A company director can usually be paid a salary through PAYE. If the director is also a shareholder, they may also receive dividends where the company has sufficient distributable profits. A salary counts as employment income and normally goes through payroll. Dividends are payments to shareholders and do not go through PAYE payroll.
HMRC confirms that director remuneration, including salary, bonuses and fees, should generally be included in PAYE and National Insurance payroll records. Dividends are treated separately.
What Is Directors Remuneration?
Directors remuneration is the overall compensation a company provides to a director for carrying out their role.
It may include:
- Salary
- Bonuses
- Director fees
- Benefits in kind
- Pension contributions
- Expense payments
- Dividends, where the director is also a shareholder
Not every payment is taxed in the same way. Salary, bonuses and director fees are generally employment earnings and normally need to be processed through PAYE. Dividends are shareholder distributions and are not treated as salary through payroll. This distinction is particularly important for small limited companies where the same person may be both a director and shareholder.
What Counts as a Director Salary?
A director salary is an amount paid by the company to a director for their role in the business.
Directors may be paid:
- Weekly
- Monthly
- Annually
- At irregular intervals
Once a company decides to pay a salary, it will usually need to register as an employer and operate PAYE where required. HMRC states that if a limited company pays a director or another person a salary, expenses or benefits, the company may need to register as an employer and account for Income Tax and National Insurance. The director's salary should also be correctly recorded in the company's accounting records.
Do Company Directors Need PAYE?
In many cases, yes. When a company pays a director a salary, that payment will normally be processed through PAYE payroll.
PAYE allows the company to calculate and report:
- Gross salary
- Income Tax deductions
- Employee National Insurance
- Employer National Insurance
- Pension deductions where applicable
- Other payroll deductions
Employers normally report payroll information to HMRC through a Full Payment Submission, or FPS. The FPS usually needs to be submitted on or before the employee's payday. Even if a director's salary results in little or no Income Tax being deducted, payroll reporting requirements may still apply.
How Does National Insurance Work for Directors?
National Insurance for company directors works slightly differently from National Insurance for ordinary employees. Directors are generally assessed using an annual earnings period rather than calculating their National Insurance independently for each normal pay period. HMRC states that directors are treated as employees for National Insurance purposes and normally pay Class 1 National Insurance on qualifying salary and bonus income.
For the 2026/27 tax year, key annual thresholds include:
- Lower Earnings Limit: £6,708
- Primary Threshold: £12,570
- Secondary Threshold: £5,000
For most employees, employee National Insurance is charged at 8% on earnings between the Primary Threshold and Upper Earnings Limit, with a 2% rate above the Upper Earnings Limit. The standard employer National Insurance rate is 15% above the relevant Secondary Threshold. These thresholds can significantly affect decisions about a company director salary. Companies should therefore calculate the full cost of a proposed salary rather than considering Income Tax alone.
Salary vs Dividends for Company Directors
Many owner-managed limited companies use a combination of salary and dividends. However, salary and dividends are fundamentally different.
Salary
A director salary:
- Is normally processed through PAYE
- May create employee National Insurance
- May create employer National Insurance
- Is recorded as employment income
- Can normally form part of the company's employment costs
Dividends
A dividend:
- Is paid to shareholders rather than directors simply because they are directors
- Does not go through PAYE payroll
- Can only be paid from sufficient available company profits
- Requires appropriate company records
- May create personal dividend tax liabilities for the shareholder
A company cannot simply label a payment as a dividend to avoid payroll deductions. Before paying a dividend, the company must have sufficient distributable profits. The company should also formally declare the dividend and keep appropriate records, including a dividend voucher.
How to Pay Yourself From a Limited Company
If you are wondering how to pay yourself from a limited company, there are several possible methods.
The main options include:
- Salary
- Dividends
- Reimbursement of legitimate business expenses
- Pension contributions
- Director's loans in appropriate circumstances
Each method has different tax and accounting consequences. For many directors who also own shares, remuneration planning may involve a combination of salary and dividends. However, there is no single salary and dividend combination that is suitable for every director.
Factors to consider include:
- The company's available profits
- The director's other employment income
- Personal Allowance availability
- Employer National Insurance
- Employee National Insurance
- Dividend income
- Pension contributions
- Benefits provided by the company
- Employment Allowance eligibility
For example, a company with only one director cannot normally claim Employment Allowance where that director is the company's only employee liable for employer Class 1 National Insurance. This can materially affect the cost of a particular director pay rate.
Do Directors Have to Receive the Minimum Wage?
Company directors are generally office holders rather than workers simply because they hold the position of director. As a result, a director acting only as an office holder is not normally entitled to the National Minimum Wage. However, the position can change if the director also works under an employment contract or another contract that gives them worker status.
This distinction can be particularly important for small companies where directors carry out day-to-day operational work.
Common Director Payroll Mistakes
Director payroll can appear straightforward, but mistakes can create unnecessary tax or reporting problems.
Common issues include:
- Paying salary without operating PAYE correctly
- Missing FPS submission deadlines
- Calculating director National Insurance using the wrong method
- Treating dividends as salary or salary as dividends
- Paying dividends when the company does not have sufficient profits
- Failing to prepare dividend vouchers
- Taking money from the company without correctly recording a director's loan
- Assuming Employment Allowance is automatically available
- Failing to keep payroll records
- Ignoring benefits provided to directors
Good records make it easier to prepare company accounts, Corporation Tax returns and personal tax information accurately.
How an Accountant Can Help With Directors Remuneration
An accountant can help directors decide how remuneration should be structured while keeping payroll and company records accurate.
Support may include:
- Registering the company for PAYE
- Running monthly director payroll
- Submitting FPS reports to HMRC
- Calculating Income Tax and National Insurance
- Reviewing salary levels
- Recording dividends correctly
- Preparing dividend vouchers
- Reviewing Employment Allowance eligibility
- Recording director's loans
- Preparing annual company accounts
- Supporting Corporation Tax compliance
The most tax-efficient approach can change when tax rates, National Insurance thresholds or the director's personal circumstances change. Regular reviews are therefore useful rather than automatically repeating the same salary each year.
Frequently Asked Questions
Can a company director receive a salary?
Yes. A limited company can pay its director a salary. The payment will normally be processed through PAYE where the relevant payroll requirements apply.
Does a director's salary go through payroll?
Usually, yes. Salary, bonuses and directors' fees are generally treated as employment earnings and reported through payroll.
Can a director be paid only in dividends?
Dividends can only be paid to shareholders and only where sufficient profits are available. Whether relying entirely on dividends is appropriate depends on the individual's circumstances and should be considered carefully.
Do directors pay National Insurance?
Directors may pay employee National Insurance on qualifying salary. The company may also have employer National Insurance liabilities. Special annual calculation rules apply to directors.
Can directors choose any salary?
A company can determine a director's remuneration, subject to its constitutional arrangements, employment arrangements and relevant tax and employment rules. The tax consequences should be reviewed before setting the salary.
Final Thoughts
Understanding directors remuneration is essential when running a UK limited company.
A director may receive salary, bonuses, benefits and, where they are also a shareholder, dividends. However, these payments have different payroll, tax and accounting treatments.
A director salary will normally need to be dealt with through PAYE, while dividends must come from sufficient company profits and follow the correct company procedures.
For small business owners, reviewing company director remuneration each tax year can help ensure payroll remains compliant and that payments are structured appropriately.
Professional accounting support can also help directors understand PAYE, National Insurance, dividends and the most suitable way to take money from their limited company.