is a common correction, because payroll software will happily let you tick the box. If you are a genuine sole-director company with no other staff, leave it unticked.
Automatic enrolment for a sole director
Automatic enrolment is policed by The Pensions Regulator, not HMRC. A company whose only worker is a director without an employment contract will generally have no automatic enrolment duties — but that is a determination for The Pensions Regulator based on your facts, and you must still respond to its letters. If your company has any other staff, or a second director with a contract of employment, the normal duties apply from your duties start date.
Frequently asked questions
Does a single-director company need to run payroll?
Yes, if you pay yourself a salary. GOV.UK says you must register as an employer even if you are only employing yourself, for example as the only director of a limited company. If you take no salary and only dividends, you do not need a PAYE scheme.
Can I run payroll once a year as a director?
Yes. If you pay yourself once a year, all in the same tax month, you can register as an annual scheme by phoning HMRC’s employer helpline with your 13-character Accounts Office reference number. You then file one FPS a year and no EPS for the months you do not pay anyone.
Does a £5,000 director salary earn a State Pension qualifying year?
No. £5,000 is below the £6,708 lower earnings limit for 2026/27, so it does not earn a qualifying year. Earnings at or above the lower earnings limit are treated as though National Insurance had been paid, even though nothing is due until £12,570. Below it there is nothing to credit.
Is there a penalty risk with an annual PAYE scheme?
Yes, and it is higher than most people expect. HMRC’s concession for your first late filing in a tax year does not apply to employers registered as an annual scheme. With only one filing a year, a single missed deadline attracts the penalty straight away — £100 a month for a scheme with one to nine employees.
Can a sole director claim the Employment Allowance?
No, not where the director is the only employee liable for secondary Class 1 National Insurance. GOV.UK states that if your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance. The allowance is £10,500 for 2026/27.
Making it disappear as a job
A sole-director payroll is small but unforgiving. One FPS filed a day late, or an Employment Allowance box ticked in error, generates correspondence that takes far longer to resolve than the payroll takes to run.
SmartFiling runs RTI payroll from £15 per employee per month, including auto-enrolment, payslips, P60s and year-end returns. Fixed fee, entirely online, reviewed by an ICAEW Chartered Accountant.
