By Hammond & Co
Introduction
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.
Get it right, and you can reduce tax, protect cash flow, and avoid unpleasant surprises. Get it wrong, and you may face unexpected tax bills, HMRC scrutiny, or ongoing cash pressure — particularly during quieter months.
This guide is written specifically for owner-directors in landscaping and gardening businesses. These businesses are often:
- Seasonal
- Physically demanding
- Asset-heavy (vans, tools, machinery)
At Hammond & Co, we work closely with trade-based limited companies, and in this blog we explain:
- Salary vs dividends
- How each is taxed
- Common mistakes we see in the landscaping and gardening sector
- 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.”
That approach is understandable — especially during busy spring and summer months — but it 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 directly affects:
- Your personal tax position
- Your company’s tax bill
- Cash flow through quiet periods
- Mortgage and borrowing applications
- HMRC compliance
The Two Main Ways to Pay Yourself
As a director-shareholder, there are usually two main ways to extract money from your company:
1. Salary
A regular payment processed through payroll, similar to an employee wage.
2. Dividends
Payments taken from company profits after tax, based on share ownership.
Most directors use a combination of both — and this is where the biggest tax efficiencies are usually found.
Understanding Salary for Directors
How Salary Is Taxed
A director’s salary is subject to:
- Income Tax
- Employee National Insurance
- Employer National Insurance (paid by the company)
This makes salary more expensive overall, but it still plays an important role.
Why Directors Still Take a Salary
Despite the tax cost, salary:
- Counts towards State Pension entitlement
- Is treated as reliable income for mortgages and loans
- Is an allowable business expense, reducing Corporation Tax
- Provides predictable income during quieter winter months
The Common Strategy
Many landscaping and gardening directors choose a low, tax-efficient salary, often aligned with:
- The National Insurance threshold
- The personal allowance
This keeps National Insurance costs down while maintaining pension eligibility.
Understanding Dividends
What Are Dividends?
Dividends are paid from profits after Corporation Tax. This means:
- The company pays Corporation Tax first
- Dividends are paid from what remains
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 Important Catch
Dividends can only be paid if the company has sufficient profits.
This is where many landscaping and gardening businesses run into trouble, particularly when:
- Winter months reduce income
- Large equipment purchases reduce profits
- VAT or tax hasn’t been set aside
Paying dividends without profits can result in illegal dividends, which HMRC takes 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 Need a Different Approach
Director pay strategies must reflect how your business actually operates.
1. Seasonality
Income is often:
- Strong from spring through early autumn
- Much lower during winter
This makes high fixed salaries risky, but flexible dividends very effective — when planned properly.
2. High Equipment Spend
Vans, trailers, mowers, diggers, and tools can:
- Reduce profits in certain years
- Limit dividend availability
Major purchases should always be factored into director pay planning.
3. Hands-On Directors
Many directors are:
- On-site daily
- Managing staff
- Quoting work
While the line between “director” and “worker” can blur, the tax rules still apply and need to be followed correctly.
Common Mistakes We See in the Sector
1. Taking Money Without Checking Profits
Cash in the bank does not equal profit.
Cash ≠ Profit
Profit ≠ Cash
VAT, tax liabilities, and timing differences can significantly distort the picture.
2. Overdrawing the Director’s Loan Account
This happens when you take more than you’re entitled to through salary or dividends.
Consequences can include:
- Additional Corporation Tax charges
- Personal tax implications
- Increased HMRC attention
3. No Dividend Paperwork
Dividends must be:
- Properly declared
- Supported by board minutes
- Issued with dividend vouchers
Skipping this creates unnecessary compliance risk.
4. Leaving Tax Planning Too Late
By January, options are often limited.
Proactive planning gives control.
Reactive accounting creates stress.
So, What’s the “Best” Way to Pay Yourself?
There’s no one-size-fits-all answer, but for many landscaping and gardening limited companies, the most effective approach is:
- A low, tax-efficient salary
- Regular dividends based on:
- Actual profits
- Forecasted tax liabilities
- Seasonal cash flow
The key is that it’s planned, not guessed.
A Simple Real-World Example
If your landscaping company:
- Makes £60,000 profit before director pay
- Has one director and shareholder
A structured mix of salary and dividends could:
- Reduce National Insurance
- Control personal tax bands
- Retain cash for winter and tax bills
Without planning, many directors end up:
- Paying more tax than necessary
- Taking money too early
- Facing large January tax bills
Why Ongoing Advice Makes a 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 landscaping and gardening, where income can fluctuate significantly.
How Hammond & Co Helps Landscaping & Gardening Directors
At Hammond & Co, 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 properly 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 run a landscaping or gardening limited company, director pay is not something to leave to chance.
Salary and dividends both 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.
Hammond & Co is here to help you get it right.