This guide covers the accounting essentials from startup to an established business: what to budget for, how to record costs and when to review your tax position.

Three priorities for your business finances

1. Choose how the business will trade

A sole trader business can be a straightforward starting point. A limited company is a separate legal entity with additional filing and administrative responsibilities. The choice should reflect your risks, expected profits and plans; incorporation does not automatically mean less tax.

If starting with someone else, agree ownership, responsibilities and how profits will be shared. Set up suitable banking and accounting records from the outset.

2. Budget for the setup and ongoing costs

• Equipment: grooming tables, baths, dryers and clippers; for day care, secure enclosures, gates and cleaning equipment. Include delivery and installation.
• Premises: rent, deposit, fit-out, service charges, utilities and business rates where payable.
• Running costs: products, insurance, software, marketing, relevant licences and staffing. Allow cash for quieter opening months.

For dog day care in England, check local council licensing requirements before committing to premises. Rules elsewhere in the UK differ.

Accounting point: a refundable rent deposit is normally an asset, not an immediate expense. Keep receipts for costs incurred before opening too; qualifying pre-trading expenses may attract tax relief.

3. Compare new and second-hand equipment

The tax treatment depends on your structure and accounting method: equipment may be deductible as an expense or qualify for capital allowances. VAT recovery is separate. A private seller does not charge VAT to reclaim, and a margin-scheme invoice does not provide recoverable purchase VAT.

4. Renting a grooming table or station

Renting space within an existing salon may reduce the cost of starting out. Letting a spare station can also create income for an established owner.

• Agree the rent, what it includes, notice terms and responsibility for insurance and repairs.
• Confirm who sets prices, books customers, invoices them and collects payment.
• Keep rental income and costs clearly identified, and check the VAT treatment of the package.

A “rent a chair” agreement does not automatically establish self-employment. The contract and working practices must be considered together. Have the accounting and tax position checked before starting.

5. Build a reliable bookkeeping routine

Record cash, card payments, retail sales and refunds. A bank feed alone may miss the detail.

If a customer pays £60 and the card provider transfers £58.80, record the £60 receipt and £1.20 fee separately, with any VAT treated correctly.

• Reconcile bookings to payments.
• Identify deposits and prepaid day-care packages.
• Keep invoices and separate personal spending.

Xero and Hubdoc can help organise your records. Agree how advance payments should be treated: accounting and VAT timing can differ.

6. Review expenses, VAT and Making Tax Digital

Claim the right business expenses

Business products, rent, insurance, software and staff costs may be allowable. Mixed personal and business costs need apportioning. A sole trader’s own withdrawals are drawings, not a deductible wage.

Monitor VAT turnover each month

VAT registration is normally required when taxable turnover exceeds £90,000 over a rolling 12 months, or is expected to exceed £90,000 in the next 30 days alone. This is based on turnover, not profit.

At the standard 20% rate, a £60 VAT-inclusive sale means £50 revenue and £10 VAT. Review customer prices alongside eligible purchase VAT. Our VAT service can help with registration and returns.

Compare the Flat Rate Scheme

Under the VAT Flat Rate Scheme (FRS), you charge VAT normally but pay HMRC a percentage of VAT-inclusive turnover. You generally cannot reclaim purchase VAT, except on certain qualifying capital assets.

Businesses with limited qualifying goods costs may need the 16.5% rate, subject to any applicable first-year discount. Rent and services do not count as qualifying goods. Check eligibility, the relevant business category and your purchases before assuming FRS saves money.

Check which MTD rules apply

MTD for VAT generally requires digital records and compatible filing software for VAT-registered businesses, unless exempt. MTD for Income Tax is separate and applies to eligible sole traders and landlords according to qualifying income. Our MTD guide explains the thresholds and timetable.

7. Use your accounts to manage the next stage

Review profit and cash together. Groomers can compare income with appointment hours; day-care owners can compare attendance with staffing costs, within safe and licensed capacity.

• Estimate tax and reserve cash for payment.
• Check affordability before hiring or expanding.
• Review how you take money from the business.

Company salary, dividends and director’s loans need different treatment. Staff bring payroll and workplace pension responsibilities. Regular management accounts can help you plan these decisions.

Frequently asked questions

Guidance reviewed 10 October 2026. Treatment depends on your circumstances. Official sources: business expenses, pre-trading costs, capital allowances, VAT registration, FRS, employment status, MTD for VAT and MTD for Income Tax.

Photography: Buddy AN, Alvan Nee and Joe Caione on Unsplash.

25 September 2026

Limited company dividends are a common way for directors who own shares to take money from their business, often alongside salary.

However, moving money from the company bank account into your personal account does not automatically make it a valid dividend.

There are rules around available profits, Corporation Tax, personal tax, paperwork and who is actually entitled to receive payments.

The rules have also changed for the 2026/27 tax year, with higher tax rates applying to dividend income from 6 April 2026.

At Smart Accountants Sussex & Surrey, we are based in Dorking and work with company directors throughout Surrey and Sussex, including Reigate, Redhill, Epsom, Tadworth and the surrounding areas.

This guide explains 10 important things company directors should consider before taking profits from their limited company.

The Short Answer

A company director who is also a shareholder can normally receive dividends provided the company has sufficient profits available for distribution.

The amount you can safely take is not determined by the company’s bank balance alone.

You also need to consider Corporation Tax, previous profits and losses, amounts already withdrawn and your own personal tax position.

For 2026/27, the Dividend Allowance remains £500. Dividend income above the allowance may be taxed at 10.75%, 35.75% or 39.35%, depending on your overall income.

If you would like help working out how much you can take, get in touch.

Key Takeaways

• Dividends can only be paid to shareholders.
• The company must have sufficient distributable profits.
• Cash in the bank does not automatically mean profits are available.
• Corporation Tax should be considered before profits are distributed.
• Dividends do not reduce the company’s Corporation Tax bill.
• The Dividend Allowance for 2026/27 is £500.
• The basic dividend tax rate increased to 10.75% from 6 April 2026.
• Regular monthly payments are possible, but the company’s profits still need to support them.
• Incorrect withdrawals can result in an overdrawn Director’s Loan Account.
• The most appropriate combination of salary and shareholder payments depends on both the company and the individual director.

Tax Rates on Limited Company Dividends for 2026/27

For the tax year from 6 April 2026 to 5 April 2027:

The basic and higher dividend tax rates increased from 6 April 2026.

The additional rate remains at 39.35%.

1. Being a Director Does Not Automatically Mean You Can Receive a Dividend

Dividends are paid to shareholders, not directors.

In many small limited companies the same person is both a director and shareholder, which is why the two are often treated as interchangeable.

