Is PAYE Mandatory for Making Salary Payments

Question

I am the director of a limited company in England and Wales and am the only worker and shareholder. I understand that it is advantageous for me to draw a salary from the company and also take some dividends out of the company's profits.

However, is PAYE a mandatory requirement to make salary payments to myself? Is it possible to instead make gross salary payments on an ad-hoc basis and handle all the tax/NI contributions in one go when I complete my director's tax return?

For what it's worth, my aim in all this is to reduce hassle by doing everything in one go instead of having to make monthly submissions to HMRC.

Answer 1

According to HMRC the company is required to register as an employer for PAYE if any of the following is true:

1. you're paying an employee at or above the PAYE threshold
2. you're paying an employee at or above the National Insurance Lower Earnings Limit
3. the employee already has another job
4. the employee is receiving a state, company or occupational pension
5. you're providing the employee with employee benefits

For 2014/15 the PAYE threshold is £10,000/year but the NI Lower Earnings Limit is only £5772/year.

So, assuming none of points 3 to 5 apply to you, you could avoid PAYE if you only paid yourself £5771 salary. The problem with that AIUI is twofold. Firstly by staying below the NI threshold you aren't accumulating any NI contribution record which effects your entitlement to NI-linked benefits including the state pension. Secondly the most tax-efficient amount to pay yourself as salary is around the £10,000 of your personal allowance so you would not be taking full advantage of that.