Ndubuisi 'Andy' Egwim explains why there's no single salary-dividend split that works for every director. An NHS employee earning £100,000 risks the 60% tax trap if she takes more salary, while a doctor with a limited company benefits from a £12,570 salary that uses her full personal allowance tax-free.
The first mistake is assuming that there's one perfect combination of salary and dividends for every company director. Nope, there's not. Suppose you already earn a big NHS salary, let's say a full NHS salary. Your personal allowance may already be fully used. So, you may already be paying a higher rate tax already from your salary job. You may even be close to £100,000 adjusted net income and be at risk of falling into the 60% tax trap. At that point, you've started losing your personal allowance. Now, taking more salary from your company could add to your taxable income and create further PAYE and National Insurance liability. For example, imagine your adjusted net income from your NHS work is already around £100,000. You then receive more salary from your limited company. Let's say you receive £12,570. You also have rental income and maybe some bank interest, dividends, or income from another professional role. Those amounts can push your adjusted net income higher and may move you further into the 60% tax trap. So instead of becoming more tax efficient, you may accidentally make your position worse. Yes, you end up paying more. Now consider a doctor in a different scenario altogether. Her limited company is her only source of income, so she's a full open, works outside the Area 35. For that person, taking some salary may help them use up their personal allowance or build a National Insurance record. So she might take 12,570 and pay zero tax. So the answer depends on the whole picture.