However, it is ownership of shares that gives someone the right to receive a distribution of company profits.

A director who does not own shares would not normally be entitled to receive one, while someone can be a shareholder without being a director.

Before making payments, check who owns the shares and what rights are attached to each share class.

This becomes particularly important where a company has more than one shareholder or different classes of shares.

If shareholders hold the same class of shares, dividends will normally be paid in proportion to the number of shares each holds.

2. The Company Must Have Sufficient Profits Available

Having £50,000 sitting in the company bank account does not necessarily mean you can withdraw £50,000 as profit.

A limited company can only make distributions from profits legally available for that purpose. This requirement is set out in section 830 of the Companies Act 2006

This can include retained profits from previous years as well as profits generated during the current accounting period.

Losses reduce the amount available.

For example:

This simple example ignores other adjustments and payments already made, but demonstrates why the bank balance and the amount legally available to shareholders can be very different.

Keeping your bookkeeping reasonably up to date is therefore particularly important if you regularly take money from the business.

3. Corporation Tax Needs to Be Considered Before Profits Are Distributed

Corporation Tax normally needs to be allowed for before deciding what can safely be withdrawn.

For the financial year beginning 1 April 2026, the Corporation Tax rates remain:

• 19% for companies with profits up to £50,000
• 25% for companies with profits above £250,000
• Marginal Relief may apply between these limits

These thresholds can also be reduced where a company has associated companies.

Therefore, if a business has made £50,000 of taxable profit, this does not necessarily mean the full £50,000 is available to shareholders.

The expected Corporation Tax liability should be taken into account first.

You can read more about this in our guide to Corporation Tax Rates for Limited Companies.

4. Payments to Shareholders Do Not Reduce Corporation Tax

This is one of the key differences between salary and dividends.

Salary and certain related employment costs will generally reduce a company’s taxable profit.

Limited company dividends do not reduce the company’s taxable profit for Corporation Tax.

They are paid from profits after Corporation Tax and cannot simply be entered as another business expense to reduce the company’s tax bill.

This is why the most tax efficient way of taking money from a limited company usually requires looking at the overall picture.

For many directors, this will involve considering salary, shareholder distributions and potentially employer pension contributions together.

Our Company Director Salary Guide explains this area in considerably more detail.

5. The Dividend Allowance Is Only £500 for 2026/27

The Dividend Allowance remains £500 for the 2026/27 tax year.

This means that £500 of qualifying dividend income can fall within a 0% tax rate.

However, the allowance does not mean that £500 simply disappears from your overall income.

It still forms part of your income when determining which tax bands apply.

Once the allowance has been used, the tax rates for 2026/27 are:

For directors taking significant amounts from their businesses, a £500 allowance is relatively small.

It is therefore important to consider the potential personal tax bill before drawing larger amounts from the company.

6. Your Personal Tax Rate Depends on Your Other Income

The tax due cannot be calculated by looking at company distributions in isolation.

Your other taxable income needs to be considered as well.

This could include:

• Salary
• Rental income
• Pension income
• Self employed profits
• Savings interest
• Income from other investments

For 2026/27, the standard Personal Allowance remains £12,570.

For taxpayers in England, Wales and Northern Ireland, the higher rate threshold remains £50,270 where the full Personal Allowance is available.

For example, assume a director receives:

The salary would normally be covered by the Personal Allowance.

Of the £20,000 dividends, £500 would fall within the Dividend Allowance and the remaining £19,500 would be taxed at 10.75%.

This gives a personal tax bill of approximately £2,096.

The cost can rise considerably once total income starts entering the higher rate band.

Directors should also be particularly careful where total income approaches £100,000, as the Personal Allowance begins to be withdrawn above this level.

Not Sure How Much You Can Safely Take From Your Company?

The right answer depends on your company’s profits, Corporation Tax position, salary and other personal income.

We help limited company directors in Dorking and across Surrey and Sussex review their position before money is withdrawn.

If you are unsure how much you should take from your company, book a free, no obligation discovery call to discuss your circumstances.

BOOK A FREE DISCOVERY CALL

7. Dividends Do Not Attract National Insurance

Payments made to shareholders as genuine dividends are not subject to employee or employer National Insurance.

This is one reason why a combination of salary and profit distributions has traditionally been popular with owner managed limited companies.

However, this does not automatically mean that taking the lowest possible salary and everything else as a distribution is always the best answer.

Other factors can include:

• Corporation Tax relief on salary
• National Insurance contribution records
• Employment Allowance
• Pension contributions
• Other personal income
• Benefits and other remuneration

The appropriate mix therefore depends on both the company’s circumstances and the individual director’s wider tax position.

8. The Correct Paperwork Still Needs to Be Completed

Simply transferring money from the company bank account and writing “dividend” in the payment reference is not enough on its own.

The company should properly record the decision to distribute profits.

This would normally include:

• A record of the directors’ decision
• A dividend voucher
• The date
• The company name
• The shareholder receiving the payment
• The amount paid

Even a company with only one director should maintain appropriate records.

The paperwork helps demonstrate that the payment was intended to be a distribution to a shareholder rather than salary, expenses or an amount taken through the Director’s Loan Account.

Good records can become particularly important if the company’s treatment of payments is later questioned.

You can also see the government’s guidance on taking money out of a limited company

9. Regular Payments Are Possible, but the Company’s Position Still Needs Checking

Many owner managed companies make payments to shareholders monthly or quarterly.

There is nothing inherently wrong with this.

The issue arises when the same amount is transferred every month without checking whether the company still has sufficient available profits.

A business can change quickly.

It may lose a major customer, incur unexpected costs or enter a quieter trading period.

If profitability falls, the amount available to shareholders can also fall.

Many of the owner managed businesses we work with in Dorking and across Surrey take money from their companies regularly throughout the year, which makes keeping the bookkeeping reasonably up to date particularly important.

Last year’s accounts may show significant retained profits, but that does not automatically mean the same position exists today.

10. Taking Too Much Money Can Create a Director’s Loan Account Problem

If a director takes money from the company and it cannot properly be treated as salary, expenses, repayment of money already owed to them or a valid distribution, the amount may instead be recorded through the Director’s Loan Account.

Depending on the circumstances, the director may owe that money back to the company.

If a loan to a director who is also a shareholder remains outstanding nine months and one day after the end of the company’s accounting period, a Section 455 Corporation Tax charge may arise.

For relevant loans made on or after 6 April 2026, the Section 455 rate is 35.75%.

The government’s technical note on the 2026 dividend rate changes

The company may later be able to reclaim this tax once the loan is genuinely repaid, subject to the relevant rules and timing.

However, an overdrawn loan account can create unnecessary tax, cash flow and administration problems.

