If you run a construction company, knowing the most tax-efficient and effective way to pay directors is crucial. Get this right, and you’ll boost profitability, minimise tax bills, and maximise your personal take-home income.
In this blog, we’ll clearly explain the best strategies for paying directors in construction businesses, including salary, dividends, pension contributions, and other benefits—so you can choose the most efficient structure for your business.
🔍 Why Director Pay Structure Matters
The way construction directors are paid affects:
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Your personal tax bill
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Company Corporation Tax liability
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National Insurance Contributions (NICs)
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Cash flow and overall profitability
Choosing the optimal pay strategy reduces tax, boosts cash flow, and maximises your personal income.
✅ Most Tax-Efficient Ways to Pay Directors
Here’s a clear breakdown of the most effective ways to structure directors’ pay:
1. Low Salary + Dividends (Most Common & Efficient)
Typically, the most tax-efficient method involves paying directors:
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A modest salary (just above the National Insurance threshold)
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Additional income as dividends from company profits
Benefits:
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Salary is a deductible expense for Corporation Tax.
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Dividends avoid National Insurance contributions, saving significant tax.
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Lower overall personal tax rates apply to dividends compared to salaries.
Recommended Strategy (2024/25 tax year):
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Pay a salary around £12,570 per year (personal allowance threshold).
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Take further profits via dividends (taxed at 8.75%–39.35% depending on income).
2. Pension Contributions (Highly Tax-Efficient)
Company pension contributions are another powerful tax-saving method:
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Contributions are fully deductible against Corporation Tax.
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No personal Income Tax or NIC is payable on contributions.
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Excellent long-term wealth-building opportunity for directors.
Recommended Strategy:
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Make annual company pension contributions directly into directors’ pensions.
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Utilise allowances fully (£60,000 per year, carry forward unused allowances).
3. Benefits-in-Kind (Company Benefits)
Providing benefits through the company can reduce personal tax bills, especially for essential items:
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Electric or hybrid company cars (low taxable benefits)
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Company mobiles or laptops (tax-free)
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Health insurance or medical cover (tax-efficient company deduction)
Tip: Choose benefits carefully—some are tax-efficient; others attract high personal tax charges.
📊 Example: Optimised Director Pay Structure
Here’s a typical example of a tax-efficient pay structure for a construction company director earning £100,000 annually in total remuneration:
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Salary: £12,570 (personal allowance threshold, minimal NIC)
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Dividends: £70,000 (from company profits)
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Pension contributions: £15,000 (fully Corporation Tax deductible)
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Benefits: Company-provided mobile phone, laptop, and electric vehicle
Result:
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Significant reduction in Income Tax and NICs.
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Maximum Corporation Tax efficiency.
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Higher personal net income overall.
🚫 Common Mistakes to Avoid When Paying Directors
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Paying high salaries, resulting in unnecessary NICs.
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Ignoring pension contributions, missing out on significant Corporation Tax savings.
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Taking dividends without sufficient company profits (illegal and penalised by HMRC).
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Forgetting to utilise available tax-free allowances and benefits.
⚙️ How to Set Up a Tax-Efficient Pay Structure (Step-by-Step)
Step 1: Define Your Personal Income Needs
Calculate exactly how much income you need personally each year.
Step 2: Determine Salary Level Clearly
Set salaries at or slightly above the personal allowance (£12,570 currently).
Step 3: Take Dividends from Available Profits
Clearly identify available profits (after Corporation Tax), then pay dividends efficiently.
Step 4: Set Up Pension Contributions
Arrange regular or lump-sum pension contributions from the company.
Step 5: Review Regularly with an Accountant
Have your pay structure reviewed annually to ensure it remains optimal and compliant.
🛠️ Tools to Help Manage Director Pay Efficiently
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Xero or QuickBooks: Track income, dividends, and expenses clearly.
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Payroll software (BrightPay, FreeAgent): Simplifies salary management.
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Pension providers (NEST, Standard Life, Aviva): For company pension contributions.
👷♂️ Real-Life Example: Saving £20,000 in Tax
We helped a construction firm director who previously paid high salaries with little pension or dividend optimisation.
After restructuring remuneration:
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Reduced annual NIC payments significantly.
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Maximised pension contributions for tax relief.
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Paid majority via dividends, reducing overall Income Tax.
They saved over £20,000 annually in combined taxes and increased net take-home income substantially.
📞 Need Expert Help Optimising Your Pay Structure?
At Thomas Emlyn Ltd, we specialise in helping construction business directors structure their pay efficiently and tax-effectively.
We can help you:
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Clearly identify the optimal salary-dividend mix.
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Maximise pension contributions and other tax-efficient benefits.
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Ensure full compliance with HMRC.
📞 Book a discovery call and start keeping more of your hard-earned money.
PS: Want to know your net pay through salary. Use our calculator here.
📌 Final Thoughts
Choosing the right pay structure for construction company directors isn’t just smart—it’s essential for profitability and personal income maximisation. Use this guide to structure your pay clearly, efficiently, and tax-effectively.
