4 Mins
Written by: Lucy Crow
Diector & Head of Private Client Tax
Last reviewed: 6 October 2026When considering remuneration planning UK directors and owners must weigh a range of options. For UK company directors and owners, this typically involves balancing salary, dividends, pension contributions and benefits. Getting this balance right can reduce overall tax exposure while ensuring sufficient personal income and retained profits for growth.
This guide explains how remuneration planning works, why it matters, and how to approach it in a practical and compliant way.
What is Remuneration Planning?
Remuneration planning is the structured approach to determining how business owners are paid from their company.
In a UK limited company, income is usually taken through a combination of:
- Salary – subject to Income Tax and National Insurance
- Dividends – paid from post‑tax profits and taxed at lower rates with no National Insurance
- Employer pension contributions – typically tax-deductible for the company
- Benefits in kind – such as company cars or private healthcare
The aim is to achieve a balance between tax efficiency, personal income needs and business sustainability.
Why is Remuneration Planning Important?
Effective remuneration planning allows directors to:
- Reduce exposure to Income Tax and National Insurance
- Manage corporation tax efficiently
- Maintain healthy company cash flow
- Plan for retirement and long‑term wealth extraction
- Ensure compliance with HMRC rules
Without a clear strategy, it is common to overpay tax or withdraw funds in a way that limits future flexibility.
Common Methods of Paying Yourself
Salary
A salary is deductible for corporation tax but attracts Income Tax and National Insurance.
Dividends
Dividends are often more tax-efficient than salary but can only be paid from profits.
Pension Contributions
Employer pension contributions reduce taxable profits and support long‑term planning.
Benefits
Benefits can add value but may increase the overall tax burden depending on their structure.
Example: Comparing Remuneration Approaches
The tables below illustrate how different remuneration strategies affect both personal and company tax outcomes for a company with £500,000 profits.
Scenario 1: Director Takes £100,000 Gross Income
| Option 1 | Option 2 | Option 3 | Option 4 | |
|---|---|---|---|---|
| Approach | Salary only | Salary to intermediate band + dividends | Salary to NI threshold + dividends | Dividends only |
| Personal tax position | ||||
| Gross income (£) | 100,000 | 100,000 | 100,000 | 100,000 |
| Net income (£) | 65,226 | 73,842 | 79,961 | 79,961 |
| Effective tax rate | 35% | 26% | 20% | 20% |
| Company position | ||||
| Company profits (£) | 500,000 | 500,000 | 500,000 | 500,000 |
| Salary and NI cost (£) | (114,250) | (49,461) | (6,725) | – |
| Corporation tax saving (£) | 28,563 | 12,365 | 1,681 | – |
| Dividends paid (£) | – | (56,338) | (93,500) | (100,000) |
| Net cost (£) | (85,688) | (93,434) | (98,544) | (100,000) |
Scenario 2: Director Takes £100,000 Net Income
| Option 1 | Option 2 | Option 3 | Option 4 | |
|---|---|---|---|---|
| Approach | Salary only | Salary to intermediate band + dividends | Salary to NI threshold + dividends | Dividends only |
| Personal tax position | ||||
| Gross income (£) | 179,355 | 152,032 | 138,875 | 137,715 |
| Net income (£) | 100,001 | 100,001 | 100,001 | 100,001 |
| Effective tax rate | 44% | 34% | 28% | 27% |
| Company position | ||||
| Company profits (£) | 500,000 | 500,000 | 500,000 | 500,000 |
| Salary and NI cost (£) | (205,508) | (49,461) | (6,725) | – |
| Corporation tax saving (£) | 51,377 | 12,365 | 1,681 | – |
| Dividends paid (£) | – | (108,370) | (132,375) | (137,715) |
| Net cost (£) | (154,131) | (145,466) | (137,419) | (137,715) |
Key Insight
A blended approach combining salary and dividends typically produces a lower effective tax rate than a salary‑only strategy, while maintaining flexibility.
Factors That Affect Remuneration Planning
A suitable strategy depends on:
Personal Factors
- Income level and tax band
- Other sources of income
- Pension planning objectives
Company Factors
- Profit levels and consistency
- Cash flow requirements
- Planned reinvestment
Tax Considerations
- Dividend tax rates and allowances
- National Insurance thresholds
- Pension annual allowance
Long-Term Planning
- Retirement objectives
- Business succession
- Exit strategy
How to Structure a Tax-Efficient Remuneration Strategy
1. Set a Base Salary
Use available personal allowances and maintain National Insurance records while limiting tax exposure.
2. Supplement with Dividends
Use dividends for additional income, taking advantage of lower tax rates.
3. Maximise Pension Contributions
Where appropriate, use employer contributions to reduce corporation tax and build retirement savings.
4. Review Benefits
Ensure benefits provide value without unnecessarily increasing tax costs.
5. Review Annually
Update your approach each year to reflect changes in tax rules and circumstances.
How to Improve Your Remuneration Planning
- Review your structure alongside year‑end planning
- Adjust for legislative changes
- Align income extraction with business strategy
- Use profit forecasts to guide decision-making
- Integrate remuneration with succession planning
When Should You Seek Professional Advice?
Consider professional advice if:
- Profits increase significantly
- You approach higher tax thresholds
- You are planning retirement or pension funding
- The business is preparing for succession or sale
- Tax rules change in a way that affects your structure
Remuneration Planning FAQs
The most tax efficient approach is usually a mix of salary, dividends and pension contributions. A modest salary uses personal allowances, dividends provide lower tax rates, and pensions offer long‑term efficiency. The exact mix depends on your income, company profits and future plans.
Most directors take both. Salary ensures eligibility for state benefits and uses tax allowances, while dividends reduce overall tax liability. The right balance depends on your tax band and available company profits.
Employer pension contributions reduce the company’s taxable profits, lowering corporation tax. They are also not subject to Income Tax or National Insurance for the individual, making them highly tax efficient within annual allowance limits.
While dividends are tax-efficient, they can only be paid from available profits. Relying solely on dividends may not always be appropriate, particularly where a salary is needed to utilise allowances or support pension contributions.
Remuneration planning should be reviewed at least annually, typically before the end of the financial year. It should also be revisited when there are changes in tax rules, company performance or personal circumstances.
Get in Touch
Remuneration planning is a key part of managing a successful UK limited company. A well‑structured approach can reduce tax exposure while supporting both personal income and long‑term business goals.
By combining salary, dividends and pension contributions effectively and reviewing regularly, directors can maintain flexibility and efficiency as circumstances evolve.
Henderson Loggie’s Business Planning and Succession team can provide clear, practical advice tailored to your individual and business needs.
