Accounting & Tax

One of the key decisions UK company directors face is how to pay themselves: via salary, dividends, or a combination of both. The method you choose can significantly impact your tax liability, National Insurance contributions, and company cash flow.

In this article, we compare director’s salary and dividends in terms of tax efficiency, control, and compliance. Dragonfly Associates provides tailored advice and payroll support based on your chosen structure, subject to agreement.

What’s the Difference Between Salary and Dividends?

A salary is a fixed payment made by your company to you as an employee or director. It’s subject to:

• PAYE income tax
• Employee National Insurance
• Employer National Insurance

Dividends are payments made from a company’s post-tax profits to its shareholders. They are not treated as business expenses and are taxed at different (often lower) rates.

To receive dividends, you must:

• Be a shareholder of the company
• Have sufficient retained profits
• Properly declare and minute the dividend payment

Option 1: Paying Yourself a Salary

Pros:

• Qualifies for state pension contributions and personal allowances
• Offers consistent income and easier mortgage/loan applications
• Reduces Corporation Tax (as salary is an allowable expense)

Cons:

• Subject to income tax and National Insurance
• Requires PAYE registration and regular payroll filings
• Less tax-efficient at higher income levels

We assist directors in setting up payroll and calculating optimal low-salary thresholds, depending on your overall compensation strategy.

Option 2: Paying Yourself Through Dividends

Pros:

• Typically more tax efficient than salary at higher income levels
• No National Insurance contributions
• Flexibility to issue when cash flow allows

Cons:

• Only payable from retained profits (after Corporation Tax)
• Must be declared properly via board minutes
• Doesn’t qualify for pension or employment benefits
• Cannot be used to reduce Corporation Tax

Dragonfly Associates helps ensure dividends are declared in line with HMRC guidelines and documented appropriately.

Combined Approach: The Most Common Strategy

Most directors choose a hybrid approach:

• Pay a low salary (typically between £9,000–£12,570/year) to stay below or near tax/NIC thresholds
• Top up with dividends to benefit from lower personal tax rates

This method offers balance between tax efficiency, pension eligibility, and compliance. We calculate and manage this structure for clients under our payroll and tax service plans.

Tax Comparison Example (2025/26 rates)

Director taking:

• £12,570 salary (below income tax threshold)
• £30,000 in dividends

Approximate personal tax due:

• £0 income tax on salary
• ~£1,450 tax on dividends after allowance
• No National Insurance (salary below threshold)

Compared to full salary equivalent, this approach can yield thousands in tax savings annually, subject to compliance and cash availability.

Compliance Considerations

• PAYE must be operated for salaries
• Dividends must be from actual profits—not anticipated revenue
• Dividend payments must be supported by board minutes and vouchers
• All payments must be recorded properly in company and personal accounts

Dragonfly Associates provides end-to-end support for director remuneration, helping you remain tax-efficient and compliant.

Frequently Asked Questions

Can I take only dividends and no salary?

Yes, but this may not be optimal. You miss out on pension credits and may attract HMRC scrutiny. We advise a balanced approach.

Are dividends taxed through PAYE?

No. Dividends are reported via your personal Self Assessment return and taxed separately from salary.

Do I need to run payroll for a low salary?

Yes. Even low salaries must be processed through PAYE and reported to HMRC. We handle this on your behalf where applicable.

Optimise Your Director Pay with Expert Support

Choosing the right mix of salary and dividends can make a meaningful difference in your take-home pay and long-term planning. But it must be done correctly to avoid penalties or HMRC audits.

Dragonfly Associates offers personalised director remuneration guidance, payroll setup, and dividend compliance—subject to agreement and your selected support plan.

To discuss the most efficient way to pay yourself, contact our team today.

Claiming legitimate business expenses is one of the most effective ways to reduce your UK company’s taxable profit and Corporation Tax bill. But many directors overlook key deductions—or claim incorrectly, leading to penalties or rejected returns.

In this article, we explain what business expenses are, which ones are allowable, and how Dragonfly Associates helps clients optimise and document expense claims, subject to agreement.

What Are Business Expenses?

Business expenses are costs your company incurs “wholly and exclusively” for the purpose of running the business. If allowable, these expenses can be deducted from your taxable profits before calculating Corporation Tax.

Properly documenting your expenses is essential. HMRC may request records at any time, so maintaining accurate receipts and categorisation is a legal requirement.