In practice, one of the common problems we see is directors withdrawing regular amounts throughout the year and only considering whether sufficient profits were available when the annual accounts are prepared.

This is why taking money first and deciding to “call it a dividend later” is not a good approach.

Limited company dividends need to be supported by sufficient distributable profits when they are declared.

How Much Should a Company Director Take From Their Limited Company?

There is no single figure that works for every company director.

Before deciding how much to withdraw, it is sensible to consider:

• The company’s available profits
• Expected Corporation Tax
• Your salary
• Amounts already taken during the tax year
• Any other personal income
• Your Income Tax band
• Whether your total income is approaching £100,000
• Pension contributions
• Future business costs
• The company’s cash requirements

Two directors running businesses with exactly the same profit could therefore have very different optimal strategies.

The important point is to consider both the company’s financial position and the personal tax consequences together.

Frequently Asked Questions About Limited Company Dividends

1. How Much Can I Take From My Limited Company as a Dividend?

You can generally take up to the amount of profits legally available for distribution.

You cannot determine this simply by looking at the company’s bank balance. Corporation Tax, previous losses and amounts already paid to shareholders all need to be considered.

2. Can I Take Dividends Every Month?

Yes.

A company can make interim distributions regularly, including monthly, provided sufficient profits are available each time.

The company should also maintain the appropriate records and supporting paperwork.

3. Do I Pay Tax on Dividends From My Limited Company?

Potentially.

For 2026/27, the Dividend Allowance is £500.

Income above this allowance may be taxed at 10.75%, 35.75% or 39.35%, depending on your overall taxable income.

4. Are Dividends Better Than Salary?

Not always.

They do not attract National Insurance, but they also do not reduce the company’s Corporation Tax bill.

For many owner managed companies, the most appropriate solution is a combination of salary and shareholder distributions rather than relying entirely on one method.

5. Can I Take Money From the Company if It Made a Loss?

Potentially, provided the company has sufficient retained profits from previous years.

However, if accumulated losses mean there are no distributable reserves available, the company cannot make a valid dividend simply because cash is sitting in the bank.

6. Are Dividends a Business Expense?

No.

Dividends are distributions of company profits and do not reduce the company’s taxable profit for Corporation Tax purposes.

They are paid after Corporation Tax has been taken into account.

7. What Happens if I Take More Than the Company Can Legally Pay?

The payment may not be a valid dividend.

Depending on the circumstances, it could need to be repaid or may instead be treated as an amount owed to the company through the Director’s Loan Account.

This can result in additional tax consequences.

8. Do I Need to Report Dividends to HMRC?

It depends on the amount received and your wider tax circumstances.

People already completing a Self Assessment tax return would normally include their dividend income on the return.

In some other circumstances, HMRC may be able to collect tax without requiring a full tax return.

If you are unsure whether your income needs to be reported, check the position with HMRC or your accountant.

Need Help Deciding How to Take Money From Your Company?

The most appropriate way to take money from a limited company will depend on the company’s profits, your salary, Corporation Tax, other personal income and your wider plans.

Smart Accountants Sussex & Surrey is based in Dorking and works with limited company directors in Reigate, Redhill, Epsom, Tadworth and throughout Surrey, Sussex and the surrounding areas.

We help business owners understand their company finances, Corporation Tax and the different options available when taking money from their business.

Rather than simply recommending a standard salary and dividend figure, we look at both the company’s financial position and your personal circumstances.

If you would like us to review your position, book a free, no obligation discovery call.

BOOK A FREE DISCOVERY CALL

Tax rules depend on individual circumstances and can change. This article provides general information based on the rules applying for the 2026/27 tax year at the time of writing and should not be treated as individual tax advice.

Updated for the 2026/27 Tax Year

This guide has been reviewed for the 2026/27 tax year and reflects the current company tax rules, including:

Corporation Tax rates
Marginal Relief
Associated company rules
Quarterly Installment Payments
Corporation Tax payment deadlines

Understand exactly how much Corporation Tax your limited company is likely to pay

Wondering whether your company will pay Corporation Tax at 19% or 25%?

The answer depends on more than just your profits.

Your company’s tax rate can also be affected by Marginal Relief, associated companies, your accounting period and, in some cases, when you pay yourself as a director.

This guide explains everything you need to know in straightforward English, helping you understand how company tax works, when it is due and the legitimate ways you may be able to reduce your company’s tax bill.

Corporation Tax at a Glance

Key Takeaways

Before we look at the detail, here are the main points every company director should know.

• Companies with lower profits will usually pay tax at 19%.
• Companies with higher profits will usually pay tax at 25%.
• Businesses between these limits may qualify for Marginal Relief.
• The profit limits are reduced if you have associated companies or a short accounting period.
• Paying yourself a salary generally reduces your company’s tax bill.
• Dividends do not reduce Corporation Tax.
• Larger companies may need to pay their tax by Quarterly Installment Payments.
• Planning before your year end can often reduce your company tax bill legally.

What is Corporation Tax?

Limited companies pay tax on their taxable profits.

Unlike Income Tax, which is paid by individuals, Corporation Tax is paid by the company itself.

At Smart Accountants Sussex & Surrey, we provide year-round tax planning, annual accounts, tax returns and business advice for limited companies. Learn more about our Accounting Services.

Taxable profits can include:

• Trading profits
• Investment income
• Chargeable gains on business assets

After Corporation Tax has been paid, the remaining profits can usually be retained within the company or distributed to shareholders as dividends.

If you operate as a sole trader or partnership, you do not pay Corporation Tax. Instead, you pay Income Tax through Self Assessment.

What rate of Corporation Tax will my company pay?

This is one of the most common questions we receive from business owners.

The answer depends mainly on:

• Your company’s taxable profits.
• Your augmented profits (broadly, taxable profits plus most exempt distributions received).
• Whether you have any associated companies.
• Whether your accounting period is shorter than 12 months.

For most businesses, there are three possible outcomes.

*These limits apply to a 12 month accounting period for a company with no associated companies. If your accounting period is shorter than 12 months, or you have associated companies, these thresholds are reduced.

You can also view the latest official HMRC Tax rates and allowances for the current tax year. HMRC Corporation Tax rates and allowances

Although these are the headline rates, many companies do not simply pay either 19% or 25%. That’s because Marginal Relief gradually increases the effective tax rate as profits rise between the lower and upper thresholds.

In the next section, we’ll explain exactly how Marginal Relief works, why associated companies matter and how both can affect the amount of tax your business pays.

How does Marginal Relief work?

One of the biggest misconceptions about company tax is that companies move straight from paying 19% to 25%.

Fortunately, that’s not how the system works.

