By Hammond & Co
Running a gym is expensive.
Rent, equipment finance, staff wages, software, marketing, insurance — the costs don’t slow down. So when money finally comes out of the business and into your personal account, it needs to be done correctly.
Yet director pay is one of the most commonly misunderstood areas we see among limited company gym owners.
Many gym directors:
- Pay themselves “whatever feels right”
- Take money when the bank balance looks healthy
- Mix personal and business spending
- Delay thinking about tax until their accountant emails… months later
And that’s usually where the problems begin.
This guide explains salary vs dividends in clear, practical terms — specifically for gym and fitness business owners — so you understand:
- How director pay actually works
- What HMRC expects
- The common mistakes we see in gyms
- How to pay yourself efficiently and safely
No jargon. No scare tactics. Just clarity.
Why Director Pay Is Different in a Limited Company Gym
When you operate as a limited company, you and the business are legally separate entities.
That means:
- The gym’s money is not automatically your money
- You cannot simply “take cash” like a sole trader
- Every withdrawal must have a clear label and purpose
As a director, there are three main ways money can leave the company:
- Salary
- Dividends
- Director’s Loan (which we’ll touch on later, as this can carry risk)
This article focuses on the first two — because getting these right can save significant tax and avoid unnecessary HMRC issues.
Option 1: Paying Yourself a Salary
A director’s salary works in the same way as an employee wage.
How Salary Works
- Paid through PAYE
- Subject to Income Tax
- Subject to National Insurance (employee and employer)
- Reported to HMRC monthly
Why Gym Owners Use Salary
- Creates qualifying years for the State Pension
- Counts as personal income for mortgage applications
- Provides predictable, consistent income
The Common Misconception
Many gym owners assume:
“If salary is taxed, I should avoid it altogether.”
In reality, most limited company directors should take a salary — just not a large one.
The Smart Salary Approach
Typically, gym directors take a small, tax-efficient salary that:
- Results in low or no Income Tax
- Keeps National Insurance minimal
- Preserves pension and benefit eligibility
This forms a stable financial base — not the main income source.
Option 2: Paying Yourself Dividends
Dividends are payments made to shareholders from company profits.
And this is where we most often see mistakes.
How Dividends Work
- Can only be paid from real, post-tax profits
- Must be formally declared (even if you’re the sole director)
- Taxed personally, but not subject to National Insurance
- Paid after Corporation Tax is considered
Why Dividends Are Attractive
- Lower personal tax than salary
- No National Insurance
- Flexible timing
When handled correctly, dividends are extremely efficient.
The #1 Dividend Mistake Gym Owners Make
We see this scenario regularly:
A gym owner checks the bank balance and thinks,
“There’s money there — I’ll take some.”
But:
- Cash in the bank does not equal profit
- VAT collected is not yours
- Corporation Tax may not yet be paid
- Finance agreements and liabilities still exist
If dividends are taken without sufficient profits, they become illegal dividends.
HMRC will not treat them as dividends. They may be reclassified as:
- Director’s loan balances
- Salary (with additional tax and penalties)
That’s when the real problems begin.
Why Gyms Are Especially Exposed to Director Pay Issues
Fitness businesses have unique financial patterns:
- Memberships paid upfront monthly
- High fixed overheads
- Seasonal cashflow fluctuations (January vs summer)
- VAT thresholds creeping up quietly
- Major reinvestment decisions — equipment, refurbishments, expansions
We often see gyms that appear profitable on paper but actually operate on tight cash margins, with directors unknowingly withdrawing future tax funds.
Director pay needs planning — not guesswork.
Salary vs Dividends: A Balanced Strategy
For most limited company gym owners, the optimal structure is a combination of both.
A Small, Tax-Efficient Salary
This:
- Keeps PAYE compliant
- Builds pension eligibility
- Provides personal income stability
Dividends on Top — When Safe
Dividends should be:
- Based on up-to-date management accounts
- Timed around tax planning
- Properly declared
- Forecasted against future Corporation Tax
This balance reduces tax legally while protecting the business.
What Happens When Director Pay Isn’t Planned
When director pay is unmanaged, we commonly see:
- Surprise tax bills
- Director’s loan accounts building quietly
- HMRC letters and compliance checks
- Year-end stress
- Growth decisions made on inaccurate figures
Perhaps most damaging of all, gym owners lose confidence in their numbers.
And when you don’t trust your numbers, hesitation — or poor decisions — follow.
Director’s Loan Accounts: The Silent Risk
If you withdraw money that isn’t salary or dividends, it goes into a director’s loan account.
Short term, this can be manageable.
But if it builds up:
- The company may owe additional tax
- You may owe personal tax
- Repayments become uncomfortable
- HMRC attention increases
Most director loan problems start with poor dividend planning.
Why “We’ll Sort It at Year-End” Is Dangerous
Annual accounts are often too late to correct director pay mistakes.
By the time they are prepared:
- The money has already been withdrawn
- The tax position is largely fixed
- Options are limited
Gym owners benefit far more from:
- Monthly or quarterly reviews
- Real-time profit tracking
- Ongoing tax planning
Good accounting is proactive, not reactive.
How the Right Advice Changes Everything
When director pay is structured properly, gym owners often tell us they:
- Feel confident taking money out
- Understand what’s safe versus risky
- Sleep better before tax deadlines
- Make growth decisions with clarity
- Stop fearing HMRC correspondence
This isn’t about paying the least tax possible.
It’s about:
- Paying the right tax
- At the right time
- With no surprises
Final Thought: Your Gym Should Pay You — Not the Other Way Around
You didn’t build a gym to:
- Constantly worry about tax
- Avoid looking at your figures
- Feel guilty withdrawing income
Director pay should feel controlled, justified and stress-free.
If you’re unsure whether:
- Your salary level is right
- Your dividends are safe
- Your structure still suits your gym
That’s not a failure — it’s a signal.
And it’s one we help gym owners address every day at Hammond & Co.