💷 What’s the Best Way to Pay Yourself as a Director?

💷 What’s the Best Way to Pay Yourself as a Director?

If you run a limited company, one of the first questions you'll likely ask (or should be asking!) is:

“What’s the most tax-efficient way to pay myself?”

The good news is, you’ve got a few options — and when used wisely, they can help you save tax, stay compliant, and make the most of your company profits.

Here’s a quick breakdown to help you decide what works best for you 👇

💼 1. Take a Salary

A salary is the most common and straightforward option. As a director, you can pay yourself through payroll just like an employee.

✅ Take a tax-efficient salary
✅ It keeps your National Insurance credits going (for state pension)
✅ Keep it low and you’ll avoid paying National Insurance at this level
✅ Paid directly from your business bank account to your personal account

💡 Depending on the number or directors, or if you have other sources of income, your salary level will be different — best to get tailored advice.

💸 2. Top It Up with Dividends

Dividends are a brilliant way to take extra income from your limited company — as long as you're making a profit after Corporation Tax.

✅ Dividends are taxed at lower rates than salary
✅ You don’t pay National Insurance on dividends
✅ You can take them flexibly throughout the year

From 6 April 2024, the first £500 of dividends is tax-free. After that:

• 8.75% (basic rate)

• 33.75% (higher rate)

• 39.35% (additional rate)

📌 Dividends must be declared properly with board minutes and based on shareholdings. And remember — don’t empty the bank account! Keep enough aside for Corporation Tax.

🏡 3. Claim for Working from Home

If you regularly work from home, your company can reimburse you for a portion of household costs.

🚗 4. Mileage for Business Travel

Using your personal car for business trips? You can claim mileage instead of trying to expense fuel and running costs.

• 45p per mile for the first 10,000 miles

• 25p per mile after that

This includes all costs: fuel, tax, insurance, maintenance — so keep it simple and just track your business miles.

📱 5. Tax-Free Mobile Phone

Did you know your company can provide you with one tax-free mobile phone?

✅ Covers the phone itself, rental, and private/business calls
✅ Must be in the company name
✅ Company must pay the bill directly
✅ Limited to one per director/employee

This is a little-known but totally legit perk!

💳 6. Director’s Loan Account (DLA)

If you take money out of your company that’s not a salary, dividend, or expense reimbursement — it goes through your Director’s Loan Account.

It’s a running balance between you and the company, but be careful:

🚨 Withdraw over £10,000? You might trigger a P11D benefit-in-kind
🚨 Not repaid within 9 months of your year-end? You may face s455 tax charges

Handled properly, it’s useful — but misuse can cause tax headaches.

✅ Final Thoughts

So, what’s the best way to pay yourself?

For most directors, a mix of salary and dividends works best — then add in tax-free allowances like mileage, mobile phone, and working from home where relevant.

Getting the balance right keeps HMRC happy and helps you take more home from your business. 🎯