If your company’s profits fall between the lower and upper profit limits, you may qualify for Marginal Relief. This relief gradually increases the effective rate of tax as profits rise, rather than applying a sudden increase.

For most business owners, the important point is simple:

• Profits at the lower end of the band will be closer to the 19% rate.
• As profits increase, the effective tax rate gradually rises.
• Once the upper profit limit is reached, the company will generally pay the full 25% Main Rate.

The calculation itself is more complex than a simple percentage. It takes account of your taxable profits, augmented profits and any adjusted thresholds that apply because of associated companies or shorter accounting periods.

Fortunately, you don’t need to calculate this yourself. Your accountant or software will calculate any Marginal Relief automatically.

Worked example

Let’s assume each company has a 12 month accounting period and no associated companies.

These examples are intended to demonstrate how the rules work. The actual amount of Corporation Tax payable depends on your individual circumstances.

If you’d like to see the official rules or use HMRC’s calculator, visit the HMRC Marginal Relief guidance. HMRC Marginal Relief guidance

What are associated companies?

Associated companies are one of the most important company tax rules for growing businesses, yet they’re often overlooked.

Broadly speaking, companies are associated where:

• One company controls another, or
• The same person, or group of people, controls more than one company during the relevant period.

This isn’t something you can choose. It’s determined by tax legislation and can significantly affect the amount of tax your companies pay.

Why do associated companies matter?

The profit thresholds are designed for a single company.

If you have associated companies, those thresholds are generally divided between them.

For example:

This means a company with profits of £90,000 could be paying a higher effective rate of tax than expected if it has associated companies.

The thresholds are also adjusted if your accounting period is less than 12 months.

Are all companies counted?

No.

Certain dormant companies and some passive 51% holding companies may be ignored when working out whether companies are associated.

If you operate more than one company, it’s worth obtaining professional advice to ensure the correct thresholds are being applied.

Common scenarios

The following examples answer some of the questions we hear most often from company directors.

“I only have one limited company.”

If your company has a standard 12 month accounting period and no associated companies, the standard profit thresholds will usually apply.

“I own two limited companies.”

The associated company rules may apply, meaning the profit thresholds are generally shared between the companies.

“My accounting period is only nine months.”

The profit thresholds are reduced to reflect the shorter accounting period, meaning Marginal Relief or the Main Rate could apply at lower profit levels.

“I’m not sure if my companies are associated.”

This is a common area of confusion, particularly where family members, business partners or group structures are involved. If you’re unsure, it’s worth taking advice before submitting your Corporation Tax return.

Quick tip

If your business is growing and you’re approaching the Marginal Relief band, don’t wait until your year end to review your tax position.

Planning ahead can often help you make informed decisions about salaries, pension contributions, capital expenditure and the timing of business transactions before your tax position is finalised.

If you’re unsure whether the associated company rules apply to your business, contact our team and we’ll be happy to review your company structure.

Does paying myself affect Corporation Tax?

Yes. How you pay yourself can affect both your company’s tax bill and your personal tax position.

Salary

Director salaries and bonuses are generally allowable business expenses, meaning they reduce your company’s taxable profits before Corporation Tax is calculated.

If a bonus is accrued at the year end, it generally needs to be paid (or credited to the director’s loan account) within nine months of the year end for the company to receive tax relief in that accounting period. Where required, the associated PAYE and National Insurance obligations must also be met.

Dividends

Dividends are different.

They are paid from profits after Corporation Tax has been calculated, so they do not reduce your company’s tax bill. Instead, shareholders may pay Dividend Tax personally, depending on their own tax position.

For many owner-managed businesses, the most tax-efficient approach is often a combination of salary and dividends.

If you’d like to learn more, read our guide: How Much Salary Should a Company Director Take in 2026/27?

How can I legally reduce my Corporation Tax bill?

Reducing your company’s tax isn’t about finding loopholes. It’s about understanding the rules and planning ahead.

Many of the best tax-saving opportunities need to be considered before your accounting period ends. Looking for more practical tax planning tips? Our Practical 2026/27 Tax Checklist for Limited Company Directors explains the key deadlines and actions every company director should consider throughout the year.

Some of the most effective ways to reduce your company’s Tax bill include:

• Claiming every allowable business expense.
• Paying a tax-efficient director’s salary. Our guide to How Much Salary Should a Company Director Take in 2026/27 explains how to find the right balance between salary and dividends.
• Making employer pension contributions.
• Purchasing qualifying business equipment and claiming available capital allowances.
• Reviewing whether bonuses should be paid before the year end.
• Timing significant expenditure where appropriate.
• Carrying out pre year end tax planning.

One of the biggest mistakes we see is directors waiting until their accounts are prepared before asking how they can reduce their Corporation Tax bill.

By then, many opportunities have already passed.

Practical example

Imagine your company expects taxable profits of around £95,000 before the year end.

Rather than waiting until the accounts are prepared, you might review whether:

• An employer pension contribution would be appropriate.
• New equipment could be purchased before the year end.
• A director’s bonus should be paid.
• Any outstanding business expenses have been claimed.

Small decisions made before the year end can often make a significant difference to the final company tax bill.

One of the easiest ways to reduce Corporation Tax is by claiming every allowable business expense. If you’re unsure which tax-saving opportunities are available to your company, our team can help. Get in touch through our Contact Us page to arrange a pre year end Corporation Tax review.

When is Corporation Tax due?

For most small and medium-sized companies, Corporation Tax is payable nine months and one day after the end of the accounting period.

For example:

Your tax return is generally due 12 months after the end of the accounting period. If you’re unsure what information needs to be included, read our Plain-English Guide to Limited Company Tax Returns for a step-by-step explanation of the filing process.

Although these are the standard deadlines, companies that fall within the Quarterly Instalment Payment rules will usually pay their Corporation Tax much earlier.

Missing either deadline can result in interest charges and, in some cases, penalties from HMRC.

HMRC also provides official guidance on Tax rates, payment deadlines and available reliefs. HMRC Corporation Tax rates, expenses and reliefs

Key takeaway

Don’t confuse the Corporation Tax payment deadline with the filing deadline.

Most companies need to pay their Corporation Tax nine months and one day after the year end, but have up to 12 months to submit the company tax return itself.

What are Quarterly Instalment Payments (QIPs)?

Most limited companies pay Corporation Tax in a single payment after their accounting year end.

However, larger companies may need to pay their tax throughout the year under the Quarterly Instalment Payment (QIP) regime.

Broadly speaking, this applies where taxable profits exceed £1.5 million, although this threshold is reduced if:

• Your accounting period is shorter than 12 months.
• You have associated companies.

Very large companies, broadly those with taxable profits of £20 million or more, are subject to accelerated payment rules, meaning Corporation Tax is paid even earlier.

