09: Owner-managed companies

If you are a director and shareholder, you can avoid (or at least limit your exposure to) NICs by drawing income from your company as dividends instead of director’s remuneration. However, doing this will affect the company’s corporation tax, and reduced remuneration might possibly limit the amount you can pay into your pension plan.

There may be other drawbacks and restrictions. The company must have distributable reserves, and paying dividends may be inflexible where there is more than one shareholder.

Directors should continue to draw a small salary to preserve state pension entitlement and to make use of the personal allowance.

Personal service companies cannot save NICs by paying dividends. These are companies that provide the services of people on terms that would amount to employment status if the individual contracted direct with the client.