How to Do My Own Payroll as a Director
Company directors are assessed for National Insurance on an annual basis, even when they are paid a regular monthly salary, which sets their payroll apart from that of ordinary employees [1]. A director drawing a £12,570 salary in the 2026-27 tax year triggers employer National Insurance of £1,135.50, charged at 15% on the pay above the £5,000 Secondary Threshold [6]. For the owner of a one-person limited company, understanding these two facts is the starting point for running payroll without an accountant.
Doing payroll for an owner-managed company is simpler than a multi-employee payroll in some ways and more particular in others. There is usually one person to pay, which keeps the monthly run short, but the director-specific National Insurance rules and the salary decision add nuance an ordinary employee payroll does not have.
This guide sets out how a director runs their own payroll from start to finish: whether payroll is needed at all, how to choose a salary, how directors' National Insurance is calculated, and what the monthly and year-end obligations are. The figures used are for the 2026-27 tax year, and the choices described are general rather than tailored to any one company's position.
Key takeaways
- A director paying themselves a salary through a limited company must register for PAYE and run payroll, just like any other employer [3].
- Directors' National Insurance is calculated on an annual earnings period, not per pay period, which changes how contributions build across the year [2].
- Three salary levels are commonly used by directors in 2026-27: £5,000, £6,708 and £12,570, each with different National Insurance and State Pension consequences [6].
- A company whose only worker is a single director usually cannot claim the Employment Allowance, so it pays employer National Insurance in full [11].
- The monthly run for one director is short, but the RTI filing, payment and year-end duties are the same as for a larger payroll [8].
Does a company director need to run payroll?
Before setting up anything, a director needs to know whether payroll applies at all. The answer depends on how the director takes money out of the company, and it is a common point of confusion for first-time owners.
When a director must register for PAYE
A director who takes a salary from their company is an employee of that company for payroll purposes, and the company must operate PAYE [1]. That means registering as an employer with HMRC before the first payday, obtaining an Employer PAYE Reference, and filing Real Time Information each time the director is paid [3]. Registration cannot be started more than two months before the first payment [4].
A director who takes only dividends and no salary does not need a payroll for themselves, because dividends are paid from post-tax profit and reported through self-assessment rather than PAYE [18]. Most owner-managed companies, however, pay a small salary alongside dividends, and the moment a salary is paid the company is inside PAYE [5]. The salary route is what brings the director's own payroll into being, so the salary decision and the payroll decision are effectively the same choice.
The single-director auto-enrolment exemption
Workplace pension auto-enrolment normally applies to every employer, but a company with a sole director and no other staff is exempt from the automatic enrolment duties [16]. This is a meaningful simplification: a one-person company does not have to assess itself for auto-enrolment, set up a qualifying scheme, or file a declaration of compliance while it remains a single-director business [16].
The exemption ends the moment a second person is employed, or if a second director is taken on and both have employment contracts [16]. A director relying on the exemption should therefore revisit their duties whenever the company takes on staff, because auto-enrolment then applies to the whole payroll, director included. Until that point, the director's payroll is unusually light, with no pension assessment to run each period [15].
Choosing a director's salary
The salary a director pays themselves is the single decision that shapes the payroll, the tax bill and the State Pension record. It is also where owner-managed payroll differs most from ordinary employment, because the director chooses their own gross pay rather than negotiating it.
The three common salary levels
Three salary levels recur in 2026-27 planning, each aligned to a National Insurance threshold. The choice between them turns mainly on whether the year counts towards the State Pension and how much employer National Insurance the company is willing to pay [6]. The table sets out the trade-offs.
| Annual salary | National Insurance effect | State Pension qualifying year |
|---|---|---|
| £5,000 (Secondary Threshold) | No employer or employee National Insurance | No, below the Lower Earnings Limit |
| £6,708 (Lower Earnings Limit) | No employee National Insurance, minimal employer cost | Yes, counts as a qualifying year |
| £12,570 (Personal Allowance) | Employer National Insurance of £1,135.50, no income tax | Yes, counts as a qualifying year |
A salary of £5,000 avoids National Insurance entirely but is too low to earn a qualifying year towards the State Pension [6]. A salary at the Lower Earnings Limit of £6,708 secures a qualifying year while keeping the employer cost low. A salary of £12,570 uses the full Personal Allowance and pays no income tax, but because a sole-director company cannot claim the Employment Allowance, it incurs the £1,135.50 of employer National Insurance in full [11]. Which level is best depends on the company's profit, whether other income exists, and whether the corporation tax saved on the salary outweighs the National Insurance it triggers, so a director should confirm the position for their own circumstances [7].
