As UK businesses approach the March 2025 year-end, November serves as the perfect time to gear up for the forthcoming tax year. With several months remaining, business owners can make informed decisions that will have a lasting impact on their personal and corporate tax positions throughout 2024/25 and into 2025/26.
While many online resources adopt a “one size fits all” approach, the reality is that an effective remuneration strategy is tailored to the unique circumstances of each business.
Here, we explore the key considerations for director remuneration and highlight why consulting with an accountant before April is crucial.
Why now is the right time to review your remuneration.
Finalising director pay in the last week of March is not advisable. Early planning provides the opportunity to
- Review company profits and gauge the viability of dividends
- Assess available allowances before they reset on 6 April
- Avoid last-minute payroll adjustments
- Ensure decisions align with cash flow, tax forecasts, and HMRC compliance
- Address any changes in personal circumstances that may affect your tax exposure
Delaying until the end of the year limits your options and can lead to unnecessary tax liabilities.
Salary: Getting the basics right
Most directors opt for a minimum salary that strikes a balance between:
- Access to the State Pension and National Insurance credits
- Employer National Insurance thresholds
- Eligibility for Employment Allowance (if applicable)
- The financial health of the company
- Existing employment income
- Cash flow and pension contribution strategy
While there is a commonly recommended salary range each year, the best figure differs across businesses. What is helpful for one director may not be for another.
Dividends: Timing is everything
Dividends can be incredibly tax-efficient, provided:
- The company has sufficient distributable reserves
- Dividends are timed appropriately within the tax year
- The director’s overall income is monitored
- The business remains compliant with Companies Act regulations
- Consideration is given to the dividend allowance and tax banding
Two frequent pitfalls include:
- Distributing dividends without confirming available reserves
- Overdrawing from the director’s loan account, leading to unexpected tax charges
Conducting a review in November ensures you have clarity as you approach the final quarter.
Pensions: an often-overlooked planning tool
Employer pension contributions can serve as a potent and legitimate tax planning strategy. They can:
- Lower corporation tax liabilities
- Enhance long-term retirement savings
- Create a balanced remuneration package
However, due to contribution limits, carry-forward rules, tapered allowances, and the necessity for cash-flow discipline, pension planning mandates bespoke advice.
Benefits in kind: Valuable yet must be managed carefully
Company cars, medical insurance, mobile phones, and similar benefits can be helpful; they interact differently with tax thresholds and National Insurance bands. A pre-year-end review allows you to:
- Evaluate whether certain benefits continue to represent good value
- Correct or adjust benefits before the P11D season
- Avoid unexpected Class 1A NIC liabilities
Aligning business performance with your personal tax position
Ultimately, effective remuneration planning necessitates balancing two aspects: your business performance and your personal tax circumstances. Minor variations, such as changes in income, new benefits, profit shifts, or upcoming changes in corporation tax can dramatically affect what is truly “optimal” for the new tax year. This makes a personalised review essential rather than relying solely on generic salary and dividend tables.
The importance of tailored advice
An efficient director remuneration strategy hinges on:
- Profit levels and projected reserves
- Payroll structures
- Utilisation of allowances
- Choices regarding benefits
- Pension planning
- Anticipated investment or borrowing plans
- The involvement of other shareholders or directors
- Broader financial objectives
While this blog highlights various considerations, only a tailored review will provide the confidence needed in your financial planning.
So, thinking about the year-end now can help you avoid unexpected tax bills later and ensure you set off into the new tax year fully prepared.
Read more about our services on our website and start planning ahead for your March year-end.
