Running a one‑person payroll feels simple—until HMRC pokes around and you realise a missed step has created weeks of admin, fines or an unexpected auto‑enrolment enrolment trigger. Over the years I’ve helped many sole directors and sole traders tidy up their payroll routines so they’re robust, HMRC‑friendly and simple to maintain. Below I share a practical, ready‑to‑use approach to build a one‑person payroll handbook that avoids common PAYE and auto‑enrolment mistakes.

Why a payroll handbook matters for one‑person businesses

When you’re the only employee and also the director or owner, it’s easy to think “I’ll remember this.” But HMRC processes and pension duties have specific triggers and timelines. A short, clear handbook does three things for me and my clients:

  • Keeps the correct records to satisfy PAYE checks.
  • Avoids accidental auto‑enrolment or missed pension duties.
  • Makes handover simple if you engage an accountant or payroll bureau.

    • Think of it as a one‑page roadmap for compliance rather than a legal brief. The aim is clear, repeatable steps that reduce risk and save time.

    Key principles to build your HMRC‑friendly handbook

    I follow a few guiding principles when I create these handbooks. They help keep the document practical and defensible.

  • Keep it concise. One page of essential actions, with supporting pages for reference.
  • Be date‑aware. Highlight dates and timeframes—pay dates, RTI submission windows, pension staging dates (if relevant).
  • Use software for consistency. If you use Xero, QuickBooks, Sage, BrightPay or FreeAgent, include step‑by‑step screenshots or links to the exact export you use for HMRC submissions.
  • Record decisions. If you operate a salary/dividend mix, note why and where the figures are authorised (board minute or director’s file).

    • What to include: essential sections and templates

    Here’s a practical structure I use. You can copy this into a single doc and expand where needed.

  • Contact and business details — Company name, PAYE reference, Accounts Office reference, payroll software licence, payroll bureau contact (if any), and the business bank account used for PAYE payments.
  • Pay policy — Pay frequency, payment date, how gross pay is calculated (salary, expense allowances, benefits), and the authorised signatory for payroll runs.
  • RTI routine — When to submit Full Payment Submission (FPS), what to include, and who signs off the FPS.
  • PAYE payment dates — When payments to HMRC are made and by which method (Bacs, Faster Payments, or Direct Debit).
  • Auto‑enrolment notes — Declaration of whether the director/employee is eligible, earnings assessment used, and the pension provider details.
  • Record retention — Where payslips, P60s, P11Ds and payroll journals are stored and for how long.
  • Emergency and change log — Where you note deviations (late RTI, PAYE coding changes) and corrective actions taken.

    • Practical checklists you can copy

    Here are two short checklists I include at the front of the handbook: one for each pay run and one for the year‑end.

  • Pay run checklist
  • Confirm pay date and payroll window.
  • Update permanent pay items (salary, regular allowances).
  • Record any new benefits or reimbursed expenses and ensure they’re reported correctly.
  • Run gross‑to‑net calculation in payroll software and review tax code and NI category.
  • Submit FPS to HMRC on or before payment date.
  • Save payslips and update accounting journals.
  • Make PAYE payment to HMRC by the payment deadline.
  • Year‑end checklist
  • Issue P60 to the employee (or director) by 31 May.
  • Check and reconcile year‑to‑date figures in payroll and accounting software.
  • Submit final FPS and EPS if necessary (e.g. if you claim Employment Allowance adjustments or have no payments).
  • Ensure P11D reporting for benefits if required and file by 6 July.

    • How to avoid accidental auto‑enrolment

    Auto‑enrolment trips up small companies because the rules depend on the employee’s status and earnings. For directors paid solely via dividends it’s usually straightforward—directors are treated as employees, but only qualifiying earnings count if they’re paid through PAYE. Here’s what I add to the handbook so the decision is consistent:

  • Define the assessment period you use for eligibility (usually a payroll period or tax month).
  • Record the earnings definition you use (qualifying earnings = salary and employer NI contributions if applicable).
  • Keep a dated eligibility decision log—note if you concluded “not eligible” and why.
  • Retain communications with pension providers or NEST if you consulted them.

    • If you want to prevent auto‑enrolment because you legitimately believe the worker is not an eligible jobholder, document your reasoning and reassess whenever pay or hours change. HMRC auditors look kindly on clear records.

    Common PAYE mistakes and how the handbook prevents them

    From experience the most common mistakes are simple lapses. The handbook addresses each.

  • Late or missing FPS — fixed by a repeatable sign‑off and submission step in the pay run checklist.
  • Wrong tax codes — include a step to check for new tax code notices before each pay run and a contact procedure to query HMRC changes.
  • Incorrect classification of expenses/benefits — keep a small table of common items and how they’re reported (see table below).
    • ItemHow I report it
    Business mileageClaimed as expense, not subject to PAYE if using HMRC mileage rates; record mileage log.
    Telephone allowanceSmall flat monthly allowance declared on FPS if taxable, otherwise expense via accounts-backed receipts.
    Company carReport on P11D, include taxable benefit in payroll where necessary.

    Using payroll software and outsourcing

    I always recommend using payroll software even for a single employee—tools like BrightPay, Xero Payroll or QuickBooks Payroll automate RTI and tax calculations and make record keeping easier. In the handbook document, I include:

  • Exact menu paths to run FPS, create payslips and export journals from our chosen software.
  • Credentials storage protocol (where login details are kept securely, and who has access).
  • When to outsource—if you can’t commit the time or there’s a complex dividend/salary split, a payroll bureau or accountant can reduce risk. Note the contact details and the service level agreement.

    • Sample handbook front page (copyable)

    Use this as your front page so you always start in the same place:

    Company: [Company name] — PAYE ref: [REF] — Payroll software: [Name and version] — Pay frequency: Monthly — Pay date: [e.g. last working day of month]

    Primary contact: [Name, phone, email] — Payroll outsourced to: [If applicable]

    Quick check before each pay run: update pay items → verify tax code → submit FPS → pay HMRC

    This framework has prevented a lot of headaches for my clients: missed payments, unexpected pension obligations and messy reconciliations. If you’d like, I can adapt this into a bespoke handbook for your company, including step‑by‑step screenshots for whatever software you use and a filled‑in sample for YTD reconciliations.