How to Pay Yourself as a Director: Salary vs Dividends (UK 2024/25 Guide)
If you’re running a UK limited company, one of the first questions you’ll face is: how should I pay myself, salary, dividends or both? Choosing the right method can make a big difference to your tax bill, your cashflow and your long-term financial planning.
Below is a simple, up-to-date guide to the two main ways directors can take money out of a limited company.
Paying Yourself a Director’s Salary
Directors can take a salary through PAYE. If this is your first time paying employees, your company must register as an employer with HMRC.
Benefits of taking a salary
- It’s a tax-deductible expense for the company.
- Provides a regular, predictable income.
- Helps you build qualifying years for state pension and benefits.
- Doesn’t depend on company profits.
Most director-shareholders take a low salary to stay within tax-efficient thresholds, then top up their income with dividends.
What you need to run payroll
- PAYE registration
- Payroll software and RTI submissions
- National Insurance considerations
- Pension auto-enrolment (if required)
Paying Yourself Dividends
Dividends are payments made to shareholders from after-tax profits. You must be a shareholder to receive them, and the company must have enough retained profit to justify the payment.
Why dividends are popular
- No National Insurance is due.
- Lower tax rates than salary.
- Flexible and often the most tax-efficient way to extract profits.
Dividend tax rates for 2024/25
- Dividend Allowance: £500
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
Dividends also require formalities such as a board meeting and a dividend voucher.
Salary vs Dividends: What’s the Best Option?
For many directors, the most tax-efficient approach is a small salary plus dividends. However, your decision may depend on:
- Company profitability (dividends require profit)
- Mortgage applications (some lenders prefer salary)
- Cashflow
- Multiple directors/shareholders (needs formal agreements)
To avoid mistakes and unexpected tax bills, speak to an accountant before deciding on your pay structure.
Need Advice on the Most Tax-Efficient Way to Pay Yourself?
Choosing the right combination of salary and dividends can save you thousands over time. Blue Rocket Accounting can help you understand your options and design a structure that works for both you and your business.
Get in touch for a free, no-obligation consultation.
Call us on 01322 555442 or use our contact form here >>