Salary plus dividends
Most owner-managers combine a modest salary with dividends drawn from company profit. The salary runs through payroll and is the subject of this guide; the dividends do not go through payroll at all and are reported separately through self-assessment [18]. Keeping the two apart is important, because only the salary generates RTI filings and National Insurance, while dividends are a distribution of profit taxed under their own rules [18].
For the payroll itself, the dividend arrangement is irrelevant: the software processes the salary, files the FPS and calculates any National Insurance, and the dividends are handled outside it [8]. A director running their own payroll therefore only needs to feed the salary figure into the system each period, which is what makes a one-person payroll so quick once it is set up. The employer National Insurance mechanics behind the salary are explained further in the guide to employer National Insurance.
How directors' National Insurance is calculated
The distinctive feature of a director's payroll is the way National Insurance is worked out. Unlike an ordinary employee, whose contributions reset each pay period, a director is assessed across the whole tax year. This matters for anyone doing their own payroll because the software behaves differently for a director.
The annual earnings period
A director's National Insurance is calculated on an annual earnings period running from 6 April to 5 April, rather than on each week or month in isolation [2]. In practice this means the director pays no employee National Insurance until their cumulative pay for the year passes the annual Primary Threshold of £12,570, at which point contributions begin [6]. A director paid £12,570 across the year therefore pays no employee National Insurance at all, because their earnings do not exceed the annual threshold [1].
The annual basis exists to stop directors avoiding National Insurance by taking irregular lump sums that would each fall under a weekly or monthly threshold [2]. It applies automatically to anyone who is a company director, and the payroll software must be told that the individual is a director so it applies the annual method [17].
Standard method versus alternative method
HMRC allows two ways of applying the annual earnings period, and recognised payroll software supports both [2]. The choice affects the timing of deductions across the year, not the total due.
| Method | How it works | Best suited to |
|---|---|---|
| Standard annual method | National Insurance is worked out on cumulative pay for the year to date each time the director is paid | Directors paid irregularly |
| Alternative method | National Insurance is worked out on each period's pay, with a year-end adjustment on the final payment | Directors paid a regular monthly salary |
Under the standard method, no National Insurance is due until cumulative pay crosses the annual threshold, after which it is deducted, which can mean nothing is taken for several months and then a larger deduction later [17]. The alternative method spreads the deductions more evenly by treating each period like an ordinary employee, then squares up the total on the last payment of the year [2]. Both arrive at the same annual figure, so a director drawing a steady salary usually prefers the alternative method for smoother cash flow.
Running the payroll each month
Once the salary is set and the software knows the individual is a director, the recurring payroll is short. The monthly run for a single director is the lightest form of payroll there is, but the reporting and payment obligations are identical to any other employer.
The single-employee pay run
Each period, the director enters the salary, the software calculates any income tax and National Insurance, and it produces a payslip [15]. For a director on £12,570 a year, the calculation typically produces no income tax and no employee National Insurance, so the payslip shows gross pay equal to net pay, with the employer National Insurance recorded as a company cost [6]. The mechanics of the PAYE scheme that sits behind this are covered in the guide to what a PAYE scheme is.
A director who only needs an occasional payslip, rather than a full monthly cycle, can also produce one on demand through an instant payslip generator without maintaining a running scheme, though most directors on a regular salary run a standard monthly payroll [5]. The company must still keep the payslip and the underlying figures as records regardless of how the payslip is produced [13].
Filing RTI and paying HMRC
Even for one director, a Full Payment Submission must be filed on or before each payday, reporting the salary and any deductions to HMRC [8]. Where a month produces no payment, or where the company needs to declare a nil liability, an Employer Payment Summary is filed instead [9]. Missing these deadlines exposes even a one-person company to late-filing penalties, which start at £100 a month [10].
