Dividend

A distribution of a company's profits to its shareholders. Limited company directors often take dividends as a tax-efficient way to extract profits above their salary.

Dividends are taxed at a lower rate than income from salary. Many limited company owners take a small salary (up to the NI threshold) and top up with dividends to minimise tax.

Your limited company makes £60,000 profit. You take a £12,570 salary (personal allowance) and £30,000 in dividends. The dividend tax rate (8.75% basic rate) is lower than income tax (20%), saving you significantly.