Director responsibilities
Statutory duties, signing accounts, dividend rules, and the most common things directors get wrong.
Articles
How directors take money out
Four routes, taxed differently: salary through PAYE, dividends from post-tax profits, employer pension contributions, and — as a timing device, not an income — the director's loan account. Most owner-directors run a deliberate mix: a modest salary, dividends against available profits, and pension where the cash allows.
The right mix depends on the company's profits, your other income, and what the money is for. It is a calculation revisited every year, because both the numbers and the rules move — which is why the salary/dividend review is a standing item in our Annual Compliance Review.
Dividends: the rules that make them legal
Dividends can only be paid from accumulated distributable profits — retained profit after Corporation Tax, not the bank balance. Each payment needs the paperwork: a board minute and a dividend voucher, dated at the time. A 'dividend' paid without profits behind it is unlawful and gets reclassified — typically as a director's loan, with the tax consequences that follow.
The discipline is monthly numbers: knowing distributable reserves before declaring, not after. Companies that discover a reserves problem at year end have usually been paying themselves the bank balance.
The director's loan account
Every withdrawal that is neither salary nor dividend lands here. Owe the company money at year end and two clocks start: repay within nine months and one day of year end or the company pays a temporary tax charge that is only refunded after the loan is repaid; and larger loans carry a benefit-in-kind unless interest is charged.
'Bed and breakfasting' — repaying just before year end and redrawing just after — is specifically countered by anti-avoidance rules. The loan account is a useful buffer and a poor salary substitute.
Payroll obligations for the director
A salaried director sits on the company payroll like any employee: RTI submissions on or before each payment, PAYE and NI operated, with directors' NI calculated on an annual basis. Even a small salary means running a real payroll scheme, on the real deadlines.
The small salary is usually worth it — it preserves State Pension qualifying years and is deductible for the company — but it is an obligation, not a formality.
Frequently asked questions
What salary should I pay myself as a director?
Most owner-directors pay a deliberately modest salary — enough to secure a State Pension qualifying year and use the employment allowance position efficiently — and take the balance as dividends. The right figure moves with thresholds and your circumstances; it is a yearly calculation, not a folk number.
Can I take a dividend if this year is loss-making?
Possibly — dividends draw on accumulated profits from prior years, so a company with retained reserves can pay them in a losing year. If accumulated reserves are exhausted, no lawful dividend exists regardless of the bank balance.
What happens if my director's loan isn't repaid in time?
The company pays a temporary Corporation Tax charge on the outstanding balance — refundable, but only after the loan is repaid, and on a slow schedule. Larger interest-free loans also create a taxable benefit. It is a cash-flow trap more than a saving.
Do dividends need paperwork every time?
Yes — a board minute recording the decision and a dividend voucher for each payment, created at the time. In an enquiry, undocumented 'dividends' are the softest target in the file: without the paperwork they are reclassified as loans or salary.