If you run a landscaping or gardening limited company, how you pay yourself as a director is one of the most important financial decisions you’ll make each year. Get it right, and you can significantly reduce tax while improving cash flow. Get it wrong, and you could face unexpected tax bills, HMRC scrutiny, or long-term cash problems in the business.
This guide is written specifically for owner-directors in landscaping and gardening—businesses that are often seasonal, physically demanding, and asset-heavy (vans, tools, machinery). We’ll break down salary vs dividends, how each is taxed, common mistakes we see in the industry, and how to choose the right mix for your situation.
Why Director Pay Matters More Than You Think
Many landscaping company directors tell us:
“I just take money out when I need it.”
While understandable—especially during busy summer months—this approach often leads to:
- Overdrawn director’s loan accounts
- Unexpected personal tax bills
- Cash shortages when VAT or Corporation Tax is due
- Stress at year end
Director pay isn’t just about getting money into your pocket. It affects:
- Personal tax
- Company tax
- Cash flow
- Future borrowing and mortgage applications
- HMRC compliance
The Two Main Ways to Pay Yourself
As a director-shareholder, you usually have two main options:
1. Salary
A regular payment through payroll, just like an employee.
2. Dividends
Payments taken from company profits after tax, based on share ownership.
Most directors use a combination of both—and this is usually where the biggest tax savings sit.
Understanding Salary for Directors
How Salary Is Taxed
Salary is subject to:
- Income Tax
- Employee National Insurance
- Employer National Insurance (paid by the company)
This means salary is more expensive overall, but it has important benefits.
Why Directors Still Take a Salary
Despite the tax cost, salary:
- Counts as qualifying income for the State Pension
- Is treated as guaranteed income for mortgages and loans
- Is a deductible expense for the company (reducing Corporation Tax)
- Provides predictable, regular income during quieter months
The Common Strategy
Many limited company directors choose a low, tax-efficient salary—often aligned with:
- The National Insurance threshold
- The personal allowance
This keeps National Insurance to a minimum while maintaining pension eligibility.
Understanding Dividends
What Are Dividends?
Dividends are payments made from post-tax profits. This means:
- The company pays Corporation Tax on its profits
- Dividends are paid from what’s left
How Dividends Are Taxed
Dividends:
- Are taxed at lower rates than salary
- Do not attract National Insurance
- Are taxed based on your personal income band
This makes dividends very attractive for director-shareholders.
The Big Catch
Dividends can only be paid if the company has profits.
This is where many landscaping businesses run into trouble—especially if:
- Winter months reduce income
- Large equipment purchases reduce profit
- VAT or tax hasn’t been set aside
Paying dividends without profits can lead to illegal dividends, which HMRC take seriously.
Salary vs Dividends: A Simple Comparison
Feature |
Salary |
Dividends |
Taxed as income |
Yes |
Yes (lower rates) |
National Insurance |
Yes |
No |
Counts for state pension |
Yes |
No |
Requires profits |
No |
Yes |
Reduces company profit |
Yes |
No |
Flexible timing |
Low |
High |
Why Landscaping & Gardening Businesses Are Different
Director pay strategies must reflect how your business actually works.
1. Seasonality
Income is often:
- High from spring to early autumn
- Lower in winter
This makes fixed high salaries risky, but flexible dividends powerful—if managed properly.
2. High Equipment Spend
Vans, trailers, mowers, diggers, and tools can:
- Reduce profits in certain years
- Impact dividend availability
This is why planning matters—big purchases should be factored into your pay strategy.
3. Physically Demanding Work
Many directors are hands-on:
- On-site daily
- Managing staff
- Quoting jobs
This often blurs the line between “director” and “worker,” but tax rules still apply.
The Most Common Mistakes We See
1. Taking Money Without Checking Profits
Directors assume cash in the bank equals profit. It doesn’t.
Cash ≠ Profit
Profit ≠ Cash
VAT, tax, and timing differences can distort the picture.
2. Overdrawing the Director’s Loan Account
This happens when you take more money than you’re entitled to through salary or dividends.
Consequences include:
- Extra Corporation Tax charges
- Personal tax implications
- HMRC attention
3. No Dividend Paperwork
Dividends must be:
- Properly declared
- Supported by board minutes
- Issued with dividend vouchers
Skipping this creates compliance risks.
4. Ignoring Tax Planning Until January
By the time January arrives, it’s often too late to fix mistakes.
Proactive planning = control
Reactive accounting = stress
So, What’s the “Best” Way to Pay Yourself?
There is no one-size-fits-all answer, but for many landscaping and gardening limited companies, the most effective approach is:
- Low, tax-efficient salary
- Dividends taken regularly, based on:
- Actual profits
- Forecasted tax liabilities
- Seasonal cash flow
The key word is planned.
A Real-World Example (Simplified)
Let’s say your landscaping company:
- Makes £60,000 profit before director pay
- You’re the sole director and shareholder
A planned mix of salary and dividends could:
- Reduce National Insurance
- Control personal tax bands
- Leave cash available for winter and tax bills
Without planning, many directors end up:
- Paying more tax than necessary
- Taking money too early
- Facing large January tax surprises
Why Ongoing Advice Makes a Big Difference
Director pay shouldn’t be decided once a year.
Regular reviews allow you to:
- Adjust for seasonality
- Plan equipment purchases
- Respond to profit changes
- Avoid overdrawn loan accounts
This is especially important in trades like landscaping and gardening, where income can fluctuate significantly.
How We Help Landscaping & Gardening Directors
At Accounting Matters, we work closely with landscaping and gardening limited companies to:
- Design tax-efficient director pay structures
- Forecast profits and cash flow
- Ensure dividends are legal and documented
- Plan tax before it becomes a problem
We don’t just file accounts—we help you understand the numbers and use them to make better decisions.
Final Thoughts
If you’re running a landscaping or gardening limited company, director pay is not something to guess at.
Salary and dividends each have their place—but the real savings come from:
- Understanding the rules
- Planning ahead
- Reviewing regularly
If you’ve ever wondered whether you’re paying yourself the right way, that’s usually a sign it’s time for a proper conversation.
Want to Get This Right?
If you’d like help reviewing your director pay strategy—or just want clarity without jargon—we’re always happy to have a no-obligation chat.
Accounting does MATTER 🌱