How to Structure a Director’s Remuneration Tax-Efficiently in 2024/25

For directors of limited companies, structuring your remuneration correctly can help minimise your tax and National Insurance liabilities, while staying compliant with HMRC. Here's a breakdown of how to do it efficiently, using a mix of salary and dividends.

What Is the Most Tax-Efficient Way to Pay Yourself as a Director?

A basic salary ensures:

• You qualify for State Pension and benefits

• You can make tax-deductible payments through the company

• It counts as an allowable expense for Corporation Tax

Recommended salary (2024/25):

• £12,570 per year (equal to the personal allowance)

• This keeps you under the Income Tax threshold

• But if the director has no other income and the company isn’t using the Employment Allowance, it may be more efficient to cap salary at £9,100 to avoid employee NIC altogether

Key Thresholds to Know:

Step 2: Pay Dividends up to the Basic Rate

Once your salary is set, any remaining income up to the higher rate threshold can be taken as dividends, which are taxed more favourably than salary.

Dividend Tax Rates (2024/25):

• 0% on the £500 Dividend Allowance

• 8.75% on dividends in the Basic Rate Band

• 33.75% on dividends in the Higher Rate Band

• 39.35% on dividends in the Additional Rate Band

The aim is to stay under the £50,270 total income mark (salary + dividends) to only pay basic rate.

Example Strategy:

If taking a £12,570 salary, you could take up to:

• £37,700 in dividends

• Total income: £50,270

• Dividend tax: 8.75% on most of that amountThis keeps you just within the basic rate threshold and avoids the 33.75% higher rate.

Other Considerations:

1. Employment Allowance

• If your company employs other staff (and meets eligibility), you may qualify for the £5,000 Employment Allowance

• This allows you to increase your salary above £9,100 without triggering employer NIC

2. Use of Home as Office

• Directors working from home can claim reasonable expenses or set up a rental agreement with the company

3. Business Expenses

• Claim allowable expenses (e.g. mileage, subsistence, equipment) to reduce taxable profits

4. Split Income with Spouse

• If your spouse is a shareholder, you can share dividends to make use of both personal allowances and basic rate bands

Risks & Reminders:

• Dividends must be paid from post-tax profits — not from money the company doesn’t have

• Dividends require formal paperwork: minutes and dividend vouchers

• Avoid taking illegal dividends or “director’s loans” without careful planning

• Keep personal and company funds clearly separated

Our Advice:

There’s no one-size-fits-all approach. Your strategy should consider:

• Other income sources

• Spouse’s income

• Timing of payments

• Planned investments, pension contributions, and growth plans

Want a Personal Review?

The best advice is given with the full picture in mind. If you’re unsure about your setup or want to maximise tax efficiency legally and safely, get in touch — we’ll walk you through it.

Please note: This guide is intended for general information only and does not constitute personal financial advice. We recommend speaking to our team before making any decisions, as we must understand your full circumstances to provide accurate, tailored guidance.