How to run payroll for one employee (or just yourself)

The pain: payroll feels like a system built for companies with 200 staff

You have one employee. Maybe that employee is you — a director paying yourself a salary from your own limited company. And yet the moment you want to pay that one person properly, you fall down a hole marked PAYE, NIC, RTI, tax codes, payslips and "on or before payday" deadlines.

It feels absurd. You just want to move money from the company to a human and have HMRC be happy about it. Instead you're reading government guidance written for a finance department.

Here's the calm version. Running payroll for one person is the same job whether it's an employee or you-as-director. There are only a handful of moving parts, and once you see them laid out, the dread mostly disappears.

What "running payroll" actually means

Stripped right back, payroll is three things happening every time you pay someone:

1. Work out the gross-to-net. You start with the gross pay (the headline amount before deductions), then subtract Income Tax and National Insurance to get the net pay (what actually lands in their bank).

• PAYE (Pay As You Earn) is Income Tax taken off at source. How much depends on the person's tax code (the little string like 1257L that tells you how much they can earn tax-free).
• NIC (National Insurance Contributions) comes in two flavours: the bit deducted from the employee (employee's NIC) and the bit the business pays on top (employer's NIC). So a salary can cost the company more than the gross figure.

2. Tell HMRC, on or before payday. This is RTI (Real Time Information) — you send HMRC a report of what you paid and what you deducted, every single pay run, on or before the day you pay. (More on that in What is RTI and how do I report it to HMRC?.)

3. Pay everyone their share. Net pay to the employee. The tax and NIC you deducted (plus employer's NIC) to HMRC, usually monthly.

That's the whole machine. Three steps, every payday.

The director's twist: paying yourself

If you're a one-person limited company, you're almost certainly both the boss and the only employee. Most directors pay themselves with a deliberately low salary plus dividends, and there's a reason for it.

A common approach is to set a director's salary around the National Insurance / tax-efficient thresholds — high enough to count as a qualifying year for your State Pension, low enough to keep NIC and tax small — then take the rest of your income as dividends (a share of profit, taxed differently and outside payroll).

The exact "sweet spot" numbers move every tax year, and they depend on your circumstances, so confirm the current thresholds and rates with HMRC (or your accountant) before you set your salary. The principle, though, doesn't change: even a tiny director's salary still has to go through payroll, with PAYE, NIC and RTI, exactly like any employee.

Which is the part that trips people up. "I'm only paying myself £x a month, surely I don't need all this?" You do. If you run a salary through a limited company, HMRC expects an RTI report — even if the tax and NIC come out to zero.

The hard way today: spreadsheets, Xero add-ons and HMRC's own tools

Right now, if you want to run that one payslip, your options all have a sting.

HMRC's Basic PAYE Tools. Free, and it works — but it's clunky, desktop-bound software you have to install, update and back up yourself. You manually enter pay, it calculates deductions, and you submit the RTI report. Miss a step and you've either filed late or filed wrong. For one director it's doable, but it feels like operating a fax machine.

A spreadsheet plus manual filing. Some founders build their own gross-to-net spreadsheet. This is genuinely risky: tax codes change, thresholds change every April, and a spreadsheet won't tell you when you've fallen out of date. And it still can't file RTI for you — that has to go through approved software.

Xero, QuickBooks or a bolt-on payroll product. These work, but payroll is often a separate paid module on top of your accounting subscription. You're configuring pay schedules, employee records and HMRC credentials in a tool built for proper payroll runs — a lot of setup for one person. And you still have to remember to run it, on time, every month, forever.

The common thread: every route asks you to remember the deadline, key in the numbers, apply the right rates, and press submit. For a busy founder, "every month, forever, or HMRC fines you" is exactly the kind of recurring small task that falls through the cracks.

How it's automatic in Ledgers

Ledgers has payroll built in — PAYE, NIC and RTI handled in one place, designed for the one-employee and director-only reality rather than a 200-person org.

