Setting Up Payroll for Your Limited Company

Setting up payroll is a crucial step when you start a limited company in the UK. Whether you’re paying yourself as a director or employing others, understanding how to register with HMRC, run PAYE (Pay As You Earn), and choose the right payroll software will keep your business compliant and avoid costly penalties.

Registering as an Employer with HMRC

Before you can run payroll, you must register as an employer with HMRC. This applies even if you’re the only employee—such as when you pay yourself as a director. HMRC requires this so they can track your PAYE tax and National Insurance (NI) contributions correctly.

You need to register online via the GOV.UK website. It’s best to do this as soon as you start planning to pay salaries, as HMRC can take up to five working days to process your registration and send you your employer PAYE reference and accounts office reference.

Once registered, you will be able to set up payroll software and submit your Full Payment Submission (FPS) each time you pay staff or yourself.

Setting Up PAYE for Your Limited Company

PAYE is the system HMRC uses to collect Income Tax and National Insurance contributions from employees’ wages. As a limited company director, you’ll usually be paid through PAYE, along with any other employees.

To set up PAYE, you’ll need to:

1. Register as an employer with HMRC (see above).
2. Choose payroll software that is RTI (Real Time Information) compliant.
3. Collect necessary employee information, including National Insurance numbers and tax codes.
4. Calculate wages, tax, and NI contributions on each pay date.
5. Submit FPS reports to HMRC every time you pay employees.
6. Pay HMRC the tax and NI due by the monthly or quarterly deadlines.

It’s important to note that all payroll must be reported to HMRC in real time from the first payment you make. This means your payroll submission must be sent on or before the actual payday.

£200

Free cash when you open & spend

Ready to open your business bank account?

Open a Tide business account free and get up to £200 cash — use Tide referral code REFER200 when signing up or click the link below. Takes under 5 minutes, no credit check.

REFER200

Click to copy code Claim £200 Free →

Read our full Tide review →

*T&Cs apply. Affiliate link.

Paying Yourself as a Director

As a director of a limited company, you are both an employee and a shareholder. This dual role means your remuneration structure can be tax-efficient but requires careful payroll setup.

Most directors pay themselves a small salary up to the National Insurance threshold (£12,570 for 2026/26) to minimise NI contributions and receive dividends from company profits. However, any salary paid must be processed through PAYE.

Key Points When Running Payroll for Directors

• Use your director’s National Insurance number and tax code when setting up payroll.
• Directors’ tax codes may differ from regular employees due to their unique tax position.
• Ensure you run payroll on or before the pay date and submit an FPS to HMRC.
• Consider the timing of your payments: directors’ pay periods can be monthly or annually, but payroll submissions must be regular.
• Dividends are not paid through payroll and should not be included in PAYE calculations.

It’s a good idea to consult an accountant or tax adviser to structure director pay in a way that is tax efficient and compliant.

Choosing Payroll Software

HMRC requires all employers to use RTI-compliant payroll software from the first pay period. This ensures your payroll submissions are sent electronically and in real time.

There are many payroll software options tailored to small businesses and limited companies. Some popular choices include:

• Sage Business Cloud Payroll
• QuickBooks Payroll
• Xero Payroll
• BrightPay
• FreeAgent Payroll (for FreeAgent accounting users)

When selecting software, consider:

• Ease of use and customer support
• Integration with your accounting system
• Cost and monthly fees
• Ability to handle pensions auto-enrolment and CIS if relevant
• Features to manage director payroll and expenses

HMRC provides a list of payroll software providers on GOV.UK, which is a good starting point to ensure compatibility and compliance.

Payroll Compliance and Penalties

Running payroll accurately and on time is essential to avoid penalties from HMRC. Key compliance points include:

• Registering as an employer before the first payday.
• Submitting FPS reports on or before each payment date.
• Paying PAYE tax and National Insurance contributions by the 22nd of the following month (or the 19th if paying by post).
• Maintaining accurate payroll records for at least three years.
• Complying with auto-enrolment pension duties if you have eligible employees.

Failure to comply can result in fines, interest on unpaid tax, and increased scrutiny from HMRC. It’s therefore wise to keep payroll processes up-to-date and consider professional support if needed.

Key Takeaways

• You must register as an employer with HMRC before running payroll for your limited company.
• PAYE is mandatory for directors paying themselves a salary and for any employees.
• Choose RTI-compliant payroll software to meet HMRC requirements and simplify submissions.
• Running payroll accurately and on time avoids penalties and keeps your company compliant.
• Consider your director’s pay structure carefully for tax efficiency, and seek professional advice if unsure.
• Keep detailed payroll records and stay updated on changes to tax and NI thresholds each tax year.