If your company is growing rapidly or forms part of a group structure, it’s worth reviewing these rules well before your year end, as Quarterly Instalment Payments can have a significant impact on cash flow.

Common mistakes business owners make

Corporation Tax has become more complex over recent years, and we regularly see directors making the same avoidable mistakes.

Some of the most common include:

• Assuming every company pays tax at 25%.
• Forgetting that associated companies reduce the profit thresholds.
• Believing dividends reduce Corporation Tax.
• Waiting until after the year end to carry out tax planning.
• Missing allowable business expenses.
• Not considering employer pension contributions.
• Forgetting that larger companies may need to pay tax quarterly.

Fortunately, most of these mistakes can be avoided by reviewing your tax position before your accounting year ends.

At Smart Accountants Sussex & Surrey, we encourage clients to carry out a pre year end tax review so opportunities can be identified while there is still time to act.

Final thoughts

Understanding Corporation Tax is about much more than knowing whether your company pays 19% or 25%.

Your final company tax bill can be affected by:

• Your taxable and augmented profits.
• Whether Marginal Relief applies.
• Associated companies.
• Your accounting period.
• How and when you pay yourself.
• Tax planning decisions made before your year end.

The good news is that, with the right advice and forward planning, there are often legitimate opportunities to reduce your tax bill while remaining fully compliant with HMRC’s rules.

At Smart Accountants Sussex & Surrey, we work with company directors across a wide range of industries, helping them understand their company tax position, avoid unexpected tax bills and make informed decisions throughout the year.

Not sure where to start? Our article on 6 Powerful Reasons Every Small Company Director Needs a Pre-Year-End Review explains why reviewing your tax position before your year end could save your company thousands of pounds.

Whether you’re starting your first limited company or running an established business, we’re here to help.

Book a pre year end Corporation Tax review

If you’d like to know:

• How much tax your company is likely to pay.
• Whether Marginal Relief applies.
• If your companies are associated.
• Whether Quarterly Instalment Payments could affect you.
• How to reduce your company’s tax bill legally before your year end.

Company tax planning is only one part of running a tax-efficient limited company. You may also find our guide to How Much Salary Should a Company Director Take in 2026/27 useful if you’re deciding how to pay yourself from your business.

Every business is different, and the right company tax strategy depends on your company’s circumstances. If you’d like tailored advice or a pre year end tax review, contact Smart Accountants Sussex & Surrey today. We’d be delighted to help you minimise your tax bill while remaining fully compliant with HMRC.

A short tax planning meeting before your year end could save your company thousands of pounds in tax.

Frequently Asked Questions

What rate of Corporation Tax will my limited company pay?

Most limited companies will pay tax at either the 19% Small Profits Rate, the 25% Main Rate or an effective rate between the two where Marginal Relief applies. The exact rate depends on your taxable profits, augmented profits, associated companies and the length of your accounting period.

What are augmented profits?

Augmented profits are broadly your company’s taxable total profits plus most exempt distributions received, such as dividends from other companies. They are used when determining whether Marginal Relief applies.

What is Marginal Relief?

Marginal Relief gradually increases the effective tax rate between the Small Profits Rate and the Main Rate. Although the calculation is complex, your accountant or Corporation Tax software will calculate it automatically.

What are associated companies?

Associated companies are companies under common control. Where companies are associated, the Corporation Tax profit thresholds are generally shared between them, meaning higher rates of tax may apply sooner.

Does paying myself a salary reduce Corporation Tax?

Usually, yes. Director salaries and bonuses are generally deductible business expenses, reducing your company’s taxable profits before Corporation Tax is calculated.

Do dividends reduce Corporation Tax?

No. Dividends are paid from profits after Corporation Tax has been calculated, so they do not reduce your company’s tax bill.

When is Corporation Tax due?

For most companies, Corporation Tax must be paid nine months and one day after the end of the accounting period. The Corporation Tax return itself is generally due 12 months after the accounting period ends.

Which companies pay Corporation Tax quarterly?

Broadly, companies with taxable profits above £1.5 million pay Corporation Tax by Quarterly Instalment Payments. The thresholds are adjusted for associated companies and shorter accounting periods, while very large companies are subject to accelerated payment rules.

Should I speak to an accountant before my year end?

Yes. Most company tax planning opportunities need to be considered before your accounting year ends. Waiting until your accounts have been prepared can mean valuable tax-saving opportunities have already been missed.

Disclaimer

Tax legislation changes regularly. Although this guide has been reviewed for the 2026/27 tax year, you should always seek professional advice before making decisions based on your own circumstances. You can also find the latest official guidance on the HMRC website

The Short Answer

Choosing the right company director salary is one of the most common questions we’re asked by both new and established business owners. If you’re wondering how much you should pay yourself in 2026/27, you’re not alone.

The right company director salary depends on your business, your personal circumstances and your long-term goals.

The salary you take can affect far more than the money that arrives in your personal bank account each month. It influences your Income Tax, National Insurance, Corporation Tax, State Pension entitlement and the amount of profit available to withdraw as dividends. It can even affect mortgage applications and your company’s future cash flow.

For many owner-managed limited companies, the most tax-efficient approach is a combination of salary and dividends. However, the right balance depends on your company’s profits, your personal circumstances and your long-term financial goals.

In this guide, we’ll explain how director remuneration works, compare salaries and dividends, look at the tax implications, highlight common mistakes and show you how to decide on the most appropriate remuneration strategy for your business.

Whether you’re starting your first limited company or reviewing your existing remuneration, this guide will help you make a more informed decision.

There is no single “correct” salary for every company director.

The most tax-efficient remuneration strategy depends on several factors, including:

• Your company’s expected profits.
• Whether you qualify for Employment Allowance.
• Any other taxable income you receive.
• Your pension planning.
• Whether you intend to take dividends.
• Your future personal and business goals.

For that reason, your salary should normally be reviewed every tax year rather than simply leaving it unchanged.

Key Takeaways

If you only remember five things from this guide, make them these:

• There isn’t one perfect salary.
• Most directors benefit from a combination of salary and dividends.
• Your salary affects Income Tax, National Insurance, Corporation Tax and your State Pension entitlement.
• Paying the lowest possible salary isn’t always the most tax-efficient option.
• Review your remuneration every tax year.

Introduction

One of the first questions almost every company director asks is:

“How much should I pay myself?”

It’s a simple question, but the answer depends on far more than the current tax thresholds.

Unlike a sole trader, a limited company is a separate legal entity. That means you can’t simply withdraw money whenever you like without considering how it’s is treated for tax and accounting purposes.

