What Is PAYE and When Do I Need It?

If your UK company intends to pay salaries to employees—or to directors—you may be legally required to register for PAYE (Pay As You Earn). This system ensures that income tax and National Insurance contributions are deducted at source and reported to HMRC.

In this guide, we explain what PAYE is, when registration is required, and how Dragonfly Associates assists clients with setup and compliance, subject to agreement.

What Is PAYE?

PAYE stands for Pay As You Earn. It is HMRC’s system for collecting:

• Income tax
• National Insurance contributions (NICs)
• Student loan repayments (if applicable)
• Employer National Insurance (from the company)

The PAYE system applies to most employees and directors who receive regular payments above a certain threshold.

When Does a Company Need to Register for PAYE?

You must register for PAYE if you:

• Pay any employee or director more than £123 per week (as of 2025)
• Provide benefits or expenses that require reporting
• Employ staff under a formal employment contract
• Pay yourself a salary as a director above the tax-free threshold

Even if your director is the only person on payroll, registration may be required if their salary exceeds the NIC threshold.

Dragonfly Associates evaluates your structure and advises whether PAYE is needed, as part of our company setup or accounting support.

When Is PAYE Not Required?

You do not need to register for PAYE if:

• No employees are paid more than the lower earnings limit (£123/week)
• You’re only reimbursing expenses with no salary
• All payments fall below taxable thresholds

However, you must still keep payroll records, and may need to register later if the situation changes. We help you monitor this threshold and prepare for future obligations.

How to Register for PAYE

You register for PAYE through HMRC’s online portal. You’ll need:

• Your company’s UTR (Unique Taxpayer Reference)
• Company incorporation details
• Director information
• Expected payroll start date

Once registered, you’ll receive:

• A PAYE reference number
• An Accounts Office reference
• Access to HMRC’s online PAYE portal

Dragonfly Associates registers PAYE schemes for clients as part of agreed payroll or compliance packages.

What Happens After Registration?

Once your PAYE scheme is active, you must:

• Use approved payroll software or services
• Run payroll on or before each pay date
• Submit RTI (Real Time Information) reports to HMRC
• Pay income tax and NICs due—usually monthly or quarterly

We provide full-service payroll management or software guidance depending on your selected service plan.

PAYE for Directors

Directors are treated slightly differently in PAYE:

• Their NICs can be calculated annually or per pay period
• Many directors choose a low salary plus dividends strategy
• PAYE must still be operated if they’re paid above the lower threshold

Dragonfly Associates advises on optimal director salary strategies and ensures your payroll is configured accordingly.

Frequently Asked Questions

Can I pay myself without PAYE?

Only if your salary is below the lower earnings limit and you’re not providing benefits. In most cases, directors require PAYE registration if paid.

Can I backdate PAYE registration?

No. PAYE registration must be done in advance of making payments. Failing to register on time can lead to penalties.

Do I need to file if no one was paid?

Yes. You must file a “nil return” or tell HMRC that no payments were made for the period. We assist with this under payroll support plans.

Stay Compliant, Avoid Surprises

PAYE isn’t just for big businesses—it applies to any company paying salaries. Failing to register or report correctly can result in penalties, even for first-time directors.

Dragonfly Associates supports companies with PAYE setup, payroll administration, and HMRC reporting under agreed service plans.

If you plan to pay yourself or hire staff, contact us early to ensure everything is in place.