Directors Pay

Tax-Efficient Director’s Guide to Getting Your Money

Running a limited company comes with flexibility - and one of the perks is choosing how you get paid.

But take the wrong approach, and you could end up with unexpected tax bills or compliance issues.

The good news? There are four smart, HMRC-approved ways to pay yourself. Let’s break them down.

💷Want to Pay Yourself Smarter?

1. Salary – Keep It Low (But Not Too Low)

A salary ensures you're eligible for state pension and benefits. Many directors pay themselves just over the National Insurance threshold to stay tax-efficient while still building entitlements. But beware - paying too much can trigger unnecessary tax and NI costs.

💡 Tip: Keep your salary just above the Lower Earnings Limit and top it up with other methods for maximum efficiency.

2. Dividends – The Tax-Friendly Top-Up

Dividends are a popular way to boost your income - they’re taxed lower than salaries. But they can only be paid from profits, and you must follow the formal process: board meeting minutes, dividend vouchers, and correct paperwork.

⚠️ Warning: Paying dividends without profits = legal trouble. Stay on top of your accounts or speak to your accountant before paying out.

3. Pension Contributions – Save for Later, Save on Tax Now

Your company can make pension contributions on your behalf - a fantastic way to plan for the future and reduce corporation tax. No NI to pay either.

📈 Bonus: You can invest up to £60,000 tax-free into pensions each year (2025/26 limit), but remember you can’t touch it until age 55 (57 from 2028).

4. Benefits in Kind – Perks with a Price Tag

Company car? Private healthcare? Directors can enjoy perks, but most benefits come with tax. They must be reported to HMRC and are subject to income tax and employer National Insurance.

✅ Some BIKs, like mobile phones or pension contributions, are tax-friendly - check which ones work best for your situation.

5. Trivial Benefits (Bonus!)

Trivial benefits are small perks that businesses can offer to employees (including directors) without incurring tax or National Insurance costs. These benefits are designed to be small tokens of appreciation and must meet certain conditions to qualify:

• Cost: Each benefit must be £50 or less.

• Reason: It can’t be a reward for work or performance.

• Non-Cash: It can’t be cash or cash vouchers.

• Director Limit: Directors of close companies have an annual cap of £300.

Common examples include small gifts like a bottle of wine, chocolates, or a meal out. Trivial benefits are a great way to show appreciation while remaining tax-efficient!

💰 Optimised Director Pay: 2025/26

✅ Option 1: Stay in the Basic Tax Bracket (£50,270)

Take:

• £12,570 salary (tax-free)

• £37,700 in dividends

Pay:

• Just £3,255 in tax

Keep:

• £47,015 in your bank account

💡 Why this works: You avoid higher tax rates and don’t pay any National Insurance.

✅ Option 2: Take £100,000 (Salary + Dividends)

Take:

• £12,570 salary

• £87,430 in dividends

Pay:

• Around £20,927 in tax

Keep:

• £79,073 after tax

💡 Why this works: This lets you take a bigger income, but you’ll hit higher tax bands.

✅ Option 3: Take £150,000 in (Salary + Dividends)

Take:

• £12,570 salary

• £137,430 dividends

Pay:

• Around £46,389 in tax (mostly dividend tax at 33.75% and 39.35%)

Keep:

• £103,611 after tax

💡 Why this works: It’s simple and gets you the full £150k now - but you'll move into the higher and additional tax bands, so the tax hit is bigger.

⚠️ Extra Tip:

Once your total income passes £100,000, your personal allowance starts to disappear - this can lead to an effective tax rate of 60% between £100,000 and £125,140.

💼 Pension contributions are a great way to dodge this and reinvest tax-free.

🚀 What’s the Best Mix?

Most directors benefit from a blend:
✔️ Low salary
✔️ Dividends when profit allows
✔️ Pension contributions to build wealth
✔️ Carefully chosen perks

The goal is to stay compliant, minimise tax, and make the most of what your company can offer.

📞 Need help working it out?
Let Profit & Growth Accountants simplify it. We’ll show you what works for you, keep you compliant, and help you make the most of your hard work - without drowning in paperwork.