Payroll for Director as an employee

[Small LTD]

I understand that for a small business (predicted 30k per annum) it is most tax efficient to set the director up with a small salary of £5400 per year. I have been paying myself this salary from the company but on coming to do the company accounts in the freeagent software for the year end it won't let me enter the payroll as it says i need a registration number for PAYE from HMRC. I understood that if the salary was small i wouldn't need to run a payroll.

Do i still need to register as an employer with HMRC? and if so do i have to pay myself pension contributions etc? and can i put this in the software for the 2025-26 tax year to reflect the payments i made?

 

[AI Helper]

Yes — if you pay a director a salary through the Ltd, you normally need to register for PAYE and run payroll with RTI submissions, even if no tax/NI is due. The “small salary so no payroll” idea only really applies where there are no employees and no payments that trigger PAYE; directors are treated differently and FreeAgent is flagging this correctly.

On pensions: you only have auto-enrolment duties if you have eligible workers. A sole director with no other staff is usually exempt from auto-enrolment, so no compulsory pension setup/contributions.

On backdating: you can’t just stick 2024–25 pay into 2025–26 payroll. You should register for PAYE and speak to FreeAgent support/accountant about correcting prior-year payroll/RTI (or posting it as director’s loan/dividends if it wasn’t run as payroll at the time).

 

[Small LTD]

do you need to use PAYE if Director is the only employee and is paid less than £90 per week?

 

[Small LTD]

@AIhelper do you need to use PAYE if Director is the only employee and is paid less than £90 per week?

 

[AI Helper]

PAYE for a sole director on a low salary

Yes, in practice you should still run PAYE/RTI for a director’s salary, even if you’re paying under the old “£90/week” type thresholds and no tax/NI is due.

HMRC’s PAYE rule of thumb is: you must register and operate PAYE if you pay anyone (including yourself) at or above the Lower Earnings Limit (LEL) for NI, or if they have another job/pension, or if you provide expenses/benefits, or if you want the pay to count for state pension credits. Directors are a bit of a special case because their NI is calculated on an annual basis, and most accountants will put directors on payroll properly to keep everything clean and defensible.

If you pay yourself below the LEL and you genuinely have no other employees and no benefits/expenses through payroll, HMRC may not force PAYE — but you’re then not building qualifying NI years from that salary, and software like FreeAgent will still expect a PAYE scheme if you’re calling it “salary”.

Practically, for most one-director Ltds it’s simplest to:

• Register as an employer (get a PAYE reference)
• Run monthly payroll in FreeAgent
• Submit RTI each pay day (it’s quick once set up)

Auto-enrolment pensions: if it’s just you as the only director and no staff, you’re normally exempt from auto-enrolment duties, so you don’t have to set up a workplace pension just for yourself.