Common Allowable Business Expenses

Here are typical expenses that most UK limited companies can claim:

• Salaries, bonuses, and employer National Insurance
• Staff training and development
• Office rent, utilities, and business rates
• Phone bills and internet (business use portion)
• Marketing, advertising, and website costs
• Business insurance (e.g. public liability, professional indemnity)
• Travel and accommodation (for business trips)
• Accountancy and legal fees
• Bank charges and payment processing fees
• Subscriptions to trade bodies or business software
• Business-related stationery, printing, and postage

Dragonfly Associates helps classify and record these expenses correctly through our bookkeeping and accounting support packages.

What About Home Office Expenses?

If you work from home, your company may be able to reimburse:

• A flat-rate home office allowance (HMRC-approved)
• A proportion of household bills (electricity, heating, internet) based on usage
• Equipment costs (e.g. monitors, chairs), if owned by the company

This must be calculated and justified carefully. We provide home-working expense templates and guidance for directors using part of their home for business.

Director and Employee Expenses

Company directors and staff may also claim expenses for:

• Business travel (excluding ordinary commuting)
• Hotel stays and meals on overnight business trips
• Mileage (at HMRC-approved rates if using a personal vehicle)
• Use of personal phone for business calls

These must be reimbursed through the payroll or recorded via expense reports. We advise on compliant procedures and integrate claims into our payroll services where applicable.

What You Cannot Claim

You may not claim:

• Personal expenses unrelated to the business
• Client entertainment (not allowable for Corporation Tax relief)
• Fines and penalties
• Commuting costs between home and regular place of work
• Capital costs that must be claimed under capital allowances instead

Claiming non-allowable expenses can result in penalties or tax adjustments. We help ensure all submissions meet HMRC standards.

Recordkeeping Requirements

To support any claim, HMRC expects:

• Receipts, invoices, or electronic records for each expense
• Clear explanation of business purpose
• Timely and organised records

Dragonfly Associates offers digital bookkeeping solutions that allow clients to scan and categorise expenses securely—depending on your selected support plan.

Frequently Asked Questions

Can I claim expenses before the company starts trading?

Yes, in some cases. Pre-trading costs can be claimed if they would have been deductible had the company been active. These must be recorded separately.

Do I need a separate business bank account?

Yes. It’s best practice to keep personal and business expenses separate for clarity and compliance.

Can I reimburse myself for expenses?

Yes, provided the expense was wholly for business purposes. We recommend maintaining clear documentation and using an expense claim form.

Claim Smart, Save More

Understanding what expenses your UK company can claim is essential to efficient tax planning. Done properly, it reduces your Corporation Tax liability while keeping your business compliant.

Dragonfly Associates helps clients set up, manage, and optimise expense tracking systems, offering tailored advice and documentation as part of our accounting packages—subject to agreement.

To ensure you’re claiming everything you’re entitled to (and nothing you’re not), contact our team today.

If your UK company intends to pay salaries to employees—or to directors—you may be legally required to register for PAYE (Pay As You Earn). This system ensures that income tax and National Insurance contributions are deducted at source and reported to HMRC.

In this guide, we explain what PAYE is, when registration is required, and how Dragonfly Associates assists clients with setup and compliance, subject to agreement.

What Is PAYE?

PAYE stands for Pay As You Earn. It is HMRC’s system for collecting:

• Income tax
• National Insurance contributions (NICs)
• Student loan repayments (if applicable)
• Employer National Insurance (from the company)

The PAYE system applies to most employees and directors who receive regular payments above a certain threshold.

When Does a Company Need to Register for PAYE?

You must register for PAYE if you:

• Pay any employee or director more than £123 per week (as of 2025)
• Provide benefits or expenses that require reporting
• Employ staff under a formal employment contract
• Pay yourself a salary as a director above the tax-free threshold

Even if your director is the only person on payroll, registration may be required if their salary exceeds the NIC threshold.

Dragonfly Associates evaluates your structure and advises whether PAYE is needed, as part of our company setup or accounting support.

When Is PAYE Not Required?

You do not need to register for PAYE if:

• No employees are paid more than the lower earnings limit (£123/week)
• You’re only reimbursing expenses with no salary
• All payments fall below taxable thresholds

However, you must still keep payroll records, and may need to register later if the situation changes. We help you monitor this threshold and prepare for future obligations.

How to Register for PAYE

You register for PAYE through HMRC’s online portal. You’ll need:

• Your company’s UTR (Unique Taxpayer Reference)
• Company incorporation details
• Director information
• Expected payroll start date

Once registered, you’ll receive:

• A PAYE reference number
• An Accounts Office reference
• Access to HMRC’s online PAYE portal

Dragonfly Associates registers PAYE schemes for clients as part of agreed payroll or compliance packages.