Any income tax and National Insurance due is paid to HMRC by the 22nd of the following tax month when paying electronically [12]. A director drawing a salary at or below the Personal Allowance often has little or nothing to pay each month, but the FPS must still be filed to keep the scheme in good standing [8]. Software built for small business payroll handles the single-director case as readily as a larger workforce, filing the RTI automatically each period.
Year-end and records for an owner-managed company
At the end of the tax year, the director completes the same year-end process as any employer. A final payroll is run, and where the alternative National Insurance method has been used, the software makes any year-end adjustment on that last payment [2]. The director, being on the payroll on 5 April, must be issued a P60 by 31 May summarising their pay, tax and National Insurance for the year [14].
The company must keep payroll records for three years from the end of the tax year, covering what was paid, what was deducted and what was reported to HMRC [13]. For an owner-managed company these records also support the director's own self-assessment return, since the P60 confirms the salary element of their income while dividends are reported separately [18]. Keeping the salary and dividend records clean throughout the year makes the year-end straightforward [13].
When to automate a one-person payroll
A single-director payroll is light enough that some owners are tempted to track it manually, but the RTI filing requirement makes recognised software effectively mandatory, because Real Time Information cannot be submitted without it [15]. The practical choice is therefore which software to use, not whether to use any. For one director on a fixed salary, the ideal tool files the FPS automatically each month with minimal input [8].
As the company grows and takes on staff, the payroll changes character: auto-enrolment begins to apply, the Employment Allowance may become claimable, and the director's payroll merges into a wider workforce run [16]. Choosing software that scales from one director to a full team avoids a migration later. A director building towards that can start with a platform designed for payroll for one-person businesses that also handles a growing workforce without a change of system.
Conclusion
Running payroll as a director comes down to three decisions and one routine. The decisions are whether to take a salary at all, what level to set it at, and which National Insurance method to apply. The routine is the short monthly run: enter the salary, file the FPS, pay anything due, and issue a P60 at year-end. For a one-person company, the exemption from auto-enrolment and the frequent absence of any tax or National Insurance to pay make the recurring work lighter than almost any other payroll.
What does not change for a single director is the filing discipline. The Full Payment Submission is due on or before every payday, the records must be kept for three years, and the year-end P60 must be issued on time, exactly as for a large employer. The sensible approach is to set the salary deliberately, let recognised software handle the RTI and the directors' National Insurance calculation, and keep the salary and dividend records separate throughout the year so the year-end takes care of itself.
FAQs
Do I need to run payroll if I only pay myself dividends?
No. Dividends are paid from post-tax company profit and reported through self-assessment, not through PAYE, so a director taking only dividends does not need a payroll for themselves. The company must operate payroll only once it pays a salary to the director or to anyone else. Most owner-managers do take a small salary alongside dividends, which brings the company into PAYE.
Why is my director's National Insurance calculated differently?
Because directors are assessed on an annual earnings period rather than per pay period. Contributions are worked out on cumulative pay across the tax year, so a director pays no employee National Insurance until their total pay for the year passes the annual threshold. This rule exists to stop directors avoiding contributions by taking irregular lump sums, and it applies automatically once the payroll software is told the individual is a director.
Can a single-director company claim the Employment Allowance?
Generally no. The Employment Allowance is not available to a company whose only employee is a single director, so such a company pays its employer National Insurance in full. This is why a £12,570 salary triggers £1,135.50 of employer National Insurance for a sole-director company that could otherwise have been offset. The position can change if the company employs a second person, so it is worth reviewing when staff are taken on.
What is the most tax-efficient salary for a director?
There is no single answer, because it depends on the company's profit, whether the director has other income, and whether the corporation tax saved on the salary outweighs the National Insurance it triggers. In 2026-27 the salary levels most commonly considered are £5,000, £6,708 and £12,570, each aligned to a National Insurance threshold with different State Pension consequences. A director should confirm the best level for their own circumstances rather than assume a general figure applies.
