Your Guide to Directors' Pay in the UK: A Construction Accountant's Guide (2026/27)

Running a successful construction business requires more than winning contracts and delivering projects on time. As a company director, one of the most important financial decisions you'll make is how to pay yourself.

Whether you operate as a building contractor, electrical contractor, plumbing company, roofing contractor or specialist subcontractor, the way you take money from your business can significantly affect your personal tax, your company's Corporation Tax, cash flow and long-term financial position.

Many directors assume the most tax-efficient option is simply to take a low salary and the rest as dividends. While this may be appropriate in some circumstances, every construction business is different. Factors such as profitability, retained earnings, CIS, Reverse Charge VAT, project cash flow and future investment plans should all be considered before deciding on your remuneration strategy.

Working with a specialist construction accountant or contractor accountant can help ensure you extract money from your business efficiently while remaining fully compliant with HMRC.

In this guide, we'll explain the main ways construction company directors can pay themselves, how each option is taxed and the key considerations for construction businesses.

1. How Can a Director Pay Themselves?

Unlike employees, directors of a limited company have several ways of receiving income from their business.

The most common methods include:

• Director's salary

• Bonuses

• Dividends

• Director's Loan Account

• Employer pension contributions

• Reimbursement of legitimate business expenses

• Benefits in Kind

Most directors receive a combination of these rather than relying on a single method.

The most suitable approach depends on several factors, including:

• Company profitability

• Available retained profits

• Cash flow

• Personal income requirements

• Future investment plans

• Corporation Tax position

• Personal tax circumstances

For growing construction companies, remuneration should not be viewed purely as a tax exercise. It should also support the financial stability of the business.

For example, taking large dividends immediately after completing a profitable project may seem attractive. However, if substantial VAT liabilities, supplier invoices or Corporation Tax payments are still due, this could place unnecessary pressure on the company's cash flow.

This is where specialist construction accounting differs from general accountancy. A construction accountant understands the commercial realities of project-based businesses and can help directors balance personal income with the financial needs of the company.

2. Paying Yourself Through a Director's Salary

A director's salary is paid through the company's PAYE payroll system in the same way as other employees.

For many construction company directors, salary forms the foundation of an efficient remuneration strategy.

Advantages of taking a salary

Paying yourself a salary offers several benefits:

• It is generally an allowable business expense for Corporation Tax purposes.

• It helps build qualifying years towards your State Pension, provided the relevant thresholds are met.

• It provides regular personal income throughout the year.

• It may improve affordability when applying for mortgages or other finance.

• It demonstrates consistent earnings for lenders.

For many owner-managed construction companies, salary is combined with dividends to achieve an efficient balance between personal taxation and company taxation.

How much salary should a director take?

There is no single salary that is right for every company.

The most appropriate amount depends on factors such as:

• Current Income Tax thresholds

• National Insurance thresholds

• Corporation Tax rates

• Other personal income

• Company profitability

• Future dividend plans

These thresholds can change each tax year, so directors should review their remuneration regularly rather than relying on figures that may no longer be appropriate.

A specialist contractor accountant will normally review your remuneration annually to ensure it remains as tax-efficient as possible.

Payroll Responsibilities

Even if you are the only director of your company, paying yourself a salary means your business may need to operate PAYE.

This includes:

• Running payroll correctly.

• Calculating Income Tax where applicable.

• Calculating National Insurance contributions.

• Reporting payroll information to HMRC through Real Time Information (RTI).

• Issuing payslips.

• Maintaining payroll records.

Many construction companies outsource payroll alongside their bookkeeping to ensure compliance and reduce the administrative burden.

3. Paying Yourself Through Bonuses

Some directors choose to reward themselves with a bonus, particularly after completing a successful financial year or delivering a highly profitable project.

Unlike dividends, bonuses are treated as employment income.

This means they are generally:

• Subject to Income Tax.

• Subject to National Insurance.

• Deductible for Corporation Tax purposes.

For construction businesses, bonuses may be appropriate where profits have exceeded expectations or where directors wish to reduce taxable company profits before the financial year-end.

However, because bonuses increase PAYE and National Insurance liabilities, they should be considered alongside other remuneration options rather than in isolation.

Before paying a bonus, directors should understand the wider tax implications and ensure the payment supports both personal and business financial objectives.

A construction accountant can help compare whether a bonus, dividend or alternative remuneration strategy is likely to be more appropriate based on your individual circumstances.

4. Paying Yourself Through Dividends

Dividends are one of the most popular ways for directors of construction limited companies to receive income from their business.

