Salary vs Dividend — What’s the Best Way to Pay Yourself as a Dentist?
Salary vs Dividend refers to how principal dentists extract income from a limited company — either through:
- Salary — paid via PAYE, treated as a business expense
- Dividend — a distribution of profit after tax, based on available retained earnings
Used correctly, combining both can reduce personal tax and build long-term wealth. Used poorly, it can create tax shocks, cash flow issues, or even HMRC red flags.
Why Salary vs Dividend Structure Matters for Dental Practice Owners
As the owner and director of a dental limited company, your total income is made up of:
- Salary (e.g. £12,570 to use up personal allowance)
- Dividends (e.g. £50,000 drawn from post-tax profit)
But many dentists:
- Draw too much without checking retained earnings
- Forget that dividends come after Corporation Tax
- Assume “profit” in Xero means safe take-home
- Overdraw — then get caught with Section 455 tax or working capital gaps
Example (2024–25 tax year):
| Pay Type | Amount | Tax Rate |
| Salary | £12,570 | 0% (personal allowance) |
| Dividend | £37,500 | ~8.75% after £500 dividend allowance |
| → Blended effective tax rate is far lower than if all income was salary |
Key Differences: Salary vs Dividend
| Factor | Salary | Dividend |
| Tax Timing | PAYE monthly | Annual self-assessment |
| Tax Type | Income tax + NI | Dividend tax (after £500 allowance) |
| Business Impact | Tax-deductible | Paid from post-tax profit |
| Admin | Requires payroll | Requires retained earnings and minutes |
| Flexibility | Fixed/monthly | Variable/taken as needed |
| Pensionable | Yes | No |
| Affects Mortgage | Yes (stronger evidence) | Yes (with SA302s) |
DentPulse automatically models the best blend based on net profit, tax exposure, and drawings strategy — inside the PTP™ module.
How DentPulse Optimises Salary and Dividends
| Feature | Function |
| PPP™ Planner | Recommends the optimal salary/dividend split for current profit |
| Tax Module Sync | Auto-calculates Corporation Tax, dividend tax, and cash exposure |
| Draw Limit Alerts | Flags if retained earnings are too low for safe dividends |
| Scenario Planning | Projects take-home under different blend assumptions |
| Year-End Advisor Overlay | Shows how current draw plan affects Jan 31 & July 31 tax bills |
DentPulse helps you pay yourself confidently — without tax stress or guesswork.
DentPulse Tip™
If you treat business cash like personal cash —
you’ll draw dividends before they’re earned, and tax pain will follow.
With the right salary-dividend blend, you legally reduce tax and protect liquidity — without crossing HMRC lines.
Related Glossary Terms
- PTP™ – Profit-to-Pocket – Connects business profit to personal drawings and tax
- Corporation Tax – Must be paid before dividends
- Retained Earnings – The pool from which dividends can be legally drawn
- Cash Flow Forecasting – Must factor in owner pay timings
- Self-Assessment Tax – Dividends trigger January and July personal tax payments
Glossary Summary Table
| Term | Meaning |
| Salary vs Dividend | The two main ways a limited company dentist extracts income |
| Purpose | Balance tax efficiency, cash flow, and legal compliance |
| Financial Impact | Affects Corporation Tax, personal tax, mortgage eligibility, and liquidity |
| DentPulse Advantage | Real-time modelling, alerts, and strategic planning for optimal owner pay |
