Running your own limited company gives you control, but it also means you wear two hats: director and employee. HMRC treats you as an employee for tax and National Insurance purposes, even if you are the only person in the business. That means payroll rules, dividend rules and filing deadlines apply to you.
This guide sets out five practical steps to keep your limited company director employment compliance on track for the 2026/27 tax year. It is written for women running small limited companies in the UK, whether you have just incorporated or you are reviewing your setup. If you are still choosing a structure, our plain English guide to what is a limited company explains the basics.
Step 1: Understand that you are a director and an employee
When you run a limited company, the company is a separate legal entity from you. You may think of yourself as self-employed, but legally you are an office holder and an employee of the company for tax purposes. You employ yourself, and you are employed by yourself.
This matters because HMRC applies special rules to company directors. The most important is the annual earnings period for National Insurance contributions. Unlike other employees, whose National Insurance is calculated per pay run, directors’ contributions are assessed over the whole tax year. This stops directors from manipulating payment timings to reduce National Insurance.
Companies House has also introduced identity verification for directors under the Economic Crime and Corporate Transparency Act 2023. New directors must verify from 4 March 2024, and existing directors must verify when prompted or risk penalties and rejected filings. See our guide on Companies House identity verification and the official Companies House guidance.
Step 2: Set your salary at the right level
Most directors take a small salary and top up with dividends. The salary level is a balancing act between income tax, employee National Insurance, employer National Insurance and corporation tax.
For the 2026/27 tax year, HMRC has set the following National Insurance thresholds, based on current government policy:
- Lower Earnings Limit: £6,396 a year. Earnings at or above this level give you a qualifying year for the State Pension, even if no National Insurance is actually due. Source: HMRC employer rates and thresholds 2026/27.
- Primary Threshold: £12,570 a year. Employee National Insurance starts here.
- Secondary Threshold: £5,000 a year. Employer National Insurance starts here.
- Upper Earnings Limit: £50,270 a year. Employee National Insurance drops from 8% to 2% above this point.
Many sole directors set their salary at the Primary Threshold of £12,570. At this level, you use your personal allowance efficiently and preserve your State Pension record, while employee National Insurance is nil. Your company will pay employer National Insurance at 15% on the difference between £12,570 and the Secondary Threshold of £5,000, which comes to roughly £1,136 for the year.
The Employment Allowance is £10,500 for 2026/27, according to HMRC guidance on Employment Allowance, and can cover employer National Insurance. However, a company with only one employee who is also a director cannot claim it. If you employ other staff, the allowance may change the maths. For a deeper look at pay strategy, read our guide on how to pay yourself as a limited company director in 2026.
The right salary depends on your personal circumstances. If your company is new, is making a loss, or you need to show earned income for a mortgage or visa application, a higher salary can make sense. For women-led micro-businesses, where cash flow is often tight, getting this balance right protects both your take-home pay and your company’s reserves. Discuss the figures with your accountant before fixing your pay.
Step 3: Pay dividends legally and efficiently
A salary of around £12,570 is rarely enough to live on, so most directors take the rest of their income as dividends. Dividends are paid from profits after corporation tax. They are not a business expense, so they do not reduce your company’s corporation tax bill.
For 2026/27, HMRC corporation tax rates are 19% on profits up to £50,000, 25% on profits above £250,000, with marginal relief in between, as set out in HMRC corporation tax guidance. You must have enough distributable profit after corporation tax to cover any dividend. If you pay a dividend when there is not enough profit, it is unlawful under the Companies Act 2006 and you may have to repay it.
Before you pay a dividend, hold a board meeting or minute a directors’ decision if you are the only director, and issue a dividend voucher for each dividend. This paperwork proves the dividend was properly declared.
Dividends are not salary. You can pay them monthly if your company genuinely has profits to distribute and you keep proper records, but fixed monthly payments that ignore profit levels can look like disguised salary. This is particularly relevant if you work through your own company for a single client, where IR35 off-payroll working rules may apply.
For the 2026/27 tax year, the dividend allowance is £500, according to HMRC dividend allowance guidance. Dividends above that are taxed at 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers. Careful dividend planning is particularly important if you are the main earner in your household or you rely on your company for a steady income.
Step 4: Know your Self Assessment obligations
Not every company director has to file a Self Assessment tax return. You must file one if HMRC sends you a notice to file, or if you have untaxed income. For most directors, that means dividends above the £500 dividend allowance, income from property, or other earnings outside the company.
The deadline for filing your 2026/27 Self Assessment online is 31 January 2028, and the tax payment deadline is the same date, as confirmed by HMRC Self Assessment deadlines. Payments on account may be due on 31 January 2028 and 31 July 2028. The cost of preparing your personal tax return is not a deductible expense for your company.
If an accountant files on your behalf, check the return carefully before signing it. You are legally responsible for its accuracy. For simple affairs, you can file online using HMRC’s service or commercial software. Staying on top of Self Assessment helps you avoid a large tax bill that could disrupt your personal or household budget.
Step 5: Run PAYE and Real Time Information properly
PAYE and Real Time Information are how you report and pay your salary. Each time you pay yourself, you must submit a Full Payment Submission to HMRC on or before payday using HMRC-recognised payroll software, as required by HMRC payroll guidance. You also need to give yourself a payslip and, after the tax year ends, a P60 by 31 May 2028.
If you provide benefits in kind, such as a company car or private medical insurance, you may need to file a P11D by 6 July 2028. Many sole directors use an accountant or payroll bureau to run payroll. The cost is usually modest, and it protects you from late-filing penalties and calculation errors. Outsourcing payroll can also free up time to focus on revenue-generating work, which is valuable when you are running a business alongside other responsibilities.
Action steps for the limited company director
Leaving employment compliance boxes unticked can lead to HMRC enquiries, penalties and, in serious cases, personal liability. Paying an unlawful dividend, for example when the company cannot afford it, can mean you are trading while insolvent.
Do not simply copy what other directors do. Your salary and dividend strategy should reflect your company’s profits, your personal tax position and your future plans. This is especially important if your company is new, loss-making or you need to demonstrate stable income for a mortgage.
Three actions you can take today:
- Check your Companies House identity verification status.
- Review your 2026/27 salary and dividend plan with your accountant.
- Confirm your PAYE software is set up for the new tax year thresholds.
For women running small limited companies, staying compliant is not just about avoiding penalties. It is about building a business that can support you, your household and your long-term plans. Getting your limited company director employment compliance right from the start saves money, stress and time later.
