Salary and Dividend Strategy for Directors

Steven Hemp from GLX Advisory sits next to Jo Leonard from GLX Accounting at the boardroom table talking to someone off-camera. Glenn Matthews from GLX Advisory can be seen in the blurred background.

If you’re a company director, your salary and dividend strategy can make a significant difference to how much tax you pay and how much income you take home. Now that the new tax year is underway, it’s a great time to review whether your current approach is still the most tax-efficient option.

Why Your Income Structure Matters

By balancing salary and dividends, many directors can significantly reduce their tax and National Insurance liability. In fact, with the right strategy, you could take home approximately £46,700 from a total income of £50,270, while keeping your tax and NICs to just £4,260.

Here’s what that might look like:
– Salary of £12,570 with no income tax, but around £293 in employee NIC and £712 in employer NIC which helps protect your state benefits.
– Dividends of £37,700, £500 of which is tax-free using the dividend allowance, and 8.75% tax on £37,200 which equals £3,255.
– Total tax and NIC paid: £4,260*
– Take home pay of approximately £46,700* from a total income of £50,270.

*Simplified figures

Why This Strategy Works

Dividends aren’t subject to National Insurance, which is why a well-structured salary and dividend strategy for directors can be so tax-efficient. Splitting income between the two can lower your overall tax bill compared to taking the full amount as salary.

Other important considerations:
– Staying below the £60,000 threshold ensures you retain your full Child Benefit entitlement.
– Employment Allowance can reduce employer NIC by up to £10,500 but isn’t available if you’re the sole director on payroll. It can help if you have other employees, even temporarily.
– Employer NIC paid on salary is an allowable business expense, so it reduces your company’s taxable profits and corporation tax liability. For example, £712 NIC reduces your corporation tax bill by up to £178 (at 25% rate).

Tailoring your salary and dividend strategy

For many directors this is likely the most tax-efficient position. However it’s important to tailor remuneration to your individual circumstances. If you have other income streams such as rental income or pensions this can affect your overall tax position and the best strategy for you. It’s not a one-size-fits-all solution.

For tailored advice for your salary and dividend plan for 2025/26, speak to the GLX team today on 01603 671361 or email info@glx.co.uk