UK Dividend Tax Planning 2025 for Company Directors

UK Dividend Tax Planning for Directors in 2025

Company directors often combine salary and dividends to optimise tax efficiency. The 2025 tax year sees the dividend allowance reduced to £500, requiring careful planning.

Salary vs Dividend Mix

Pay a salary at least equal to the lower earnings limit (£6,396) to maintain NI credits and consider raising to the secondary threshold (£9,100) to use employer NI allowance. Distribute remaining profits as dividends to leverage lower tax rates.

Dividend Tax Rates

Rates for 2025 remain 8.75% (basic), 33.75% (higher), and 39.35% (additional). Use the £500 allowance and personal allowance efficiently. Coordinate with spouse shareholdings to utilise both allowances and lower tax bands.

Timing and Reserves

Declare dividends only when sufficient distributable reserves exist. Document board minutes and maintain dividend vouchers. Consider delaying dividends to the next tax year if approaching higher rate thresholds.

Alternative Profit Extraction

Employ pension contributions, benefits in kind, or director’s loans (with caution) to extract profits tax-efficiently. Contributions to pensions reduce corporation tax and support retirement goals.

Compliance

File self-assessment returns reporting dividends, and ensure Making Tax Digital (MTD) requirements are met for VAT or income tax pilot participants.

Strategy: Review profit forecasts quarterly, collaborate with accountants, and use our UK calculator to project take-home pay under various dividend scenarios.