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Maximising Your Income Through Smarter Pay Structures

For contractors, freelancers, and small business owners running a limited company, how you pay yourself directly affects how much of your hard-earned income you keep. Traditionally, the most effective approach was simple: keep your salary low and draw the rest of your income through dividends.

Dividends vs Salary: Understanding the Difference

A salary is subject to both Income Tax and National Insurance Contributions (NICs) — for you and your company. Dividends, on the other hand, are paid out of post-tax profits, are taxed at lower rates, and crucially, carry no NIC liability. This long-standing advantage is what made dividends the cornerstone of efficient director remuneration for many years.

dividend

The Changing Landscape

However, dividend taxation has evolved — and not in favour of company directors. Over the past several years, the government has steadily increased dividend tax rates and reduced the annual tax-free allowance, gradually eroding what was once a major advantage. While dividends still typically outperform a full salary from a tax-efficiency perspective, the gap has narrowed considerably.

Many directors who previously enjoyed highly efficient structures now find their tax liabilities creeping higher each year — often without realising that their pay model may no longer be the most suitable.

What This Means for You

In today’s environment, simply following the same approach that worked a few years ago could mean missing out on opportunities to operate more efficiently. The right structure depends on your income level, company performance, and personal financial goals, all of which should be reviewed regularly.

At LinkUp Accounts, we analyse your full financial position to ensure your current setup still makes sense. In some cases, there may be more effective ways to manage your income and reduce unnecessary tax exposure.
Want to know if your dividend strategy is still working as efficiently as it could?

Get in touch for a free review of your pay structure and see if there’s a smarter way to optimise your income today.

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