You’ve set up a UK limited company. Your director lives in Spain, your sales team’s in the US and nobody actually works in the UK. So do you need a PAYE scheme?
It’s a question that catches out a lot of internationally structured businesses, and the answer depends on how your people are employed and paid.
A common assumption is that every UK limited company has to register for PAYE the moment it’s incorporated at Companies House, which isn’t the case.
It’s just as risky to assume your overseas staff sit neatly outside UK payroll, because some of them might not.
What is a PAYE scheme?
PAYE stands for Pay As You Earn. It’s HMRC’s system for collecting Income Tax and National Insurance contributions (NICs) from employment income.
If your company employs people, you may need to register as an employer and run payroll to report salaries, deductions and other payments to HMRC. Once you’re registered, HMRC gives you an employer PAYE reference. You’ll use it every time you submit payroll information or make a payment.
Three things often get lumped together, and they’re all different:
- Company registration means incorporating your limited company at Companies House.
- PAYE registration means registering with HMRC as an employer.
- Running payroll means processing your people’s pay and reporting it to HMRC.
Doing the first doesn’t automatically mean you need the other two.
When do you have to register?
HMRC’s guidance says you must register for PAYE if an employee:
- earns above the weekly registration threshold
- gets expenses or benefits
- gets a pension through the job
- has another job
- has received certain taxable state benefits.
That applies even if your only employee is your sole director.
What triggers registration is how you employ and pay people, and being a UK limited company doesn’t count on its own.
Can a UK company run without a PAYE scheme?
Yes, it can. Take a UK company that’s incorporated at Companies House and has a registered office in England. It has no employees, pays no director salaries, provides no employment benefits and makes no payments that trigger PAYE.
That company wouldn’t normally need to register for PAYE just to keep its company registration active. Holding companies, investment companies, dormant companies and businesses set up for international activity often fall into this camp.
Having no UK-based employees is very different from having no employees at all, though. If your UK company employs people who live and work overseas, a whole separate set of employment tax rules comes into play.
What if your UK company has no UK-based employees?
A company can be incorporated in the UK but have its entire workforce based overseas.
Take a UK limited company with a registered office in London. Its director lives in Spain, its admin assistant works remotely from Portugal and its sales team’s in the United States. Nobody physically works in the UK.
Does it need a UK PAYE scheme? That depends on 3 things: how the employment’s set up, the company’s UK presence and each employee’s UK tax liability.
HMRC’s guidance on globally mobile employees explains that PAYE has a territorial limit. Generally, an employer has to operate PAYE where it has enough presence in the UK for HMRC to enforce the obligation. An employer without a UK presence can choose to operate PAYE voluntarily.
For a UK-incorporated company, you need to tread carefully. UK incorporation, UK management, UK operations and where your people actually work are all separate questions, so don’t treat them as one and the same.
HMRC also confirms that where someone works wholly or partly outside the UK, their residence and where they carry out their duties can change the PAYE treatment. For example:
- If they live and work permanently overseas, they may have no UK Income Tax liability on their overseas duties.
- A UK tax resident working overseas may be in a different position.
- Regular trips to the UK to do their job may create UK tax and payroll obligations.
- Directors working overseas may need separate consideration, especially if they carry out some of their duties in the UK.
Living outside the UK doesn’t automatically take an employee out of UK PAYE, and having overseas staff doesn’t automatically create a PAYE obligation either. You’ll need to look at the facts for each person.
Paying overseas directors
Lots of business owners set up a UK company while carrying on living and working abroad. They might be the sole director and shareholder, a non-UK resident director or the only person in the business. They might take dividends and no salary, or draw a director’s salary from the UK company.
How they’re paid makes a big difference.
Dividends only
Dividends are a share of the company’s profits. They aren’t employment earnings, so paying dividends doesn’t, on its own, mean you need to register for PAYE.
You’ll still have corporation tax, Companies House and dividend reporting obligations to keep on top of.
A director’s salary
A director’s salary is employment income, so the PAYE rules apply. HMRC is clear that a company must register even if its only employee is the sole director.
Where that director lives and works entirely overseas, the international rules come into play too. Your company’s UK presence, the director’s tax residence, where they do their work and any relevant double taxation agreement can all change the outcome.
