Are You Paying Too Much Tax as a Director?
For many owner-managed businesses, one of the most important financial questions is surprisingly simple:
How should you take money out of the business in the most tax-efficient way?
Directors often focus heavily on growing the business — which is exactly where their attention should be. However, the way profits are extracted can have a significant impact on personal tax liabilities.
In many cases, directors are unknowingly paying more tax than necessary simply because their extraction strategy hasn’t been reviewed in some time.
With changes to tax rules on the horizon, this is a good moment to take a fresh look at how income is structured.
Salary vs Dividends: Getting the Balance Right
Most directors take a combination of salary and dividends, but the balance between the two is important.
Salary is subject to income tax and National Insurance, while dividends are taxed differently and are not subject to National Insurance. However, dividends can only be paid from available profits, and dividend tax rates have increased over recent years.
An efficient structure should consider:
available allowances
corporation tax implications
National Insurance thresholds
overall personal tax exposure
Even small adjustments to this balance can make a meaningful difference to the amount of tax paid.
Pension Contributions as a Tax Planning Tool
Pension contributions remain one of the most effective ways for directors to extract value from their business.
Employer pension contributions:
are usually deductible for corporation tax
do not attract National Insurance
contribute towards long-term financial security
For directors approaching higher income levels, pensions can provide a tax-efficient route to move profits out of the company while building retirement savings.
Spouse Shareholding Strategies
In some family businesses, shareholdings are structured between spouses.
Where appropriate, this can allow:
dividends to be distributed across multiple personal allowances
use of lower tax bands
a more balanced household tax position
However, share structures must be implemented correctly and in line with company law and tax rules.
A simple review can confirm whether the current structure remains appropriate.
Timing of Dividends
Another factor that is often overlooked is timing.
The point at which dividends are declared — whether before or after the tax year end — can affect which tax year they fall into and how allowances are applied.
Reviewing dividend timing before the end of the tax year can help directors:
maximise available allowances
manage tax thresholds
spread income more efficiently across years
Changes Coming in April 2026
Looking ahead, further tax changes are already scheduled.
From April 2026, dividend tax rates for basic and higher rate taxpayers will increase by two percentage points. This will place greater emphasis on efficient profit extraction strategies.
For many directors, this means that reviewing remuneration planning over the next year will become even more important.
Why Regular Reviews Matter
Businesses evolve, profits change, and tax rules rarely stand still.
A strategy that worked well a few years ago may no longer be the most efficient approach today. Regular reviews ensure that directors continue to extract profits in a way that aligns with both their personal goals and the current tax landscape.
How Exchange Accountants Can Help
At Exchange Accountants, we work with directors and owner-managed businesses to structure remuneration in the most efficient way possible.
This includes reviewing:
salary and dividend strategies
pension contribution planning
shareholder structures
dividend timing
upcoming legislative changes
Our aim is to ensure that your extraction strategy supports both your business and your personal financial goals.
A Simple Question Worth Asking
If you haven’t reviewed your extraction strategy recently, it may be worth asking the question.
Many directors unknowingly overpay tax through inefficient extraction strategies.
If you’d like to review how you take income from your business, our team would be happy to help.
📞 028 9263 4135
📧 info@exchangeaccountants.com
🌐 exchangeaccountants.com
Let’s Grow Together.
