Our Guide to being Paid as a Director / Shareholder

Guide to being paid as a Director / Shareholder.

Many people trade through a Limited Company, which is very different from being a Self Employed / Sole Trader when dealing with tax and drawings.

If you are a Director and Shareholder of your own limited company then you would normally be paid by a combination of salary and dividend.

Salary and Dividends are very different from each other when calculating tax.

Salaries are an Expense and an allowable deduction when calculating the company's Corporation Tax.

Dividends are a distribution of Profit and are not an allowable Expense.

Getting Paid From The Company - The Basics

As a Director, you are (usually) an employee of the company, and therefore would normally receive a salary, just like any employee of any other company. The company must also submit a monthly PAYE / Payroll to HMRC.

As a Shareholder you may receive Dividends, just like having shares in a big national company.

So as a Director / Shareholder you would receive a mixture / combination of salary and dividends, and your accountant will advise you on the best combination for tax efficiency within the rules.

Paying a Salary - as a Director / Employee

The important factors to consider are:

• An individual’s personal tax free allowance, which is the earned income amount each year which is tax free.

• Employee’s National Insurance on salary.

• Employer’s National Insurance on salary.

Paying a Dividend - as a Shareholder

The rates and bands are described on our web page: New Dividend Tax Calculation

Expenses

You may also claim some expenses which your accountant will advise you on.

Loans from the Company

A Director may also borrow money from the company, but this is subject to strict tax rules. These are described on our webpage on the Director's Loan Account.

If you withdraw money from the company, and it is not identified as salary, dividend or expenses, then it would normally be regarded as a loan to you - which must be repaid in certain time limits or suffer a tax charge.


The above information is for limited companies in general. These webpages are intended to provide a helpful general guide, but specific professional advice should be taken before relying on it to take action.