UK PAYE for directors: when to set it up, when you don't need to

Pay As You Earn (PAYE) is HMRC's system for collecting income tax and National Insurance contributions from employees in real time. As a director of a UK limited company, you are technically an officeholder rather than an employee — but if you receive a salary from your company, PAYE still applies. The distinction that matters for Arab directors is when PAYE is actually required versus when it can be omitted entirely.

If you pay yourself no salary at all — if you take money from the company only as dividends or director's loans — you do not need to register for PAYE. Dividends are not employment income and are not processed through PAYE. They are paid from post-corporation-tax profit and any personal income tax due on them is handled through self-assessment, not PAYE. For many Arab directors who keep a simple company structure with no salary and only dividend distributions, PAYE is never triggered.

If you do pay yourself a director's salary, PAYE registration becomes necessary. The threshold that triggers actual deductions is the National Insurance Lower Earnings Limit (£6,396 in 2025/26) and the income tax Personal Allowance (£12,570 in 2025/26). Many Arab directors set their salary at a level between these thresholds — high enough to count toward a National Insurance record (if they want that), but below the income tax threshold. At this level, PAYE is registered and operated, but the actual deduction on each payslip is nil. The company must still file Real Time Information (RTI) submissions to HMRC each time the salary is paid, reporting the payroll position even when nothing is being deducted.

Registering for PAYE is done through HMRC's online services. You register as an employer — the company is the employer, even if you are its only director and employee. HMRC issues a PAYE reference number and an Accounts Office reference. Payroll software (including free tools like HMRC's own Basic PAYE Tools, or payroll modules within Xero and QuickBooks) processes the payroll and sends RTI submissions to HMRC. Missing an RTI submission triggers an automatic penalty: £100 per missed submission for micro employers. The obligation to report is not optional once PAYE is registered.

A common mistake we see: Arab directors who set up PAYE, pay themselves a nominal salary for a year or two, then stop making any payments — but never de-register for PAYE. HMRC continues to expect RTI submissions. Months later, automatic penalty notices are issued for missed submissions, to the registered office the director may not be monitoring. De-registering PAYE when you stop paying a salary is a required step, not an automatic one. Fileminder handles payroll and PAYE registration and de-registration for clients who want this managed as part of their annual compliance package.