The way you pay yourself can affect:

• Your personal Income Tax and National Insurance.
• Your company’s Corporation Tax bill.
• Your entitlement to the State Pension.
• The amount available to distribute as dividends.
• Your ability to obtain a mortgage or other borrowing.
• Your company’s cash flow and future growth plans.

At Smart Accountants Sussex & Surrey, we work with company directors across Dorking, Leatherhead, Reigate, Redhill, Epsom, Tadworth, Horley, Worthing and the surrounding areas. Rather than recommending a generic figure, we look at both the company’s financial position and the director’s personal objectives before providing advice.

Throughout the rest of this guide, we’ll explain how salaries, dividends, National Insurance and Corporation Tax work together, helping you understand not just how much salary you should take, but why that amount is right for your circumstances.

1. Why Your Director’s Salary Matters

One of the first questions almost every company director asks is:

“How much should I pay myself?”

It’s a simple question, but the answer depends on far more than the current tax thresholds.

Unlike a sole trader, a limited company is a separate legal entity. That means you can’t simply withdraw money whenever you like without considering how it’s is treated for tax and accounting purposes.

The way you pay yourself can affect:

• Your personal Income Tax and National Insurance.
• Your company’s Corporation Tax bill.
• Your entitlement to the State Pension.
• The amount available to distribute as dividends.
• Your ability to obtain a mortgage or other borrowing.
• Your company’s cash flow and future growth plans.

At Smart Accountants Sussex & Surrey, we work with company directors across Dorking, Leatherhead, Reigate, Redhill, Epsom, Tadworth, Horley, Worthing and the surrounding areas. Rather than recommending a generic figure, we look at both the company’s financial position and the director’s personal objectives before providing advice.

Throughout the rest of this guide, we’ll explain how salaries, dividends, National Insurance and Corporation Tax work together, helping you understand not just how much salary you should take, but why that amount is right for your circumstances.

2. Salary vs Dividends – What’s the Difference?

As a company director, there are two main ways you can take money out of your limited company:

• Salary, which is paid through payroll.
• Dividends, which are paid from the company’s profits.

For many owner-managed businesses, the most tax-efficient approach is a combination of both. However, they work very differently, and understanding those differences is key to making informed decisions.

What Is a Salary?

A salary is paid to you as an employee of your company through PAYE (Pay As You Earn).

Even if you own 100% of the business, you can still be employed by your own company and receive a salary.

A salary:

• Is processed through payroll.
• May be subject to Income Tax and National Insurance.
• Is usually an allowable business expense, meaning it can reduce your company’s Corporation Tax bill.
• May help build qualifying years towards your State Pension.

Many directors choose to pay themselves a regular monthly salary because it provides a predictable income while also supporting their wider tax planning.

What Is a Dividend?

A dividend is a payment made to shareholders from the company’s profits.

Unlike a salary, you receive a dividend because you own shares in the business, not because you work for it.

Before a dividend can be paid, the company must have sufficient distributable profits available.

Dividends:

• Are not processed through payroll.
• Do not attract National Insurance.
• Do not reduce your company’s Corporation Tax bill.
• Must be properly declared and recorded.

Why Most Company Directors Use Both

Many new business owners assume they should take either a salary or dividends.

In reality, that’s rarely the most effective approach.

A carefully planned salary can reduce your company’s taxable profits while helping protect your National Insurance record.

Dividends can then be used to withdraw additional profits without creating further National Insurance liabilities.

The objective isn’t to choose one instead of the other—it’s to find the right balance for your individual circumstances.

A Practical Example

Imagine two company directors whose businesses generate exactly the same annual profit.

Director A takes everything as dividends.

Director B takes a modest salary through payroll before withdrawing the remaining profits as dividends.

At first glance, Director A may appear to pay less tax personally.

However, once Corporation Tax, National Insurance and the company’s overall tax position are taken into account, Director B may actually be better off overall.

This illustrates one of the most important principles of remuneration planning:

The aim isn’t to minimise one tax. It’s to minimise the combined tax paid by both you and your company.

Your remuneration should always be considered alongside your Limited Company Accounts and Corporation Tax position.

Don’t Look at Salary in Isolation

Your salary is just one part of your overall remuneration strategy.

The most appropriate balance between salary and dividends depends on several factors, including your company’s profitability, your personal income, pension planning and future financial goals.

If you’d like to understand how company profits are calculated before Corporation Tax, you may also find our guide to Limited Company Tax Returns (CT600) helpful.

If your business operates within the construction industry, our guide to the Construction Industry Scheme (CIS) explains the additional tax rules that contractors and subcontractors need to consider.

3. National Insurance and Corporation Tax Explained

Once you understand the difference between salaries and dividends, the next question is usually:

“So, how much salary should I actually take?”

The answer depends on more than just Income Tax.

Your salary also affects National Insurance, your company’s Corporation Tax bill and, in some cases, your future State Pension entitlement.

Rather than looking at each tax individually, it’s important to understand how they work together.

Why Tax Isn’t the Whole Story

Most people are familiar with Income Tax.

As your salary increases, the amount of Income Tax you pay may also increase once your available tax-free allowances have been used.

However, Income Tax is only one part of the calculation.

A salary that reduces your personal Income Tax bill isn’t necessarily the most tax-efficient outcome once National Insurance and Corporation Tax are taken into account.

National Insurance

National Insurance is often where company directors become confused.

Depending on the level of your salary, it may affect:

• Your entitlement to the UK State Pension.
• Whether employee National Insurance becomes payable.
• Whether your company pays Employer National Insurance.
• Whether Employment Allowance can be used.

This is why two company directors with very similar businesses can have completely different remuneration strategies.

You can find further information about National Insurance credits on the GOV.UK website.

Corporation Tax

Unlike dividends, salaries are generally an allowable business expense. This means your remuneration should be considered alongside your limited company accounts, as both have a direct impact on your company’s overall tax position.

That means paying a salary will usually reduce your company’s taxable profits before Corporation Tax is calculated.

Dividends work differently.

Because they are paid from profits after Corporation Tax has been calculated, they don’t reduce your company’s Corporation Tax bill.

Looking only at your personal tax position can therefore be misleading.

The most tax-efficient solution is usually the one that minimises the combined tax paid by both you and your company.

Further guidance on Corporation Tax is available on the GOV.UK website.

There isn’t one “perfect” salary. The right remuneration strategy minimises the combined tax paid by both you and your company, while also supporting your long-term financial goals.

Why There Isn’t a Perfect Salary

Many websites suggest there is one “correct” salary for every company director.

Unfortunately, it isn’t that simple.

The right salary depends on factors such as:

• Your company’s expected profits.
• Whether you have other employment or taxable income.
• Whether your company qualifies for Employment Allowance.
• Planned dividend payments.
• Pension contributions.
• Mortgage plans.
• Your wider personal and business goals.

