Why salary + dividend remains a smart strategy for directors
A limited-company director drawing a modest salary — enough to secure qualifying years for benefits — combines the tax-efficiency of dividends with the pension/NI benefits of salary. Salary counts as a business expense, lowering company tax; dividends are taxed more lightly than salary and avoid National Insurance when properly declared.
This approach remains legal, effective — and tax-efficient — when supported by accurate, transparent bookkeeping and clear records of company profits.
Key rules and best practice
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Dividend payments must come from genuine post-tax profits. Never withdraw more than the company can afford.
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Keep detailed records of profits, retained earnings, dividends paid and salary payments.
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Regular bookkeeping ensures clarity on profit distribution capacity and avoids accidental over-draw.
Why good bookkeeping matters now more than ever
With HMRC increasingly vigilant over profit extraction practices, clear accounts give your company audit-ready legitimacy — avoiding disputes or penalties. They also aid cash-flow forecasting, ensure timely tax and dividend declarations, and protect your business’s financial health.
We offer bookkeeping packages from £129 per month with two months free on annual subscriptions, including bank reconciliation, VAT, PAYE and monthly reports for complete financial clarity. Need help? Email support@bookkeepingpackages.co.uk or visit our site at www.bookkeepingpackages.co.uk.
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