Payroll and employment: questions answered

Payroll starts the moment you pay yourself a salary. This hub covers registration, employer National Insurance at 15% above £5,000, pension duties, benefits reporting and the off-payroll rules.

How do I set up payroll for my limited company? Register as an employer with HMRC before the first payday, get your PAYE and Accounts Office references, set up RTI compatible payroll software, assess your automatic enrolment duties, and file a Full Payment Submission on or before each payday.

What are the employer NIC rates and thresholds now? Employer Class 1 National Insurance is charged at 15% on earnings above the secondary threshold of £5,000 a year. Employees pay 8% between the primary threshold and upper earnings limit, and 2% above it.

What is the Employment Allowance and do I qualify? The Employment Allowance reduces an employer's Class 1 National Insurance bill by up to £10,500 a year. Most small employers qualify, but a company whose only employee paid above the secondary threshold is a single director cannot claim.

What are my auto-enrolment pension duties as a small employer? From your first employee's start date you must assess whether they are eligible jobholders, automatically enrol those aged 22 to state pension age earning over £10,000, pay minimum contributions of 3% employer and 5% employee, and file a declaration of compliance.

Do I have to auto-enrol myself as a sole director? No, provided you are a director without an employment contract and the company has no other staff with contracts. You are not a worker for automatic enrolment purposes, but you must tell The Pensions Regulator that the duties do not apply.

What is a P11D and do I need to file one? A P11D reports taxable benefits in kind given to directors and employees, such as company cars, private medical insurance and beneficial loans. It is due by 6 July after the tax year, with Class 1A NIC payable by 22 July.

How do I report benefits in kind through payroll? Register with HMRC before the start of the tax year, then add the cash equivalent of each benefit to taxable pay in equal instalments across the year. Income tax is collected in real time, and Class 1A NIC is still settled after the year end.

What are the IR35 rules for my personal service company? IR35 applies where you would be an employee of the client if your company did not exist. For public sector and medium or large private sector clients, the client decides status. For small private sector clients, your company decides and bears the risk.

How do I set up director payroll in my first year of trading? Register as an employer with HMRC as soon as you know your first payday, ideally a few weeks in advance, then run payroll from day one using a starter checklist, submitting a Full Payment Submission on or before every payday.

How do I correct mistakes in director payroll? Correct an error in the current tax year by submitting an amended Full Payment Submission for the affected period. For a year already closed, use an Earlier Year Update, and file a missed FPS as soon as the mistake is found rather than waiting for the next payday.

What is a DPNI PAYE scheme and how do corrections work? A DPNI scheme deducts UK income tax and the employee's own National Insurance where the employer has no obligation to pay employer Class 1 NIC, typically because the employer is overseas with no UK presence. Corrections follow the normal FPS or EYU routes.

I got a PAYE underpayment letter from HMRC. What do I do? Check the letter, usually a P800 or simple assessment, against your own payslips and P60s before paying anything. If the figures reconcile, pay or arrange a coding adjustment; if they do not, contact HMRC or your accountant to query it, since payroll errors are a common cause.

How much does payroll cost per employee with an accountant? Per-employee payroll pricing is not a fixed published figure; it depends on how many employees you have, how often you pay them, and whether pensions, benefits or starters and leavers add complexity each period. It is quoted alongside your monthly package once we know these details.

How do I set up auto-enrolment for a single employee? From the employee's start date, assess whether they are an eligible jobholder, choose a qualifying pension scheme, enrol them if eligible with minimum contributions of 3% employer and 5% employee, write to them within six weeks, and file a declaration of compliance within five months.

What is the most tax-efficient salary and dividend split for 2026/27? For 2026/27, a sole director without Employment Allowance typically takes a £5,000 salary, avoiding employer NIC, then draws the rest as dividends. Where Employment Allowance applies, £12,570 salary plus dividends usually wins because employer NIC is absorbed by the allowance.

Rates, thresholds and deadlines quoted here reflect the 2026/27 UK position and current Companies House and HMRC guidance. Check GOV.UK, or ask us, before relying on them for your own company.