What Happens After Registration?

Once your PAYE scheme is active, you must:

• Use approved payroll software or services
• Run payroll on or before each pay date
• Submit RTI (Real Time Information) reports to HMRC
• Pay income tax and NICs due—usually monthly or quarterly

We provide full-service payroll management or software guidance depending on your selected service plan.

PAYE for Directors

Directors are treated slightly differently in PAYE:

• Their NICs can be calculated annually or per pay period
• Many directors choose a low salary plus dividends strategy
• PAYE must still be operated if they’re paid above the lower threshold

Dragonfly Associates advises on optimal director salary strategies and ensures your payroll is configured accordingly.

Frequently Asked Questions

Can I pay myself without PAYE?

Only if your salary is below the lower earnings limit and you’re not providing benefits. In most cases, directors require PAYE registration if paid.

Can I backdate PAYE registration?

No. PAYE registration must be done in advance of making payments. Failing to register on time can lead to penalties.

Do I need to file if no one was paid?

Yes. You must file a “nil return” or tell HMRC that no payments were made for the period. We assist with this under payroll support plans.

Stay Compliant, Avoid Surprises

PAYE isn’t just for big businesses—it applies to any company paying salaries. Failing to register or report correctly can result in penalties, even for first-time directors.

Dragonfly Associates supports companies with PAYE setup, payroll administration, and HMRC reporting under agreed service plans.

If you plan to pay yourself or hire staff, contact us early to ensure everything is in place.

VAT (Value Added Tax) is one of the most commonly misunderstood taxes for new and growing businesses in the UK. Depending on your revenue and business activities, you may be legally required to register—or you may benefit from registering voluntarily.

This guide explains when VAT registration is mandatory, what it means for your business, and how Dragonfly Associates can support the process, subject to agreement.

What Is VAT?

VAT is a consumption tax added to most goods and services sold in the UK. When your business is VAT registered:

• You charge VAT on your sales (known as output tax)
• You can reclaim VAT on purchases and expenses (input tax)
• You must submit regular VAT returns to HMRC

The standard VAT rate in the UK is 20%, though reduced rates (5% or 0%) apply to some goods and services.

When Is VAT Registration Mandatory?

You must register for VAT if:

• Your VAT-taxable turnover exceeds £90,000 (as of 2024–2025) in the last 12 months
• You expect to exceed the threshold in the next 30 days alone
• You are trading in the UK and selling taxable goods or services

This applies to UK-based and non-UK businesses with a UK VAT presence. Dragonfly Associates monitors thresholds and advises clients when registration becomes necessary.

Should I Register Voluntarily?

Even if you’re under the threshold, you may choose to register voluntarily. This can be beneficial if:

• You want to reclaim VAT on startup costs and equipment
• Your customers are VAT-registered (so charging VAT is expected)
• You want to enhance your business credibility

However, it also adds administrative obligations—quarterly returns, invoice requirements, and proper recordkeeping. We help you assess whether voluntary registration makes sense based on your business model.

How to Register for VAT

You can register online through the HMRC VAT portal. You’ll need:

• Your company details and UTR (Unique Taxpayer Reference)
• Business activity and trading start date
• Estimated turnover and VAT scheme selection

Once registered, HMRC will issue:

• A VAT registration number
• Your effective date of registration
• Your VAT return schedule

Dragonfly Associates handles the VAT registration process for clients under our accounting and compliance plans, subject to agreement.

Which VAT Scheme Should You Use?

Several VAT accounting schemes are available, including:

• Standard VAT Accounting
• Flat Rate Scheme (for businesses under £150,000 turnover)
• Annual Accounting Scheme
• Cash Accounting Scheme

Each has pros and cons depending on your business type, cash flow, and reporting needs. We guide clients in choosing the right scheme for their circumstances.

After Registration: What’s Required?

Once VAT registered, you must:

• Charge VAT on taxable sales and issue proper VAT invoices
• File VAT returns (usually quarterly)
• Keep digital VAT records (Making Tax Digital compliance is required)
• Pay HMRC any VAT due or reclaim VAT on your expenses

Failure to comply can result in penalties, fines, or deregistration. Dragonfly Associates provides full VAT return preparation and filing services to clients who opt in, where applicable.

Frequently Asked Questions

What if I go over the threshold temporarily?

