Setting Up Payroll as a Company Director

Step 1: Register as an employer with HMRC

Before paying any salary, register as an employer at gov.uk. HMRC will issue you an employer PAYE reference number and an Accounts Office reference. These are needed to set up payroll software and make payments. Registration can take up to 5 working days, so register before you need to make the first payment.

Step 2: Choose payroll software

HMRC requires RTI (Real Time Information) submissions. Use HMRC-approved payroll software — FreeAgent, Xero, QuickBooks, or HMRC's own Basic PAYE Tools (free for up to 10 employees). Each payroll run generates an FPS (Full Payment Submission) sent to HMRC automatically.

Step 3: Set up the director's pay record

Directors are employees for payroll purposes. Enter the director's name, NI number, start date, and salary. For annual salary of £12,570, set the pay frequency appropriately — monthly (£1,047.50/month) is most common.

Step 4: Run payroll each month

Process the payroll in your software. The FPS is submitted to HMRC on or before the payment date. If there is no PAYE tax or NI due (because salary is within the personal allowance), the FPS still needs to be submitted — it just shows zero deductions.

Step 5: Pay employer NI to HMRC

If employer NI is due (salary above £5,000), pay HMRC by the 19th of the following month (22nd if paying electronically). Use your Accounts Office reference. Even if the amount is small, pay on time — late payment penalties apply.