Company Director Tax Guide: Pay, Duties and Deadlines

Company directors who take a salary pay Income Tax and National Insurance through the company’s payroll. Dividends cannot reduce the company’s Corporation Tax bill, and the shareholder may owe Income Tax on them once their allowances are used up. The director is responsible for the company’s filings with Companies House and HMRC.

If you’re the only shareholder, director and employee, the company’s bank balance can feel like your own money. Tax law doesn’t treat it that way, and each route you use to take money out is taxed on its own terms.

This company director tax guide is written for directors of UK private limited companies. Your own position depends on whether you take salary, dividends or both, whether you’re the company’s only employee, and whether it’s a close company (one run by five or fewer shareholders).

Where a rate or threshold is reset each year, the guide explains how it works and links to the page that carries the current figure.

Company director tax guide basics: two taxpayers, not one

Your limited company is a separate legal entity, so its money has to be kept apart from yours. A dedicated business bank account keeps the two apart.

The company pays Corporation Tax on its profits, while Income Tax on your salary and dividends is worked out on you personally. That split is the thread through this company director tax guide.

If the company side is new to you, start with what Corporation Tax is.

Are you an employee of your own company? Not automatically. For tax and National Insurance, directors are classed as office holders, and a director who also does other work may have an employment contract with the rights that go with it.

Your salary still runs through PAYE, and HMRC’s payroll guidance treats directors as employees when working out contributions.

These limits apply to who can be a director:

• You must be at least 16, and an appointment that takes effect before then is void.
• You can’t act while disqualified unless a court gives you permission.
• You usually can’t be a director while under bankruptcy restrictions, and acting as one while an undischarged bankrupt without the court’s permission is an offence.
• You have to verify your identity with Companies House, and a new director does so before the appointment can go through.

Forming the company is a separate process, covered in the guide to setting up a limited company.

Company director duties UK law holds you to

The Companies Act 2006 gives every director seven general duties, and they apply even if you take no active part or act as a director without a formal appointment.

Companies House sets them out in its guidance on being a company director.

In plain English, the seven are:

• Act only within the powers set by your company’s articles of association and wider constitution.
• Put the company’s interests first, weighing long-term consequences, staff, suppliers and customers, the community and environment, its reputation and fairness between members.
• Make your own decisions, taking advice where it helps without handing control of your powers to anyone else.
• Bring reasonable care, skill and diligence, knowing that more experience or qualifications raise the standard expected of you.
• Steer clear of divided loyalties, a duty that carries on after you leave the board.
• Turn down benefits a third party offers you because of your role, unless the company permits something like reasonable hospitality where no conflict arises.
• Declare any personal stake in a deal the company is about to make to your fellow directors and the members.

Once a company is insolvent, the duty to promote its success turns towards its creditors’ interests.

Your limited company director responsibilities go further than the seven duties. You remain answerable for the company’s performance, its accounts and its records even when an accountant does the routine work.

Falling short can lead to a fine, prosecution or disqualification, which is a ban of up to 15 years. Examples of unfit conduct include trading on when the company can’t pay its debts, poor record-keeping, unfiled accounts, unpaid company tax and treating company money or assets as your own.

Anyone can report a director’s conduct, and breaking a ban can mean a fine or up to two years in prison.

Company director salary and dividends are taxed in layers

How are company directors taxed on money they take out? It depends on the route: salary, dividends or a directors’ loan.

Paying yourself a salary means the company has to register as an employer. It deducts Income Tax and National Insurance from your pay, then pays employer National Insurance on top.

Income Tax on salary is charged on pay above your Personal Allowance at the rates for your band (Scotland sets its own bands).

Dividends work differently. They can only be paid from available profits, they usually go to all shareholders, and they don’t count as a business cost for Corporation Tax.

Paying one out leaves the profit charged at the company’s Corporation Tax rates unchanged. The company itself pays no tax on the dividend.

Each dividend needs a directors’ meeting to declare it, minutes of that meeting even when you’re the only director, and a voucher for the person being paid.

On your side, dividends inside any unused Personal Allowance aren’t taxed, and you get a dividend allowance each year on top. Anything above those is taxed at the dividend rate for your Income Tax band, which you find by adding your dividends to your other income.

Once they’re added to your other income, dividends can fall across more than one band and be charged at more than one dividend rate.

The current rates and allowance are in the guide to dividend tax for company directors.

Taking out more than you’ve put in, other than as salary or dividends, creates a directors’ loan, and the company has to keep records of it.

Your National Insurance runs on an annual clock

Company director National Insurance is worked out on your earnings for the whole tax year, rather than pay period by pay period as for other employees. It’s charged on salary and bonuses, while dividends follow separate tax rules.

Payroll can use either of two methods. HMRC says the standard annual earnings period method is common for directors paid irregularly, and the alternative method, which works per pay period and squares up at the end of the year, is common for directors paid regularly.

Employee contributions start once salary passes the primary threshold and fall to a lower rate above the upper earnings limit. Employer contributions are due on salary above the secondary threshold.

The current rates and thresholds are on the National Insurance rates and categories page.

Employer contributions apply even when you’re the company’s only director and only employee. A single-director company can’t claim the Employment Allowance if that director is the only person on the payroll whose pay attracts employer contributions.

If you stop being a director partway through a year but stay on as an employee, your contributions for that year are still worked out on the annual basis.

Self Assessment follows your income, not your title

HMRC’s list of who must send a tax return includes sole traders earning over £1,000, business partners and anyone with Capital Gains Tax to pay, among a few other groups. A directorship isn’t on it.

