Can You Be a Director and Employee of Your Own Company?

Who this guide is for

This guide is for owner-directors of UK limited companies who want to understand how they can be paid and whether payroll applies.

It is especially useful for one-person companies and small family companies.

Director vs employee

A director is an office holder responsible for running the company and meeting legal duties.

An employee works under an employment arrangement and is paid wages or salary.

In a small company, the same person can be both. For example, you may be the sole director, shareholder and employee of your own company.

Paying yourself a salary

If the company pays you a salary, it may need to register as an employer and operate PAYE.

The company may need to deduct Income Tax and National Insurance from salary payments and pay employer National Insurance where due.

Salary is a company cost and should be processed through payroll correctly.

Director National Insurance

Directors have special National Insurance rules. Director National Insurance is usually calculated on annual earnings, rather than in exactly the same way as ordinary employees each pay period.

This is why director payroll should be set up carefully in payroll software.

Dividends are different from salary

If you are a shareholder, the company may be able to pay dividends from available profits after Corporation Tax considerations.

Dividends are not wages. They are distributions of company profit to shareholders.

Dividends should be documented with dividend vouchers and board minutes or appropriate company records. They should not be treated as random withdrawals from the company bank account.

Salary plus dividends

Many owner-directors use a combination of salary and dividends, but the right mix depends on tax rates, company profits, cash flow, National Insurance, pension planning and personal circumstances.

There is no single salary-dividend strategy that is right for everyone.

Director loans

If you take money from the company that is not salary, dividend, reimbursed expense or repayment of money owed to you, it may be treated as a director's loan.

Director loans have their own tax and reporting consequences, so company withdrawals should be recorded carefully.

Common mistakes

A common mistake is treating company money as personal money. A limited company is legally separate from its director.

Another mistake is paying dividends when the company does not have enough available profits.

Some directors also take salary without setting up payroll or misunderstand National Insurance rules for directors.

Finally, directors sometimes forget that receiving dividends may create a Self Assessment obligation.

What to do next

Before taking money from your company:

1. Decide whether it is salary, dividend, expense reimbursement or loan.
2. Check whether payroll is needed.
3. Confirm the company has available profits before dividends.
4. Keep dividend paperwork.
5. Track director loan account movements.
6. Review your personal tax position.