How Care Directors Get It Wrong — And How to Structure It Properly in 2026
Running a health or social care company is not like running most businesses.
You’re responsible for vulnerable people.
You’re accountable to regulators.
You’re managing staff shortages.
You’re dealing with delayed local authority payments.
And somewhere in the middle of all that…
you’re trying to pay yourself.
Most care directors don’t intentionally structure their pay badly.
It usually sounds like:
- “Just take something for now.”
- “We’ll sort it at year end.”
- “The accountant will tell us what dividends we can take later.”
That approach works — until it doesn’t.
In health and social care, poor director remuneration planning can lead to:
- Unexpected personal tax bills
- Overdrawn Director’s Loan Accounts
- Cashflow pressure
- Scrutiny from HM Revenue & Customs
- Section 455 tax charges
- Governance concerns
Why Director Pay Needs Extra Attention in Care Companies
Health & social care businesses operate under unique financial pressure:
- Wage-heavy cost structures
- National Living Wage increases
- Pension auto-enrolment obligations
- Agency staffing spikes
- Delayed council payments
- Tight margins per service user
When cashflow fluctuates, directors often start taking money “as needed.”
That’s where problems begin.
A limited company is legally separate from you.
You cannot simply withdraw money — it must be structured correctly.
The Two Main Ways Directors Get Paid
There are two primary methods:
- Salary
- Dividends
They are not interchangeable.
They are taxed differently.
They impact your company differently.
Salary — The Structured Foundation
Salary is:
- Processed through PAYE
- Subject to Income Tax and National Insurance
- A deductible business expense
- Reported in real time to HM Revenue & Customs
In 2026, salary is about optimisation, not maximisation.
A well-planned salary:
- Uses personal allowance efficiently
- Maintains state pension eligibility
- Avoids unnecessary NIC
- Keeps compliance clean
Benefits of salary:
✔ Stability
✔ Clean reporting
✔ Pension contributions
✔ Mortgage-friendly income
But salary alone is rarely the most tax-efficient route.
Dividends — The Profit Distribution
Dividends are:
- Paid from post-tax profits
- Not subject to National Insurance
- Taxed at dividend rates
- Only legal with sufficient distributable reserves
Here’s the key issue:
Cash in the bank does NOT equal profit.
You cannot pay dividends if:
- The company lacks retained profit
- You are relying purely on available cash
- The business is effectively loss-making
This misunderstanding is common in care businesses where timing differences distort cashflow.
The Most Common Mistake
We frequently see this pattern:
The company is under pressure due to:
- Delayed council payments
- Rising staffing costs
- Increasing wage bills
The director still needs income.
So they:
- Transfer money out
- Assume it will be treated as dividends
- Plan to fix it later
If profits are insufficient…
👉 That money becomes a Director’s Loan.
The Director’s Loan Trap
If funds taken are not:
- Salary
- Declared dividends
- Legitimate expenses
They sit in a Director’s Loan Account (DLA).
If overdrawn:
- The company may face Section 455 tax (33.75%)
- The director may face personal tax charges
- HMRC scrutiny increases
- Governance risk rises
In a regulated sector like care, this creates unnecessary exposure.
What Proper Planning Looks Like
A structured remuneration strategy includes:
✔ Profit forecasting before dividends
✔ Quarterly reserve monitoring
✔ Wage ratio analysis
✔ Tax planning before year-end
✔ Aligning drawings with cashflow
Not guesswork.
Not assumptions.
Planning.
Why Care Companies Are More Exposed
1. Wage Costs Dominate
Often 70–85% of turnover
2. Margins Are Tight
Small changes can eliminate profit
3. Payment Delays
Local authority cycles distort cashflow
4. Regulatory Oversight
Financial stability matters to regulators
Poor remuneration planning doesn’t just affect tax.
It affects business resilience.
Salary vs Dividends in 2026 — The Balanced Approach
For most care directors, the optimal approach includes:
✔ A planned, consistent salary
✔ Dividends based on confirmed profits
✔ Quarterly management accounts
✔ Ongoing tax forecasting
✔ Proper documentation
Avoid:
✘ Random transfers
✘ “We’ll fix it later” thinking
✘ Backdated dividends
✘ Ignoring DLA balances
What HMRC Looks For
HM Revenue & Customs typically focuses on:
- PAYE compliance
- Director remuneration
- Staff classification
- Accurate reporting
- Digital records
If your remuneration appears inconsistent or unsupported by profit, it raises questions.
The best defence:
Good systems. Clear reporting. Forward planning.
The Bigger Question
Ask yourself:
- Do I know my current distributable profit?
- Do I know my Corporation Tax liability?
- Do I understand my personal tax exposure?
- Is my Director’s Loan Account clear?
- Have I reviewed my pay this year?
If not, your approach is reactive.
The Role of a Proactive Accountant
A good advisor should:
✔ Review remuneration quarterly
✔ Provide management accounts
✔ Forecast tax before year-end
✔ Monitor Director’s Loan balances
✔ Ensure dividends are compliant
✔ Structure tax-efficient pay
If these conversations only happen after year-end…
It’s already too late.
Final Thoughts
As a health or social care director, you carry significant responsibility.
Your remuneration structure should:
- Protect you personally
- Protect the company
- Minimise tax within the rules
- Maintain governance
- Support long-term sustainability
Director pay isn’t about extracting money.
It’s about building a stable, compliant, financially resilient business.
Need Clarity on Your Structure?
At Hammond & Co, we help care sector directors:
- Review remuneration structures
- Check Director’s Loan exposure
- Forecast tax liabilities
- Improve profitability visibility
Because in regulated sectors like care…
Financial clarity isn’t optional.