You do not need a payroll scheme if you are not taking a salary out of the company. However, most directors take a salary out of their company, at least to the level of their Personal Allowance. This is the minimum you can earn before you start paying Income Tax which in the current tax year (2010/11) is £6475.

However the position regarding payroll schemes is complicated by so called benefits in kind. Companies are required to make a return on benefits for all directors and employees earning over £8,500 per annum. This year end return is done on a form called a P11D. If you have a company vehicle you will almost certainly have a benefit in kind and will be required to complete a P11D. Benefits can attract Class 1A National Insurance Contributions. Certain other types of benefit attract Class 1 NIC which is collected through the payroll.

To make a P11D return you require a payroll reference, which you can only get through registering a payroll scheme with H M Revenue and Customs. So you will almost certainly be required to register a patrol scheme, unless you do not envisage taking a salary or having any benefits in kind.

For more information look on the HMRC website.

See also: PAYE online and save cash

Related topics: Tax