Jonathan Vowles Chartered Accountants

01234 752 566


What Is The Best Way To Pay A Director?

It's all about tax rates and remuneration ...

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It is that time of the year again, the beginning of the new tax year, and if you run a business how much should you pay yourself to minimise your tax bill?

When deciding what to pay yourself as a director, there are many things that you need to take into account!

When deciding what to pay yourself as a director, there are many things that you need to take into account!

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Looking at tax strategies for remuneration planning or compensation planning is quite often a subjective rather than an objective decision. There are lots of things that go into the decision making mix.

"For example it makes a difference if you are the only employee or if you have other employees!"

What about pensions, auto enrolment or otherwise? What other income do you have? There may be individual factors that affect this decision as well; all of which leads me to add a caveat: you should really take advice that includes all the factors - your personal, financial and business circumstances - into account in arriving at your remuneration plan.

Mention tax planning or tax strategies and some people go overboard and start thinking of dodgy tax schemes, but don't worry this is very different!

Note that this advice relates to business owners, ie to directors and shareholders of a limited company. If you operate your business as a sole trader or partnership then a different set of tax rules apply. Maybe you should consider changing your business into a limited company?

Having said all that, what is our generic suggestion as to how you should organise yourself to pay the smallest amount of tax? As in previous years, the answer is a mixture of low salary and bigger dividends.

However, there is a difference between a limited company with only one employed director and a limited company with more than one employee:

  • If you only have one employed director then I suggest you pay an annual salary that is just over the NIC threshold for 2019/20. In addition, and assuming your business has sufficient profits to do so, a dividend payment that takes you up to the 40% tax threshold. The NIC threshold for 2019/20 is £8,632 and the 40% threshold is £50,000. So, a salary of £8,640 pa and a dividend of £40,160 pa seems the right way to go.

  • If you have more than one employee then I suggest you pay an annual salary that is at the level of the personal allowance for 2019/20 and then a dividend that takes you up to the 40% threshold. Again this assumes there are sufficient profits. The personal allowance for 2019/20 is £12,500, so a salary of £12,500pa and a dividend of £37,500.

Of course, if you have bigger profits, you can always pay bigger dividends. The tax consequence of a bigger dividend is simply that you pay more personal tax.

If you'd like to find out more about the best way to pay a director which takes into account your personal, family, financial and business circumstances then do give me a call on 01234 752 566 or click here to ping me an email and let's see how I can help you.

Until next time ...


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More about Jonathan Vowles ...

I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.

My eclectic interests in growing and developing business span a number of areas, which can be summarised as strategic business advice and tax saving advice.

I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.

I relax by reading fiction and by getting away from the office in a campervan.


01234 752 566