Running a limited company gives you flexibility, control, and tax efficiency when you know how to use it. One of the biggest perks is the ability to pay yourself through a combination of salary and dividends. It sounds simple, but with recent changes to corporation tax, National Insurance, and dividend allowances, the right balance matters more than ever.
Let’s break it down.
What’s the Difference Between Salary and Dividends?
Salary is paid to you as a director for the work you do.
Dividends are paid to you as a shareholder, as a reward for owning the company.
Here’s how they differ:
| Criteria | Salary | Dividend |
| Tax-deductible for corporation tax | ✅ Yes | ❌ No |
| Subject to Income Tax | ✅ Yes | ✅ Yes |
| Subject to National Insurance | ✅ Yes – 8% (employee) + 15% employer | ❌ No |
| How tax is paid | Through PAYE (real-time) | Through Self-Assessment (delayed) |
| When can it be paid | Regularly, even with no profit | Only if there’s sufficient post-tax profit |
| Counts as earnings for pension | ✅ Yes | ❌ No |
National Insurance in 2025: What You Need to Know
🧍♀️ Employee NI
As of April 2024, employee National Insurance contributions fell to 8% (previously 12%) on earnings between £12,570 and £50,270.
That alone makes salaries slightly more appealing from a personal income point of view.
⚠️ But don’t forget Employer NI: now 15%
From 1 April 2025, Employer National Insurance is now 15%, up from 13.8%. This applies to salary payments over the secondary threshold (around £9,100/year in 2025/26) and is paid by the company, on top of gross salary.
📌 It’s tax-deductible but still an additional cost to the business.
Example:
Paying yourself a £25,000 salary will now cost the company £2,385 in Employer NI alone after secondary threshold is applied. (£25,000-£9,100) x 15%. That adds up especially if you’re paying multiple directors or employees.
What Else Has Changed in 2025?
🔹 Corporation Tax – 19% on profits under £50,000, 25% on profits over £250,000, 26.5% effective rate on profits between those thresholds
🔹 Dividend Allowance – Reduced from £1,000 to £500, so more of your dividend income is now taxable
🔹 Additional Rate Tax Threshold – Lowered to £125,140, so high earners hit the 45% tax rate sooner
So, Salary or Dividend?
The ideal mix depends on your full picture, profit levels, personal income needs, pension goals, and business growth plans.
In many cases, a low salary (often just above the NI threshold) and dividends taken from available profit remains tax-efficient. But the margin is shrinking.
With Employer NI now at 15%, it’s critical to factor in both personal tax and business cost when designing your remuneration plan.
Control Your Income, Strategically
As a limited company owner, you have more than one lever to pull. The key is pulling the right one at the right time, especially with the new tax rules in place.
✅ Want to avoid overpaying tax or under-utilising your allowances?
✅ Need your income to match lifestyle goals without strangling company cash flow?
✅ Running a business where your profit fluctuates month to month?
📩 Let’s talk. We’ll help you structure your income with clarity, precision, and tax efficiency in mind so your pay plan works for both you and your business.
