Dividend & Salary Planning UK —
Keep More of What You Earn

A director with significant rental income, investment income or a second employment may find their optimal salary is very different from the previous year. We review all income sources annually.

A dividend is only legal if the company has sufficient distributable reserves. Directors taking dividends without checking create unlawful dividends — HMRC can reclassify as salary, triggering PAYE and NIC. We check reserves before every dividend.

Directors earning £100,000-£125,140 face a 60% effective marginal rate as the personal allowance is progressively withdrawn. Company pension contributions reduce adjusted net income — potentially restoring the full personal allowance and saving up to £5,028.

Transferring shares to a lower-earning spouse is most effective when done early — before company value grows and before higher income creates a higher tax saving available from the split. We advise on spousal share transfers proactively.

For most single-director companies without Employment Allowance, the optimal salary is £12,570 — using the full personal allowance with no employee income tax and no employer NIC (because the secondary threshold at £9,100 triggers employer NIC, but the total NIC cost is below the CT saving at 19-25%). We model the optimal salary for each director’s specific circumstances annually.

Yes — if your spouse holds shares in the company, they receive dividends on those shares taxed at their own marginal rate. If your spouse has lower income, this uses their personal allowance and basic rate band — significantly reducing combined family tax. The shares must be genuinely transferred and dividends proportionate to shareholding. We ensure Arctic Systems compliance — genuine shareholder rights protecting against the settlements anti-avoidance provisions.

The dividend allowance is £500 in 2024/25 — reduced from £1,000 in 2023/24. The first £500 of dividends is tax-free regardless of the taxpayer’s marginal rate. This applies per individual — so a director and their spouse can together receive £1,000 of tax-free dividends annually.

Company pension contributions are generally fully deductible as a business expense — reducing CT by 19-25p per pound contributed. The annual allowance is £60,000 covering both personal and employer contributions. Company contributions attract no NIC — making them one of the most tax-efficient extraction methods for directors. We calculate the optimal pension contribution for every director client annually.

Every dividend requires: sufficient distributable reserves (retained profits), a board meeting or written resolution approving the dividend (date, amount per share, payment date), and a dividend voucher for each shareholder. We prepare all dividend documentation — resolutions and vouchers — for every client as part of our standard accounting service.