Here's what changes:

You set the person up once. Their pay, their tax code, whether they're an employee or a director on a director's salary. Ledgers keeps the current PAYE and NIC rates and thresholds in the engine, so you're not the one tracking what changed in April.

Each pay run calculates itself. Enter (or confirm) the gross pay and Ledgers works out the Income Tax, the employee's NIC and the employer's NIC, and shows you the net pay and the total cost to the company — before you commit. No spreadsheet, no manual lookup tables.

The RTI report files on or before payday — automatically. This is the bit that removes the dread. Ledgers generates the Full Payment Submission and sends it to HMRC as part of the pay run, on time, so you're not the human deadline. (See What is RTI and how do I report it to HMRC?.)

The payslip and the bookkeeping are the same event. Because payroll lives inside your books, the salary, the tax owed to HMRC and the net payment all land in your accounts and on your P&L automatically. No re-keying numbers from a payroll tool into your accounting tool. Your wage cost shows up in your profit and loss the moment you run pay.

What you'd actually see and do

A normal payday in Ledgers looks like this:

1. Open the pay run. Your one employee (or you) is already set up.
2. Check the gross pay. Ledgers shows the PAYE, NIC, net pay and the all-in cost to the company.
3. Approve it. Ledgers files the RTI report to HMRC and produces the payslip.
4. Pay the net amount to the person and, when due, the PAYE/NIC to HMRC — both already recorded in your books, with what you owe HMRC sitting clearly on your balance sheet.

That's it. The thing that felt like a finance-department system becomes a two-minute monthly check.

Payroll for one person shouldn't feel like running a payroll department. In Ledgers, PAYE, NIC and RTI are built in — the pay run calculates itself, the RTI report files to HMRC on or before payday, and the salary lands in your books automatically. See your numbers without learning accounting → start free.

Want to understand the HMRC reporting bit properly? Read What is RTI and how do I report it to HMRC? →

Run your whole back office without the bookkeeping: Run your books without becoming a bookkeeper →

Frequently asked questions

Do I need to run payroll if I'm the only director and pay myself a small salary?

Yes. If your limited company pays you a salary, it has to go through PAYE payroll with an RTI report to HMRC on or before payday — even if the tax and NIC work out at zero. Dividends are separate and don't go through payroll.

What's the difference between PAYE and National Insurance?

PAYE is the Income Tax deducted from pay at source. National Insurance (NIC) is a separate contribution — partly deducted from the employee, partly paid by the employer on top of the salary. Both are calculated each pay run and paid to HMRC.

How often do I have to report payroll to HMRC?

Every time you pay someone. You send an RTI Full Payment Submission on or before each payday, not once a year. Always confirm the current rules and rates with HMRC.

What's the most tax-efficient salary to pay myself as a director?

Many directors set a low salary around the NIC/tax thresholds and take the rest as dividends, but the exact figures change every tax year and depend on your situation. Confirm current thresholds with HMRC or your accountant before deciding.

See your numbers without learning accounting

Ledgers does the bookkeeping — bank feeds, VAT, year-end — and keeps your accountant in the loop. Free for pre-revenue founders.

Start free →

Get the next guide by email

Plain-English accounting for founders — a couple of new guides a week. No spam, unsubscribe anytime.

Subscribe

Keep reading · Payroll & compliance

Payroll & compliance

CIS for contractors made simple

The Construction Industry Scheme means deducting tax from subcontractors and filing a CIS return every month. Here's CIS in plain English, and how Ledgers files it for you.

6 min readPayroll & compliance

Companies House filing: what's due and when

A limited company owes Companies House a confirmation statement and annual accounts each year — with strict deadlines. Here's what's due, when, and how Ledgers tracks it for you.

6 min readPayroll & compliance

What is RTI and how do I report it to HMRC?

RTI means telling HMRC what you paid your staff on or before payday — every pay run. Here's what RTI is in plain English, and how Ledgers files it for you automatically.

5 min read