Owner-managers can extract funds from the company in various ways. Typically, the working shareholders may well, in addition to drawing a normal salary, decide whether to extract surplus profits by means of a bonus or dividend.

Hitherto, the high levels of National Insurance contributions (NICs) have meant that more owner-managers have tended to draw all or a substantial part of their profits in the form of dividends. It is often sensible to extract a reasonable level of salary, even if it is at least sufficient salary to maintain NICs records such that each year is a qualifying year for state pension ‘accrual’ purposes.

For 2023/24, directors and employees suffer 12% NICs on their earnings between £242 and £967 per week (or if earnings are calculated on an annual basis, £12,570 and £50,270). An additional employee NICs charge of 2% is levied on ALL earnings exceeding the upper earnings limit of £50,270.

In 2023/24, businesses continue to pay 13.8% employer’s NICs on all director and employee earnings above £175 per week (£9,100 on an annual basis fixed until April 2028). Employer NICs still remain payable for employees that have reached state pension age.

Certain smaller businesses may be able to benefit from the annual employer allowance that exempts them from paying the first £5,000 of NICs.


If the company extracts surplus funds by means of a dividend, the relatively high cost of NICs is avoided.

In 2023/24, the recently increased dividend rates remain subject to a change in the top tax rate threshold (reduced to £125,140 from £150,000)

Dividends are always taxed as the highest slice of taxable income. Ignoring the personal allowance and the dividend allowance (reduced to £1,000), the relevant rates are currently as follows:

Dividend tax rates – 2022/23
Taxable dividend income receivedTax rate
Up to £37,7008.75%
Between £37,700 and £125,14033.75%
Above £125,14039.35%


From 2023/24 onwards, the choice between bonuses and dividends becomes very marginal for most owner-managers, although some may still prefer the possible delay in the payment of tax for dividends (unless perhaps where this is embedded in their payments on account).

However, where shareholders only pay tax at the lower or basic rates, dividends will still typically be more Tax-efficient.

Owner-managers must therefore always ensure that the company has sufficient distributable profits when the dividend is paid to ‘frank’ the entire payment.