How to work out how much to pay yourself as a

2 min read

Step 1What can the company spare?

Step 2Set the efficient salary

Step 3Dividend the rest sensibly

Step 1 — work out what the company can afford

Start with the business, not your wish list. After covering costs, tax set-aside and a cash buffer, what surplus does the company genuinely produce? That's the ceiling on sustainable drawings. Draw beyond it and you push into an overdrawn loan account or leave the business short. See how much cash to hold.

Step 2 — set a tax-efficient salary

Within that surplus, take a modest salary pitched around the National Insurance thresholds — deductible for the company, protective of your state pension, and efficient on your personal allowance. Going much higher brings in National Insurance quickly. This is the foundation layer of your pay. See salary vs dividends.

Step 3 — take dividends up to the sensible point

Top up with dividends from distributable reserves, stopping where the marginal tax cost climbs sharply — usually around the higher-rate threshold. Dividends avoid National Insurance and are taxed more gently, so they carry most of your income. Keep them lawful and within real reserves.

Step 4 — consider a pension for the rest

If there's surplus beyond an efficient salary-plus-dividend draw, a company pension contribution can move profit out with no personal tax now — often the most efficient use of the top slice. It defers access, but the saving is real, especially at higher-rate levels.

Step 5 — leave the business what it needs

The golden rule: never draw cash the company needs to trade or to meet its tax bills. If your affordable draw is less than you'd like, the answer is growing the business, not raiding it — and funding genuine working-capital needs properly. Credicorp lends to the company with no personal guarantee. Model it with the affordability calculator.

Frequently asked questions

How much should I pay myself as a director?

Start with what the company can genuinely afford after costs, tax set-aside and a buffer — that's your ceiling. Within it, take a small tax-efficient salary, then dividends up to the sensible point, and consider a pension for any surplus. Never draw cash the business needs to trade.

Is it better to pay myself in salary or dividends?

For most owner-directors, a small salary plus dividends is more efficient than all salary, because dividends avoid National Insurance and are taxed at lower rates. But dividends need distributable reserves, and the ideal split depends on your total income and the company's figures.