This is why professional accountants don’t recommend exactly the same salary for every client.

Instead, they review each director’s circumstances before deciding on the most appropriate remuneration strategy.

Review Your Salary Every Year

A remuneration strategy shouldn’t be set once and forgotten.

Tax legislation changes.

Businesses grow.

Personal circumstances evolve.

Reviewing your salary each tax year helps ensure you’re still paying yourself in the most appropriate way while making the most of the available tax reliefs.

4. Choosing the Right Company Director Salary

By now, you’ve probably realised there isn’t a single salary that’s right for every company director.

If there were, every accountant would recommend exactly the same figure.

Instead, the most appropriate remuneration strategy depends on your business, your personal circumstances and your future plans.

When we advise clients, we don’t start by asking:

“How much do you want to pay yourself?”

Instead, we ask questions such as:

• How profitable is the business?
• Do you have any other income?
• Will you also be taking dividends?
• Are you planning to apply for a mortgage?
• Do you want to maximise pension contributions?
• Are you planning to leave profits in the company?

The answers to those questions help determine the most appropriate remuneration strategy.

Here are some common examples.

Starting Your First Limited Company

If you’re the sole director and shareholder of a new limited company, a combination of salary and dividends is often worth considering.

A carefully planned salary may:

• Reduce your company’s Corporation Tax bill.
• Help build qualifying National Insurance years.
• Provide a regular monthly income.

As the business grows and becomes more profitable, dividends can then be used to withdraw additional profits tax-efficiently.

Already Have Another Job?

Your remuneration strategy may be very different if you already receive a salary from another employer.

Your Personal Allowance, Income Tax bands and National Insurance position may already be affected by your existing employment.

Rather than looking at your limited company in isolation, it’s important to consider your overall income before deciding how much salary to take.

Running the Business With Your Spouse or Partner

Many family businesses are owned jointly.

Where both individuals genuinely work in the business, there may be opportunities to structure remuneration more efficiently by considering salaries, dividends and each person’s available tax allowances.

The right approach will depend on your company’s ownership structure and your family’s wider financial position.

When Your Business Starts Growing

A remuneration strategy that worked when your business first started may not remain appropriate as profits increase.

Growing businesses often benefit from reviewing:

• Salary levels.
• Dividend strategy.
• Pension contributions.
• Future investment plans.
• Cash flow requirements.

Reviewing your remuneration annually helps ensure it continues to support both your business and your personal financial goals.

If Profits Fall

Not every year goes according to plan.

If profits are lower than expected, your remuneration strategy may also need to change.

For example, there may be fewer profits available for dividends, or preserving cash within the business may become a greater priority.

Good remuneration planning isn’t just about reducing tax—it’s about supporting the long-term stability of your business.

Planning to Buy a Home?

Tax isn’t always the only consideration.

If you’re planning to apply for a mortgage, your remuneration strategy could affect how lenders assess your income.

Some lenders place greater emphasis on salary, while others also consider dividends and company profits.

If buying a property is one of your short-term goals, it’s worth reviewing your remuneration before submitting a mortgage application.

Every Director Is Different

These examples demonstrate why there is no universal salary that works for every company director.

Two businesses with identical profits may still require completely different remuneration strategies because the directors have different goals, different income and different personal circumstances.

The best remuneration strategy isn’t simply the one that produces the lowest tax bill.

It’s the one that supports your business, your personal finances and your long-term objectives.

Worked Example

Let’s look at a simple example of how a typical remuneration strategy might work in practice.

Imagine your limited company expects to make £60,000 profit before paying you, and you have no other employment or taxable income.

For many sole directors during the 2026/27 tax year, a salary of £12,570 is often a sensible starting point. This makes full use of your Personal Allowance, provides a qualifying year towards your State Pension and, in many cases, reduces your company’s Corporation Tax liability.

The remaining profits can then be taken as dividends, provided the company has sufficient distributable profits after paying Corporation Tax.

This combination of salary and dividends often provides a more tax-efficient outcome than taking all of your income as salary.

This approach may help you:

• Make full use of your available tax allowances.
• Reduce your company’s Corporation Tax liability.
• Receive a qualifying year towards your State Pension.
• Withdraw profits in a tax-efficient manner.

Important: This example is provided for general guidance only. The most tax-efficient remuneration strategy depends on your individual circumstances, including your company’s profits, other sources of income, pension contributions, the number of directors and whether your company qualifies for Employment Allowance.

The most tax-efficient salary isn’t necessarily the lowest salary. It’s the salary that works best alongside your dividends, tax position and long-term plans.

5. Five Questions to Ask Before Deciding Your Salary

Before deciding how much salary to take from your limited company, it’s worth taking a step back.

Rather than focusing solely on tax, ask yourself these five questions.

A few minutes spent considering them could help you avoid costly mistakes and ensure your remuneration supports both your personal finances and your business.

1. What Are My Financial Goals?

Are you trying to maximise your take-home income, save for retirement, apply for a mortgage or leave more money in the business?

Your objectives should influence how you pay yourself.

A remuneration strategy that works well for one director may be completely unsuitable for another.

2. Is My Business Performing as Expected?

Your remuneration should reflect your company’s financial position.

If profits are significantly higher or lower than expected, it may be sensible to review your salary and dividend strategy rather than simply repeating last year’s figures.

3. Do I Have Any Other Sources of Income?

If you already receive income from employment, rental properties, investments or another business, this could affect the most tax-efficient way to pay yourself.

Always consider your overall tax position rather than looking at your limited company in isolation.

4. Am I Thinking Beyond This Year’s Tax Bill?

Reducing tax is important, but it shouldn’t be the only objective.

A good remuneration strategy should also consider:

• Future pension entitlement.
• Cash flow.
• Business growth.
• Mortgage applications.
• Long-term financial planning.

Sometimes paying slightly more tax today can produce a better financial outcome in the future.

5. Have I Reviewed My Remuneration Recently?

Many directors continue using the same remuneration strategy for years without reviewing it.

However, businesses evolve, tax legislation changes and personal circumstances rarely stay the same.

Reviewing your remuneration each tax year helps ensure it continues to meet both your business needs and your personal financial goals.

A five-minute review each year can often save significantly more than it costs in unnecessary tax or missed planning opportunities.

A Simple Checklist

Before deciding how much salary to take, ask yourself:

• Is my business making sufficient profits?
• Do I have any other taxable income?
• Am I planning to take dividends?
• Will my remuneration affect future mortgage applications?
• Have I reviewed my salary during the current tax year?

If you’re unsure about any of these questions, it’s usually worth seeking professional advice before making changes.

