Finance & Moneyintermediate
Salary vs Dividend
Definition
Two ways a limited company director can extract money from their business, salary is subject to PAYE and NI, while dividends are taxed at lower rates above the personal allowance.
Why it matters
Most small limited company directors take a low salary (below NI threshold) and top up with dividends to minimise tax legally. Getting this wrong costs thousands.
Example
A director pays herself a £12,570 salary (within her personal allowance) and takes £30,000 in dividends, saving significant National Insurance compared to taking it all as salary.
Related terms
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