Can a Company director receive a salary?

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A limited company can pay its directors a salary, but it must be paid net of Income Tax and National Insurance contributions.  

Depending on the role the director plays within the company, paying a salary may not be tax efficient.  

Director’s role  

A director may work full-time in the business or classed as a non-executive director (NED) working part-time, providing advice to the board, but not taking an active role in decision making. An NED might also work for other companies with a similar role. 

For tax purposes, the HMRC considers directors and non-executive directors as the same. An NED may choose to work on a self-employed basis as a consultant. As long as that is all they do, the NED can be paid gross. 

Personal tax implications for salaried directors 

Income Tax and National Insurance thresholds and rates are the same for directors and employees.  

If the director is regarded by HMRC as an ‘office holder’ (a person who’s been appointed to a position by an organisation but does not have a contract or receive regular payment) they will not be subject to National Minimum Wage Regulations:  the director can choose to take a lower salary, which will provide both advantages and disadvantages. 


  • The director will not have to pay income tax or employee national insurance contributions. 
  • The director can combine the lower salary with other forms of income to optimise their tax position.   


  • No maternity rights, as the director is not classed as an employee. 
  • If the director has no other income, they cannot take full advantage of their personal allowance. 
  • Issues applying for a mortgage 

Company tax implications 

  • Salary paid to a director, or an employee, is a business expense deducted from company profits reducing the amount of Corporation Tax the company pays.  
  • it’s important to set the right level of salary to maximise the total Income Tax and Corporation Tax benefits. A higher salary will mean more Income Tax, outweighing any Corporation Tax benefits. 
  • Paying a salary to a director will also attract Employer National Insurance contributions if the salary is above the National Insurance thresholds meaning that a director earning above the threshold would, effectively be paying National Insurance contributions twice. 

Pension implications  

A lower salary may have personal tax benefits, but the salary must be above the Lower Earnings Limit (£6,240 in the 2020/21 tax year) so that the director accrues qualifying years for the State Pension.  

Other forms of income  

A low salary would not be an attractive incentive for a director making an important contribution to the company. It’s necessary to supplement the salary with other forms of income.  

The best alternative is to pay a dividend from any profits for three main reasons:

  • They attract a lower rate than income tax. From 6th April 2022, the basic dividend rate is 8.75%, the upper rate is 33.75% and the additional rate is 39.35%. 
  • There is a separate dividend tax allowance that is in addition to the personal allowance which is £2,000 before any tax is due.  
  • National Insurance contributions are not required.   

However, paying a director only by dividends has disadvantages:

  • Dividends cannot be deducted from pre-tax profits, so they do not reduce Corporation Tax. 
  • The director would not accrue any qualifying years for the State Pension as there are no National Insurance payments due.  
  • Income tax would be due, even though the rate of tax is lower. 
  • Dividends are based on profit so there is considerable variation. 
  • Dividends are only paid annually, which could create personal cash flow issues. 

The company can also opt to pay the director a one-off bonus, which may or may not be performance related. Bonuses, however, are not tax efficient as income tax and national Insurance contributions need to be paid.  

Another alternative to supplement a director’s salary is to make additional pension contributions. The contributions have tax benefits for the business as they reduce the Corporation Tax bill but the director would not receive any income until they reach retirement age. 

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Disclaimer: Information provided by Kidwells Accountancy on our website is for informational purposes only. It is provided in good faith but we make no guarantee of any kind regarding the accuracy, reliability, or completeness of any information on our site. We always recommend businesses seek independent legal and financial advice before working with us or acting on any information on our website.

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