6. Common Mistakes Company Directors Make

Even with the best intentions, it’s easy for company directors to make mistakes when deciding how to pay themselves.

Fortunately, most of these issues are straightforward to avoid once you understand the rules and review your remuneration regularly.

Here are some of the most common mistakes we see.

1. Never Reviewing Your Salary

Many directors decide on a salary when they first start trading and then leave it unchanged for years.

During that time, tax legislation, business profits and personal circumstances can all change.

Reviewing your remuneration each tax year helps ensure you’re still paying yourself in the most appropriate way.

2. Copying Someone Else’s Remuneration

It’s common to hear advice such as:

“My accountant told me to take £X, so you should too.”

Unfortunately, remuneration isn’t one-size-fits-all.

A strategy that works well for another business owner may not be suitable for your circumstances.

3. Paying Dividends Without Checking Profits

Dividends can only be paid if your company has sufficient distributable profits.

Taking dividends without understanding your company’s financial position can create unnecessary tax and accounting issues.

Keeping accurate bookkeeping and reviewing your figures regularly helps avoid this problem.

4. Mixing Business and Personal Finances

Treating the company bank account as your personal bank account often leads to unnecessary complications.

Keeping business and personal finances separate makes bookkeeping easier and helps ensure transactions are recorded correctly.

5. Focusing Only on Paying Less Tax

Reducing tax is important, but it shouldn’t be the only objective.

Your remuneration strategy should also consider:

• Your State Pension entitlement.
• Cash flow.
• Mortgage applications.
• Future business growth.
• Long-term financial planning.

The lowest tax bill doesn’t always produce the best overall outcome.

Avoiding These Mistakes

Most remuneration mistakes aren’t caused by misunderstanding the rules.

They’re caused by never reviewing them.

A short annual review can often identify opportunities to improve tax efficiency while ensuring your remuneration continues to support your business and personal goals.

7. How We Help Company Directors Decide Their Salary

By now, you’ve probably realised that deciding how much salary to take isn’t simply a case of picking a figure from a tax table.

The right remuneration strategy depends on your business, your personal circumstances and your plans for the future.

That’s why we never recommend exactly the same approach for every client.

Our Approach

When we review a company director’s remuneration, we don’t start with tax thresholds.

We start by understanding you and your business.

Typically, we’ll discuss:

• Your expected company profits.
• Whether you have any other income.
• Your plans for taking dividends.
• Your Corporation Tax position.
• National Insurance thresholds and State Pension entitlement.
• Pension contributions.
• Whether you’re planning to apply for a mortgage or other borrowing.
• Your cash flow requirements.
• Whether you intend to leave profits in the company for future growth.

Only after looking at the complete picture do we recommend the most appropriate remuneration strategy.

Proactive, Not Reactive

Many accountants only discuss director salaries once the year-end accounts have been prepared.

By that stage, many planning opportunities have already passed.

We believe remuneration should be reviewed throughout the year, particularly if:

• Your profits are significantly different from expected.
• Tax legislation changes.
• Your personal circumstances change.
• You’re planning a major purchase or mortgage application.
• Your business starts growing rapidly.

Reviewing your remuneration before the tax year ends gives you more flexibility and allows changes to be made while there’s still time to benefit.

Practical Advice You Can Understand

Tax legislation can be complicated.

Our job is to make it straightforward.

Rather than overwhelming you with technical jargon, we’ll explain your options in plain English, outline the advantages and disadvantages of each approach and help you understand why we’re making a particular recommendation.

The result is a remuneration strategy that’s not only tax-efficient, but also supports your wider business and personal goals.

If you’re unsure whether you’re taking the right salary, or you’d simply like a second opinion, we’d be happy to review your current remuneration and discuss the options available.

8. Frequently Asked Questions

What is the most tax-efficient salary for a company director?

There isn’t a single salary that’s right for every company director.

The most tax-efficient approach depends on your company’s profitability, your personal income, whether you qualify for Employment Allowance and whether you also plan to take dividends. For many owner-managed businesses, a combination of salary and dividends provides the best overall outcome.

Can I pay myself only in dividends?

You can, but it isn’t always the most tax-efficient option.

Dividends don’t attract National Insurance, but they can only be paid if your company has sufficient distributable profits. Taking no salary at all may also affect your National Insurance record and future State Pension entitlement.

GOV.UK also provides guidance on how dividends are taxed.

Does a salary reduce Corporation Tax?

Generally, yes.

A salary is usually an allowable business expense, meaning it reduces your company’s taxable profits before Corporation Tax is calculated. Dividends are paid from profits after Corporation Tax and therefore don’t provide the same tax relief.

Can I change my salary during the tax year?

Yes.

Many company directors review their remuneration during the year if profits, tax legislation or their personal circumstances change. Regular reviews provide more flexibility than waiting until the year-end accounts have been prepared.

Do I need to run payroll if I’m the only director?

In many cases, yes.

Even if you’re the company’s only employee, operating payroll correctly ensures your salary is reported to HMRC and helps maintain accurate tax records.

If you’d rather not deal with RTI submissions yourself, our Payroll Services can take care of everything for you.

Can my spouse or civil partner also receive income from the company?

Potentially.

If they genuinely work in the business, a commercial salary may be appropriate. If they’re also a shareholder, they may receive dividends. The most suitable approach depends on your company’s ownership structure and your family’s overall tax position.

How often should I review my salary?

We recommend reviewing your remuneration at least once each tax year.

You should also consider a review if your profits change significantly, your personal circumstances change or you’re planning a major financial commitment such as a mortgage application.

Do I need an accountant to decide my salary?

No, but professional advice can help you make informed decisions.

Your remuneration affects Income Tax, National Insurance, Corporation Tax, dividends and your long-term financial planning. A tailored review can often identify opportunities that generic online advice simply can’t.

Final Thoughts

Hopefully, this guide has shown that deciding how much salary to take is about much more than simply choosing a number.

The most appropriate remuneration strategy depends on your company’s profitability, your personal circumstances and your long-term financial goals. While many owner-managed limited companies benefit from a combination of salary and dividends, the right balance should always be based on your individual situation.

Reviewing your remuneration regularly can help you:

• Make the most of available tax reliefs.
• Avoid unnecessary tax.
• Build a sustainable remuneration strategy.
• Support your long-term business and personal financial goals.

At Smart Accountants Sussex & Surrey, we help company directors across Surrey and Sussex review their remuneration throughout the year, ensuring they’re paying themselves in a way that supports both their business and their future plans.

If you’d like tailored advice or simply want reassurance that you’re taking the right salary, we’d be delighted to help.

Contact us today to book your free, no-obligation consultation and make sure you’re paying yourself in the most tax-efficient way for your circumstances.