Date posted: 19th May 2025
A formal payroll scheme is operated by most companies, as they need to declare the national insurance and tax deducted from employees as well as the employer’s national insurance due.
Some small companies (e.g., spousal companies) may only pay directors remuneration below certain allowances / limits and thus avoid the cost of running a formal payroll scheme.
In 2024/25, this limit was c£6,400 i.e. if the directors were paid remuneration of less than this amount (and it was their only source of PAYE income), there was no requirement to register for PAYE and operate a formal payroll scheme as there was no national insurance or tax to pay and no national insurance credits to claim. If there are other employees or national minimum wage issues, then, of course, a scheme may be required.
Due to the changes in the level of employer’s national insurance, the limit is now £5,000, as any employee/director paid more than £5,000 will mean that the business will need to pay employer’s national insurance. This may have been overlooked and thus, some smaller businesses may need to either register their business for PAYE and run a formal payroll scheme or reduce the amount that directors are paid.
In addition, with the payrolling of benefits becoming mandatory from April 2027, a formal payroll scheme may be required in any event.
As ever, this is only a guide and if advice specific to your circumstances, please give us a call.