You still need to register if the threshold is exceeded, even if only briefly. You can apply to deregister later if appropriate.

Can I reclaim VAT on past purchases?

You may be able to reclaim VAT on certain pre-registration expenses (up to 6 months for services, 4 years for goods), depending on conditions.

What happens if I don’t register when required?

HMRC may impose penalties and demand backdated VAT, plus interest.

What is a UTR?

A UTR (Unique Taxpayer Reference) is a 10-digit number issued by HMRC that uniquely identifies your company for tax purposes. You’ll need it when registering for Corporation Tax and filing your tax returns. It’s sent by post shortly after your company is incorporated.

Register With Confidence

VAT doesn’t need to be complicated—but the risks of getting it wrong are real. Whether you’re registering for the first time or deciding if voluntary registration makes sense, it pays to have expert support.

Dragonfly Associates helps UK and international businesses register, file, and manage their VAT obligations with clarity and precision—available as part of agreed service packages.

To discuss your VAT status or begin the registration process, contact us today.

If your UK limited company is active—meaning it’s trading, investing, or earning income—it must pay Corporation Tax on its profits. Unlike VAT or PAYE, there is no threshold: registration is mandatory for every active company.

In this article, we explain what Corporation Tax is, when to register, and how Dragonfly Associates can help you manage your tax obligations, subject to agreement.

What Is Corporation Tax?

Corporation Tax is a direct tax that UK companies pay on their taxable profits. This includes:

• Trading income
• Investment income (e.g. interest, dividends)
• Capital gains from asset sales

The current Corporation Tax rate (as of 2025) is 25% for profits over £250,000. Small companies with profits under £50,000 pay a lower marginal rate. There is a tapered rate in between.

These rates can change annually, so it’s important to stay informed or work with a provider who keeps you compliant.

Who Needs to Register?

You must register for Corporation Tax if your company is:

• Actively trading (selling goods or services)
• Receiving investment or bank interest
• Employing people or paying yourself as a director
• Involved in any other activity that generates income

Even if your company is not making a profit, you still need to file a Corporation Tax return if the company is active.

Dragonfly Associates registers clients for Corporation Tax as part of our company formation and accounting packages, where applicable.

When and How to Register

You must register with HMRC within 3 months of starting to trade. “Trading” includes invoicing, advertising, receiving payments, or buying stock.

Registration is done online via the HMRC portal. Once registered, HMRC will:

• Issue a Unique Taxpayer Reference (UTR)
• Create a company tax record
• Set your deadlines for returns and payments

We handle registration and setup for clients enrolled in our tax and compliance support plans.

Key Corporation Tax Deadlines

• Register within 3 months of starting business
• File your Corporation Tax return (CT600) within 12 months of year-end
• Pay any Corporation Tax due within 9 months and 1 day after your accounting period ends

Missing deadlines can result in penalties and interest charges. Dragonfly Associates monitors these dates for our clients, where agreed.

What Does a Corporation Tax Return Include?

Your tax return must show:

• Company details and accounting period
• Calculated taxable profits
• Tax adjustments (e.g., disallowed expenses, capital allowances)
• Final Corporation Tax liability

It must be filed online in iXBRL format and usually submitted alongside your annual accounts.

We prepare and submit Corporation Tax returns for clients using our accounting services, depending on their service plan.

Allowable Expenses and Reliefs

To reduce your tax liability, your company can deduct allowable business expenses, such as:

• Staff salaries and employer NI
• Office rent and utilities
• Marketing and advertising costs
• Professional services and subscriptions
• Travel and business-related expenses

You may also qualify for reliefs like:

• R&D tax credits
• Capital allowances
• Loss carry-forward

Dragonfly Associates provides guidance on allowable expenses and ensures they’re recorded properly, subject to agreement.

Frequently Asked Questions

Can I file my own Corporation Tax return?

Yes, but many business owners prefer professional assistance to ensure accuracy and avoid penalties.

Do dormant companies pay Corporation Tax?

No. But you must inform HMRC that your company is dormant. Otherwise, you may still receive filing requests.

What happens if I don’t register?

HMRC may fine your company and backdate tax liabilities. You could also face late payment penalties.

Manage Your Tax with Confidence

Corporation Tax is one of the most important obligations your company will face. With clear processes, good recordkeeping, and proactive support, it doesn’t have to be a burden.

Dragonfly Associates helps businesses register, file, and manage their Corporation Tax duties with clarity and care—available under contract and according to your selected service level.

To ensure your company meets its tax obligations from day one, get in touch with our team.