What tax do I pay as a Scottish company director and shareholder?

In this blog, we’ll be discussing the tax paid by a Scottish company director. That is a company director who lives in Scotland and is liable to Scottish rates of Income Tax on their salary.

We’ll also explain what tax you will pay on dividend income received from company shares, in addition to the Corporation Tax rate applicable to a Scottish company.

Taxation in Scotland

By and large, taxation in Scotland is governed by UK law and administered by HMRC, with the exception of local taxes (e.g. council tax, non-domestic/business rates) and certain other devolved taxes, like Land and Buildings Transaction Tax. These are controlled by the Scottish Government and administered by local authorities and Revenue Scotland.

However, the Scottish Parliament has the power to set different Income Tax rates and tax band thresholds in Scotland (excluding the annual Personal Allowance). This determines the amount of Income Tax that individuals living in Scotland pay on their non-savings and non-dividend income.

Income Tax in Scotland is not fully devolved. HMRC continues to collect and manage Scottish Income Tax, which includes identifying Scottish taxpayers, before paying the collected tax to the Scottish Government.

Income tax rates for a Scottish company director

If you live in Scotland and own a Scotland based company, you will pay Scottish Income Tax on your director’s salary (and any other wages you receive), your pension, and most other forms of taxable income – apart from dividends and savings interest.

It doesn’t matter where you’re from or which part of the UK your company is registered in – the Income Tax you pay is determined by where you live in the UK.

This means that, as a resident of Scotland, you will pay Scottish Income Tax regardless of whether your company is registered in England & Wales, Northern Ireland, or Scotland. Your company’s jurisdiction (country) of incorporation is irrelevant.

See also: A guide to Scottish limited company formation

You will also pay Scottish Income Tax if you:

• move to/from Scotland and live there for a longer period than elsewhere in the UK during a tax year
• live in a property in Scotland and another property elsewhere in the UK (e.g. for work) but your Scottish residence is your main home
• cannot identify anywhere as your main home but you spend more days in Scotland than anywhere else in the UK – this could apply if, for example, you travel for work and stay in hotels, or you work offshore

If you move to/from Scotland, you must contact HMRC to provide your new address. You could end up paying the wrong Income Tax rates otherwise.

If you have more than one residence and are not sure which one is your main home, HMRC provides detailed guidance on working out if you’ll pay Scottish Income Tax.

Scottish Income Tax rates for the 2024-25 and 2023-24 tax years

Tax band	Taxable income threshold 2024-25	Tax rate 2024-25	Taxable income threshold 2023-24	Tax rate 2023-24
Personal Allowance	Up to £12,570	0%	Up to £12,570	0%
Starter rate	£12,571 – £14,876	19%	£12,571 – £14,732	19%
Basic rate	£14,877 – £26,561	20%	£25,689 – £43,662	20%
Intermediate rate	£26,562 – £43,662	21%	£25,689 – £43,662	21%
Higher rate	£43,663 – £75,000	42%	£43,663 – £125,140	42%
Advanced rate	£75,001 – £125,140	45%	n/a	n/a
Top rate	Above £125,140	48%	Above £125,140	47%

 

You’ll receive the full Personal Allowance (PA) of £12,570/year until you start earning over £100,000 per year. At that point, it will be reduced by £1 for every £2 you earn over £100,000.

Sole traders and members of partnerships (including LLPs) who reside in Scotland also pay Scottish rates of Income Tax through Self Assessment on their taxable earnings/individual profits.

What tax do I pay on shares as a Scottish company shareholder?

Shareholders of UK companies pay the same rates of dividend tax on their dividend income regardless of where in the UK their companies are registered. The same is true of savings interest.

See also: Tax on shares – everything you need to know

Therefore, if you live in any part of the UK and own shares in a company that is registered in Scotland, England & Wales, or Northern Ireland, you will pay the following rates of tax on your dividend income:

 

UK Income Tax band	Taxable income threshold	Dividend tax rate    2024-25	Dividend tax rate    2023-24
Personal Allowance	Up to £12,570	0%	0%
Basic rate	£12,571 to £50,270	8.75%	8.75%
Higher rate	£50,270 to £125,140	33.75%	33.75%
Additional rate	Over £125,140	39.35%	39.35%

 

In addition to enjoying lower rates of tax on dividend income, all UK shareholders are entitled to an annual dividend allowance of £500 (reduced from £1,000 in the 2023-24 tax year). This means that your first £500 of dividend income in 2024-25 will be tax-free.

How much National Insurance do I pay in Scotland?

National Insurance contributions (NIC) rates in Scotland are in line with the rest of the UK. Therefore, you pay the same amount of NIC regardless of where in the UK you live.

For the 2024-25 tax year, you will pay the following rates of Class 1 National Insurance on your director’s salary:

• 8% on annual earnings between £12,570 and £50,270
• 2% on annual earnings above £50,270

Your company will also pay 13.8% employers’ Class 1 NIC on your director’s salary earnings from £9,100/year.

If you receive income from any self-employed activities (e.g. rental income, freelance work), you will pay the following rates of National Insurance on these earnings through Self Assessment (based on your total annual earnings from all sources):

• Class 4 NIC – 6% on profits between £12,570 and £50,270; then 2% on profits above £50,270

The requirement to pay Class 2 NIC no longer applies to self-employed income earned from 6 April 2024 onward. However, self-employed individuals with profits under £6,725 may continue to pay Class 2 NIC voluntarily to retain access to contributory benefits, including the State Pension. The rate is £3.45/week.

How do I pay tax and NIC on my director’s salary and dividends?

If you pay yourself a director’s salary of at least £123/week, you will need to register your limited company as an employer with HMRC, enrol for Pay As You Earn (PAYE), and process your salary through your company’s payroll.

This means that your salary will be taxed at source. Your Income Tax and Class 1 employee NIC will be deducted and paid to HMRC through PAYE.

Any employers’ Class 1 NIC that your company owes must also be paid through PAYE.

See also: What is PAYE? See also: Is a director an employee of a company? See also: Do I need to register for Self Assessment after I set up a company?

The way in which you pay tax on dividends is different. You will need to register for Self Assessment, file an annual tax return to report your dividend income, and pay any dividend tax you owe on those earnings.

What Corporation Tax does a Scottish company pay?

All UK companies pay the same rates of Corporation Tax regardless of where in the UK they are registered. Therefore, your Scottish company will pay:

• 19% if annual profits are less than £50,000 – the ‘small profits rate’ (SPR)
• 25% if annual profits are more than £250,000 – the ‘main rate’

If your company generates profits between the SPR and the main rate, you will claim Marginal Relief on the amount between £50,000 and £250,000. This relief provides a gradual increase in the effective Corporation Tax rate between the SPR and main rate.

Any questions?

Tax is never the most riveting of topics, but we hope this post has clarified how much Income Tax, National Insurance, and dividend tax you will pay as a Scottish company director and shareholder.

If you have any questions about limited company tax – or anything else related to setting up and running a UK company – please contact us or leave a comment below.