Many limited companies have employees, but there is no legal requirement to hire anyone to work for your business. You can own and operate a company by yourself (as the sole shareholder and director) or with other shareholders and/or directors. It’s a very flexible business structure, so hiring employees depends entirely on the needs of your company.
Indeed, it’s not uncommon for companies to operate without employees. According to the latest estimates from the Office for National Statistics (ONS), only 25% of UK private sector businesses have employees. This means that 75% of private businesses in the UK do not employ anyone.
In this blog, we’ll begin by taking a brief look at the employment status of limited company directors. Are they self employed or are they employees? We’ll then discuss when it is necessary to register as an employer, how to register your company as an employer with HMRC and set up PAYE Online, and what information you need to provide to complete the process.
Are company directors classed as employees?
Company directors are classed as office holders unless employment contracts and service agreements are put in place. In such instances, directors are classed as office holders and employees.
Public companies (PLCs) and larger private firms usually provide directors with employment contracts and service agreements. However, this is not common practice in small owner-managed companies – unless there are multiple owner-directors, which increases the likelihood of disagreements arising.
If you’re the sole director and shareholder of a company, there’s no great need to protect yourself with a contract, because you’re not going to take yourself to an employment tribunal. However, there are certain benefits to being an employee of your own company – namely, you may be able to claim redundancy pay if your company becomes insolvent.
Do I need to register my company as an employer?
You will need to register your company as an employer with HM Revenue & Customs (HMRC) and set up Pay As You Earn (PAYE) Online if any directors or members of staff:
- are paid more than £123/week (£533/month, £6,396/year)
- receive expenses and benefits
- already receive a pension or have another job
These criteria also apply to companies with sole directors and no employees. So, even if you’re the only person working through the company, you must register as an employer if you meet at least one of the above conditions.
Additionally, if you are a contractor and pay subcontractors to carry out construction work, you must register as an employer through the Construction Industry Scheme (CIS).
How and when to register as an employer
You can register as an employer with HMRC online, which is a relatively easy process. You can set up your PAYE Online account at the same time, if required.
Registration must be completed before you start paying people. It typically takes up to five working days to receive your employer PAYE reference and Accounts Office reference from HMRC. However, you can’t register more than two months before the first payday.
Required information for HMRC
To register as an employer, HMRC will require the following information about your company:
- company Unique Taxpayer Reference (UTR)
- full registered name of the company
- trading name of the business (if applicable)
- company registration number (CRN)
- nature of the business (e.g. plumber, electrical engineer, graphic designer)
- registered office address, business address, and business contact details
- date of the first pay day, or the first day you paid expenses or provided benefits to employees or directors
- number of employees, including directors
- whether you need to register for the CIS
- name and National Insurance number of one director
Payroll reporting requirements
Once you’ve registered, you will need to incorporate PAYE into your payroll software and carry out the following payroll tasks on or before each payday:
- record each person’s pay (salary/wages and any other pay)
- calculate deductions from their pay (Income Tax, National Insurance, pension contributions, student loan repayments)
- calculate your employer’s National Insurance contributions (on earnings above £175/week)
- produce payslips for every employee and director
- report everyone’s pay to HMRC in a Full Payment Submission (FPS)
On the 19th of the following tax month, you will then pay what you owe to HMRC. However, you may be able to pay quarterly, rather than monthly, if you normally owe less than £1,500/month.
If you pay anyone less than £123/week, you will still need to record and report their pay through payroll.
It is up to you whether you wish to run payroll yourself or outsource the task to an accountant or specialist payroll service provider.
Thanks for reading
So there you have it – a limited company can, indeed, have no employees, and this is pretty common within UK private businesses.
However, even when a company operates only with directors, HMRC will most likely class the business as an employer for payroll and tax purposes. So, even if you don’t have any employees, you will still need to register as an employer with HMRC if you pay yourself a director’s salary of more than £123/week.
If you have any questions or need help setting up a company, please contact us or leave a comment below.