Unlike a salary, dividends are not paid through payroll. Instead, they are paid from a company's post-tax profits to its shareholders.

For many owner-managed construction businesses, a combination of salary and dividends can provide a tax-efficient way of extracting profits from the company. However, dividends should only be paid after considering the company's financial position and ensuring sufficient profits are available.

Before declaring dividends, directors should ensure:

• The company has sufficient distributable profits.

• Bookkeeping is accurate and up to date.

• Management accounts support the dividend payment.

• Corporation Tax has been considered.

• Dividend vouchers and board minutes have been prepared.

Many construction businesses make the mistake of assuming that a healthy bank balance automatically means dividends can be paid.

This is not always the case.

Cash in the bank may already be needed to cover:

• Corporation Tax.

• VAT liabilities.

• CIS obligations.

• Supplier invoices.

• Payroll.

• Materials for upcoming projects.

• Retentions not yet released.

This is why accurate construction bookkeeping and regular management accounts are essential before deciding how much to withdraw from the business.

A specialist construction accountant can help determine whether sufficient profits exist and ensure dividends are declared correctly.

4.1 What Is a Dividend?

A dividend is a payment made by a company to its shareholders from profits remaining after Corporation Tax.

The company's directors decide whether dividends should be paid and how much each shareholder receives. Dividends are normally distributed according to each shareholder's ownership of the company.

Unlike salaries and bonuses:

• Dividends are not deductible business expenses.

• Dividends can only be paid if sufficient profits are available.

• Directors should maintain appropriate documentation, including dividend vouchers and board meeting minutes.

For many contractors and construction company directors, dividends remain an important part of an overall remuneration strategy. However, they should always be supported by accurate financial records and available profits.

4.2 How Does Dividend Tax Work?

Although dividends are paid from company profits that have already been subject to Corporation Tax, shareholders may still have to pay Dividend Tax personally.

For the 2026/27 tax year, the first £500 of dividend income is covered by the Dividend Allowance.

Any dividends received above this allowance are taxed according to your Income Tax band.

Dividend Tax Rates (UK Wide)

Tax Band	Dividend Tax Rate
Basic Rate	10.75%
Higher Rate	35.75%
Additional Rate	39.35%

The amount of Dividend Tax you pay depends on your total taxable income, not simply the amount of dividends you receive.

This means that salary, rental income, pensions and other taxable income can all influence the rate of Dividend Tax you pay.

For this reason, many directors work with a contractor accountant to review their remuneration each tax year rather than relying on the same salary and dividend combination every year.

4.3 Example

The following example is simplified for illustration purposes.

Assume you have no other sources of taxable income during the 2026/27 tax year.

Your construction limited company pays you:

• Annual salary: £5,000

• Monthly salary: £416.66

After taking this salary, part of your Personal Allowance remains available.

Combined with the £500 Dividend Allowance, you could receive approximately £7,570 in dividend income before creating an Income Tax liability.

This calculation is based on:

£12,570 Personal Allowance

Less:

£5,000 salary

Remaining Personal Allowance:

£7,070

Plus:

£500 Dividend Allowance

Total dividends received before Dividend Tax = £7,570

This example is intended to demonstrate how salary and dividends can work together.

Your own tax position may differ depending on:

• Other employment income.

• Rental income.

• Pension income.

• Benefits in Kind.

• Director's Loan balances.

• Company profitability.

• Available distributable profits.

Always seek professional advice before deciding on your remuneration strategy.

5. What Is the Most Tax-Efficient Salary?

One of the most common questions we receive from construction company directors is:

"What salary should I pay myself?"

Unfortunately, there is no single answer.

The most tax-efficient salary depends on several factors, including:

• Current Income Tax thresholds.

• National Insurance thresholds.

• Corporation Tax rates.

• Available company profits.

• Dividend strategy.

• Other personal income.

• Mortgage or borrowing requirements.

• Pension contributions.

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While many directors combine a modest salary with dividends, this approach should be reviewed each tax year as legislation and tax thresholds change.

For construction businesses, the decision should also consider:

• Cash flow.

• Retentions.

• Reverse Charge VAT.

• Outstanding applications for payment.

• Seasonal trading patterns.

• Future investment in equipment and vehicles.

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Taking a large dividend simply because the company bank account has available cash can create financial pressure if significant liabilities are due shortly afterwards.

A specialist construction accountant will help balance personal tax efficiency with the financial needs of the business, ensuring directors can reward themselves while maintaining healthy cash flow and supporting future growth.