Running a garage or MOT centre as a limited company is a big step up.
You’re no longer just fixing cars or managing bookings — you’re now a company director, with responsibilities not just to customers, but to HMRC, Companies House, and yourself.
One of the biggest decisions you make — often without real guidance — is how you pay yourself.
Salary?
Dividends?
A mix of both?
Or just “take money when it’s there and deal with it later”?
This blog explains how director pay actually works for garage and MOT centre limited companies, where things commonly go wrong, and how to structure it properly so you don’t end up with surprise tax bills, HMRC letters, or sleepless nights in January.
Why Director Pay Matters More Than Most Garage Owners Realise
Most directors assume paying themselves is a small admin detail.
It isn’t.
How you pay yourself affects:
- Your personal tax bill
- Your company’s cashflow
- Your exposure to HMRC enquiries
- Whether you accidentally build up a director’s loan account
- Your ability to get a mortgage or finance
In garages and MOT centres, this is amplified because:
- Cashflow fluctuates
- VAT can quietly drain the bank
- Large bills (parts, equipment, wages) land unexpectedly
- Directors often take money as and when they need it
Without a plan, things drift.
And drift is where problems start.
Salary vs Dividends: The Basics (Without the Jargon)
Salary
A salary is:
- A fixed monthly payment
- Processed through payroll
- Subject to PAYE and National Insurance
- A deductible cost for the company
For most garage directors, salary is used up to a sensible level, not as the main source of income.
Dividends
Dividends are:
- Paid from company profits
- Not guaranteed
- Not a business expense
- Declared formally (not just transferred)
Dividends are tax-efficient — when used correctly.
The problem is that many garage owners take dividends without checking profits, or treat them like wages.
HMRC definitely notice that.
The Common Garage Director Scenario (Sound Familiar?)
Here’s a situation we see all the time.
A garage owner:
- Takes money out whenever the bank balance looks healthy
- Doesn’t label payments clearly
- Doesn’t know whether it’s salary or dividends
- Assumes “we’re busy, so we must be profitable”
Then January arrives.
Suddenly:
- There’s a personal tax bill they weren’t expecting
- The accountant mentions a director’s loan account
- Cash is tight because VAT is due
- Stress levels go through the roof
None of this happens overnight.
It builds quietly across the year.
Why Garages & MOT Centres Are High-Risk for Director Pay Errors
Garage businesses have a few specific challenges:
1. VAT Confusion
VAT is not your money — but it sits in your bank account.
Many directors accidentally:
- Pay themselves using VAT money
- Forget quarterly VAT drains cash later
- Don’t separate VAT from real profit
2. Lumpy Costs
Big costs hit garages hard:
- Parts
- Equipment
- MOT bay upgrades
- Staff overtime
If director pay isn’t planned, one large bill can destabilise everything.
3. “We’ll Sort It at Year End” Thinking
Year-end fixes don’t undo:
- Overdrawn director loans
- Illegal dividends
- Missed tax planning opportunities
By the time accounts are done, the damage is already there.
What a Sensible Director Pay Structure Looks Like
For most garage & MOT centre limited companies, a balanced approach works best.
Salary
Usually set at:
- A low, tax-efficient level
- Paid monthly
- Provides National Insurance record
- Keeps PAYE simple
This gives consistency and legitimacy.
Dividends
Used:
- When profits actually exist
- Declared properly
- Paid at planned intervals
- Matched to cashflow
Dividends are a reward, not a right.
The Danger of Director’s Loan Accounts (DLAs)
If you take money:
- That isn’t salary
- And isn’t a dividend
- And isn’t reimbursed expenses
…it goes into a Director’s Loan Account.
This is one of the most dangerous areas for garage directors.
Why DLAs Are a Problem
- They attract HMRC attention
- They can trigger extra tax charges
- They indicate poor financial control
- They can cause penalties if left unpaid
Many directors don’t even realise they have one until it’s too late.
Illegal Dividends: A Silent Risk
Dividends can only be paid from retained profits.
That means:
- After all expenses
- After Corporation Tax provision
- After accounting adjustments
If profits aren’t there, the dividend is illegal — even if the bank balance looks fine.
Illegal dividends can:
- Be reclassified
- Create personal tax issues
- Trigger HMRC scrutiny
This is one of the biggest hidden risks in garage limited companies.
Why Mortgage Lenders & Finance Providers Care
Director pay affects:
- Mortgage affordability
- Car finance
- Commercial lending
Lenders look for:
- Consistent salary
- Clean dividend history
- No messy director loans
- Clear accounts
Random drawings and poor structure can cost you opportunities later.
Tax Planning vs Tax Panic
The best director pay strategies are planned early.
Tax panic happens when:
- You only look at numbers once a year
- No one tells you where you stand
- Decisions are reactive
Proper planning means:
- Knowing what you can safely take
- Understanding upcoming tax bills
- Avoiding nasty surprises
What a Good Accountant Should Be Doing Here
A good accountant for a garage or MOT centre should:
- Review director pay regularly
- Flag risks early
- Explain consequences clearly
- Stop you making costly mistakes
- Balance tax efficiency with cashflow safety
They shouldn’t just process what you’ve already done.
Final Thought: Director Pay Is a Control Tool, Not Just a Tax Decision
Paying yourself properly:
- Protects your business
- Protects you personally
- Reduces stress
- Builds long-term stability
Most garage owners don’t need aggressive tax schemes.
They need clarity, structure, and control.
How Accounting Matters Helps Garage Directors
We work with garage and MOT centre limited companies to:
- Structure director pay properly
- Keep tax predictable
- Avoid HMRC issues
- Improve cash confidence
If you want director pay that makes sense — not surprises — it starts with a conversation.