Untaxed income is what can bring you in, and dividends are one of the examples given. You must also file if HMRC asks you to, and the guide to Self Assessment tax returns covers the basics.

Whether and how you report dividends turns on the total:

• Dividends within your unused Personal Allowance and dividend allowance don’t need reporting, unless you already file a Self Assessment return, which has to include all your dividend income.
• Dividends above those allowances but totalling £10,000 or less go on your return if you already file, and otherwise you tell HMRC between 5 April and 5 October by asking for a tax code change or calling the helpline.
• Dividends totalling over £10,000 need a Self Assessment return, and if you don’t usually file one you must register by 5 October after the tax year ends.

Those limits sit alongside the rates explained in how dividend tax is worked out.

An online return is due by 31 January after the tax year ends, which is also when any tax owed has to be paid. Paper returns are due earlier, by 31 October.

If you file as a director of a close company, the employment pages ask for the company’s name and registration number, your dividends from it and your percentage shareholding.

Each box is explained in the guide to the new SA102 boxes for company directors.

Company director filing deadlines run on two calendars

Your company answers to two bodies, and this company director tax guide keeps their calendars apart: Companies House for the public record and HMRC for tax.

These are the dates to put in the diary:

• First accounts go to Companies House within 21 months of the date the company registered.
• Later accounts are due 9 months after the end of each financial year.
• A confirmation statement is due at least once every 12 months, with a 14-day window to file once each review period ends.
• Corporation Tax has to be paid, or HMRC told nothing’s owed, within 9 months and 1 day of the accounting period ending.
• The Company Tax Return is due 12 months after that accounting period ends.

Not filing a confirmation statement risks a fine of up to £5,000 and the company being struck off the register.

Payment comes before filing, so the bill can be due while the return is still being prepared. The ways to settle it are set out in how to pay HMRC Corporation Tax.

Company records have to be kept for six years, counted from the close of the latest financial year they cover, and longer in some cases, such as a late return or an open HMRC compliance check. Not keeping accounting records can lead to a £3,000 HMRC fine or disqualification.

For the return itself, the Corporation Tax return guide explains what goes in and how to submit.

VAT is a separate registration. It becomes compulsory once VAT-taxable turnover over the last 12 months goes past the registration threshold, or is expected to pass it within the next 30 days alone, and you can register voluntarily below it.

Allowable expenses for company directors pass two tests

Limited company director expenses face two separate questions, and passing one doesn’t settle the other.

The first is whether the company can deduct the cost. Day-to-day costs incurred wholly for a business purpose can be deducted from taxable profit, cutting the amount charged at whichever Corporation Tax rate applies.

Capital purchases, like equipment the company will use for years, can’t be deducted, though capital allowances may be available. Client entertaining is specifically disallowed.

The second question is whether you’re personally taxed on it as a benefit. HMRC treats employee expenses and benefits as a separate matter from the company’s running costs.

Here’s how six specific items are treated:

• Mileage in your own car or van can be paid tax-free up to HMRC’s approved rate, which is higher for the first 10,000 business miles in a tax year, with anything above that approved amount reported on your P11D.
• Working from home regularly under a homeworking arrangement lets the company pay you £6 a week, or £26 a month if you’re paid monthly, with no records needed to back it up.
• Trivial benefits costing £50 or less aren’t taxed if they’re not cash or a cash voucher, not a reward for your work and not part of your contract, though a close company director can’t receive more than £300 of them in a tax year.
• An annual staff party or similar event open to all employees is exempt at £150 or less a head, with that limit covering every such event in the year combined.
• Client gifts can be deducted where they carry a conspicuous advert for the company, aren’t food, drink, tobacco or a voucher for goods, and come to no more than £50 per person in the accounting period.
• Private medical insurance that the company arranges and pays for goes on your P11D, unless an exemption applies, and the company pays Class 1A National Insurance on its value.

The current pence-per-mile figures for cars, vans, motorcycles and bikes are in HMRC’s mileage rules.

Your next step with this company director tax guide

Use this company director tax guide as a checklist, starting with the calendar. Put the company’s accounts, confirmation statement and Corporation Tax dates in your diary.

Next, look at how you’re paid. Salary goes through payroll with National Insurance worked out on the whole year, while dividends come out of profit and are taxed on you once your allowances run out.

If your dividends pass £10,000, you’ll need a Self Assessment return, and a close company director will also meet the questions explained in the guide to new Self Assessment boxes for directors.

Finally, sort any expense by the two tests: can the company deduct it, and are you taxed on it personally? The seven duties sit underneath every one of these steps.

Key takeaways

In short:

• You and your company are taxed separately: the company pays Corporation Tax on its profits, while Income Tax on your salary and dividends is worked out on you.
• Every director has seven general duties under the Companies Act 2006, and falling short of your responsibilities can lead to a fine, prosecution or a ban of up to 15 years.
• Dividends above your unused Personal Allowance and the dividend allowance are taxed at the dividend rate for your Income Tax band, and paying them doesn’t reduce the company’s Corporation Tax bill.
• Directors’ National Insurance is worked out on the whole year’s salary and bonuses, and employer contributions apply even in a one-person company.
• Dividends over £10,000 mean a Self Assessment return, while a directorship on its own isn’t on HMRC’s list of reasons to file.
• Expenses face two tests: whether the company can deduct the cost, and whether you’re personally taxed on it as a benefit.