Directors, Dividends and Bounce Back Loans

Will directors who also own shares in their firms have to pay higher national Insurance contributions (NIC) when we emerge from lockdown?


Many directors take a small wage of £720 per month with a dividend from the company’s profits, to top it up. This has long been considered one of the most tax-efficient ways of rewarding director shareholders.

Could this cause a problem with the government’s furlough scheme?

In a way. It has meant that directors with no work who furloughed themselves, could only get 80% of £720, which is £576. This is substantially less money than they would usually get.

Could there be another problem going forwards?

Possibly, if the company has taken advantage of the government’s Bounce Back Loan Scheme (BLSS). These loans are on very favourable terms, with no repayments or interest for the first 12 months.

However, many small companies have very few assets. So the loans could result in a company having liabilities that are greater that its assets. This would make it technically insolvent. We wrote about that here.

How does this effect directors?

Dividends can only be voted from the net assets of the company. For this to happen, the company must have assets and therefore be solvent. If a company is insolvent then directors can not vote themselves dividends.

What will directors have to do ?

Instead of taking dividends, directors will have to take either an increased salary or a bonus to cover the drawings that they take out of the business. Using this method, they will incur Employees NIC at 12% (up to £962 per month) and the company would incur Employers NIC at 13.8%. This is much higher than the 7.5% dividend tax rate they paid before the lockdown.

So some directors will have higher NIC contributions when we emerge from lockdown.

If you have any questions about your company’s finances during the COVID-19 crisis, or regarding anything else, feel free to contact us on  0161 773 7737, or via email at: