Salary vs dividends: tax-efficient ways to pay yourself

Most limited company directors draw a mix of salary and dividends rather than one or the other, since each is taxed differently and the right balance depends on your specific numbers.

How salary is taxed

Salary is subject to Income Tax and National Insurance, both for you and the company, but it does count toward pension contributions and state pension entitlement.

How dividends are taxed

Dividends are only paid from company profits after Corporation Tax, and are taxed at different (generally lower) rates than salary, with a dividend allowance before tax applies.

Why the balance matters

A small salary up to relevant thresholds, topped up with dividends, is a common structure — but the ideal split shifts as tax rates and thresholds change, so it's worth revisiting rather than setting once and forgetting.

Our advice

We review director remuneration as part of our ongoing service, adjusting the salary/dividend split as your profit and personal circumstances change, rather than leaving you on a structure set up years ago.