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What is PAYE?

PAYE (Pay As You Earn) is the system that HMRC uses to collect Income Tax and National Insurance contributions from employees' as they earn it. Directors that draw a salary from their limited company will be subject to PAYE tax and National Insurance contributions on their earnings in the same way as employees.

How do limited companies deal with PAYE?

As an employer your limited company will need to deduct tax and national insurance contributions from your directors and employees salary each pay month and pay Employer's Class 1 national insurance contributions to HMRC if they earn above a certain threshold. The company will pay these amounts to HMRC on a quarterly basis. If you don't send the correct amount, or if you send it in late, you may have to pay interest. Each month companies must file an RTI (Real Time Information) report to HMRC detailing the employees paid that month and the amounts paid to them. Almost all employers are required to file these online.