Check which of the two applies before you decide whether to register.
How to register a PAYE scheme with HMRC
If you’ve worked out you do need PAYE, the next step’s registering as an employer. For most UK limited companies, it’s fairly straightforward.
- Before you start, be clear on who the company will employ, where they’ll physically work and whether any employees or directors are UK tax resident. You’ll also want to know whether you’ll pay salaries, bonuses or other employment income, and when the first payment will be. This matters even more if you’ve got overseas directors or staff.
- Start your application through the official GOV.UK Register as an employer service. Most UK limited companies with 1 to 9 directors can register online. If your set-up’s more complex, including some overseas arrangements, you may need to contact HMRC instead.
- Have your company details to hand. You’ll usually need your company name and registered address, Companies House registration number, contact details, the nature of your business, details of who’ll run payroll and your expected first payday. If your directors are overseas, HMRC may ask for more.
- Submit your application. You must register before your first payday, and you can’t register more than 2 months before you start paying people.
- Once HMRC has processed your application, it’ll post your employer PAYE reference. You’ll quote it whenever you deal with HMRC about payroll. From there, you can set up payroll software or bring in a payroll provider to run it for you.
What if all your directors are overseas?
Registration needs a bit more care in this situation.
HMRC’s standard online service is built for most UK limited companies with 1 to 9 directors. Overseas directors can bring extra registration and verification steps.
Say your UK company has one director in Dubai and another in Singapore. It has a UK registered office, no UK-based employees and plans to pay director salaries through a UK payroll. Don’t assume the standard online process will cope. Check the right registration route with HMRC first.
If you can’t register online, or the application won’t go through, call HMRC’s Employer Helpline for guidance.
And remember, having overseas directors doesn’t make you exempt from PAYE. Whether you owe employment tax and how you get a PAYE reference are 2 separate questions.
What happens once you’re registered?
Registering is just the start. Once your scheme’s live, you’ve got ongoing reporting to do.
Full Payment Submissions (FPS)
You send an FPS to HMRC every time you pay your employees. It reports their earnings, Income Tax deductions, National Insurance contributions and any other payroll deductions. It should normally go in on or before payday.
Employer Payment Summaries (EPS)
An EPS tells HMRC about certain adjustments and circumstances. If your scheme’s active but you didn’t pay anyone in a tax month, you’ll generally need to send an EPS to say no payment is due. The deadline is the 19th of the following month.
You can also tell HMRC in advance if you won’t be paying anyone for between 1 and 12 months. That’s useful if you’ve registered a scheme but don’t run payroll every month.
Registered for PAYE but never paid anyone?
Maybe you registered to pay a director’s salary, then changed your mind. Or you set up a scheme ready to recruit, and the hires never happened.
Either way, don’t just ignore it. Ask yourself:
- Do you need to send an EPS for the months with no payments?
- Should the scheme stay open?
- Should you close it, if you’ve got no plans to run payroll?
If you’ve stopped employing people or no longer need the scheme, tell HMRC and close it properly. That way, you won’t end up with estimated bills or penalties for a scheme you’re not using.
Common PAYE myths for UK companies with overseas teams
A few assumptions to watch out for if your team’s based abroad.
| The myth | The reality |
| Every UK company has to register for PAYE | Incorporation on its own doesn’t mean you need a PAYE scheme. |
| Overseas directors never need UK PAYE | You need to look at how they’re paid and where they do their work. |
| Paying dividends means you need a PAYE scheme | Dividends aren’t employment earnings. |
| No UK employees means no PAYE obligations | Overseas employees can still create UK payroll obligations in some cases. |
| You can register for PAYE whenever you like | You can’t normally register more than 2 months before your first payday. |
| An inactive scheme can be ignored | You may need to send an EPS or close the scheme. |
Before you register
If you employ people overseas or pay directors who live abroad, look at:
- where your employees and directors are tax resident
- where they physically do their work, and whether any of it happens in the UK
- whether your company has enough UK presence for PAYE purposes
- whether UK Income Tax or National Insurance obligations arise
- whether you also need to register for payroll or social security overseas.
Working this out first saves you registering a scheme you don’t need and keeping up payroll admin for no reason.
Not sure where your business stands? Talk to our team. We’ll look at how you’re set up and help you get it right first time.
