Last updated: 14 October 2026
Does a company have to operate PAYE?
A company must register as an employer and run PAYE if it pays anyone, including a director, at or above the Lower Earnings Limit of £129 a week in 2026/27, or if anyone it pays has another job or receives a pension, or receives expenses and benefits. Many one-person companies pay the director a salary of around £12,570, which is above the Lower Earnings Limit, so they must operate PAYE even though little or no tax is deducted. Register at least 2 weeks before the first payday and no more than 2 months before.
When you must register
| Situation | Register for PAYE? |
| Director paid at or above £129 a week | Yes |
| Employee with another job or a pension | Yes |
| Paying taxable benefits or expenses | Usually yes |
| Director paid nothing, taking only dividends | No |
| Using only subcontractors under CIS | Not for PAYE, but register for CIS |
What operating PAYE involves
- Calculate tax, NIC and student loan deductions each payday
- Send a Full Payment Submission (FPS) to HMRC on or before each payday
- Pay HMRC by the 22nd of the following month (electronic payments)
- Give employees payslips and a P60 each year
- Auto-enrol eligible staff into a workplace pension
2026/27 thresholds
| Threshold | Weekly | Annual |
| Lower Earnings Limit | £129 | £6,708 |
| Secondary Threshold (employer NIC) | £96 | £5,000 |
| Primary Threshold (employee NIC) | £242 | £12,570 |
| Personal Allowance | £242 | £12,570 |
Example
Ryan sets up a consultancy company and pays himself £1,047.50 a month (£12,570 a year). That’s above the Lower Earnings Limit and Secondary Threshold, so the company must run PAYE. No income tax is due for Ryan, and no employee NIC. The company pays employer NIC on earnings above £5,000, unless it can claim the Employment Allowance (not available if the director is the only employee paid above the threshold).
Directors’ NIC
Directors have an annual earnings period for NIC, calculated on total pay for the year.
Penalties
Late FPS submissions can lead to penalties from £100 to £400 a month depending on the number of employees, and late payments attract penalties and interest.
Using a payroll provider
Many small companies outsource payroll to an accountant or payroll bureau, which handles submissions, payslips and pensions.
Common mistakes
- Paying a director a salary without registering a PAYE scheme
- Sending the FPS after payday instead of on or before it
- Forgetting to send an Employer Payment Summary in months when no one is paid
- Assuming the Employment Allowance applies to a one-director company
- Missing auto-enrolment duties when the first employee starts
Closing a PAYE scheme
If you stop paying anyone, close the scheme with your final FPS and tell HMRC, or HMRC may expect returns and charge penalties.
Frequently asked questions
Can a director avoid PAYE by taking dividends only?
Yes, but they won’t build State Pension through employment.
Do I need PAYE if I pay a cleaner?
If they’re your employee and paid above the LEL, yes.
Can I register later?
No, register before your first payday, as you can’t send an FPS without a PAYE reference.
What if no tax is due?
You still need to send FPS returns.
Related: casual workers and payroll, the Employment Allowance and outsourcing accounts and payroll.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with setting up payroll. See our payroll accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
