How your company money actually works
No jargon. Follow your own euros from invoice to pocket, and see why each tax exists.
These diagrams use a worked example. Run the calculator to see them with your own numbers.
Where your money goes
Follow one euro from the invoice you send a client to the money that actually lands in your account. Along the way it passes through business expenses, your director salary and social contributions, corporate tax on what the company keeps, and — if you take a dividend — a further dividend withholding. The bar below shows exactly how one year of turnover splits across each of those stops, using either your own numbers or a worked example.
Your money, followed to the end
Every euro of your €115,500 turnover, split into where it actually lands.
- Business expenses€12,000 · 10%
- Corporate tax€8,645 · 7%
- Personal income tax€14,897 · 13%
- Dividend withholding€5,390 · 5%
- Pension contributions€1,800 · 2%
- Retained in company€14,855 · 13%
- Net in pocket€59,713 · 52%
Why profit is taxed twice
Company profit is taxed twice on its way to your pocket: once inside the company as corporate tax, and again when what's left is paid out to you as a dividend. Salary works differently — it is deducted before corporate tax even applies, then taxed once through personal income tax and social contributions. That's why the choice between paying yourself more salary or taking a dividend changes how much of the same euro survives the trip. The diagram below shows both layers for this worked example, and how much of the original profit reaches you as a net dividend.
Why company profit is taxed twice
Profit is taxed inside the company, then again when you take it out.
- Taxable profit€45,500
- After-tax profit€36,855−€8,645 corporate tax
- Net dividend€16,610−€5,390 dividend withholding
Company vs sole trader
A sole trader is taxed personally on all business profit at progressive rates, with no separation between the business and the individual. Running through a company changes the shape of the tax bill: profit is taxed at a flat corporate rate first, and only what's paid out to you afterwards is taxed again, personally. That two-step structure also unlocks levers a sole trader cannot use — splitting income between salary and dividend, building a pension through the company, and tax-free benefits in kind. Whether a company actually keeps more than sole-trader status depends mostly on how much you earn: it usually takes meaningful, consistent profit before the extra structure and paperwork pay for themselves.
Salary vs dividend
As a company director you usually choose your own gross salary, and that single choice ripples through the rest of the picture. A higher salary is deductible for the company and, once it passes a minimum threshold, unlocks the reduced corporate tax rate — but it also costs more in social contributions and personal tax than an equivalent dividend. A dividend is only paid from what's left after corporate tax, and is taxed again on the way out through dividend withholding, though reduced-rate regimes can lower that second layer once shares have been held long enough. There's rarely a single right split — the optimizer finds the mix of salary and dividend that keeps the most for your specific numbers.
Tax-free benefits
Some perks a company can give its director escape income tax and social contributions almost entirely, instead of being paid out as extra salary. Meal and eco vouchers, a home-office allowance, and a bicycle allowance are common examples — each capped at a fixed yearly or daily ceiling, but delivered nearly whole because they sidestep the usual deductions. Paying the same net amount through a salary increase would cost the company considerably more, since it would first have to clear social contributions and personal tax. Used within their limits, these benefits are one of the simplest ways to raise what you keep without touching the salary/dividend split at all.
Pension levers
Beyond the mandatory social contributions, a director can build extra retirement savings two ways: a personally-funded top-up such as VAPZ, or a company-funded plan such as IPT. VAPZ contributions come out of your own income but lower what your social contributions and personal tax are calculated on, so part of the cost is offset immediately. IPT premiums are paid by the company instead, deductible for the company up to a ceiling tied to your salary and career — money a sole trader has no equivalent way to access. Both trade a tax break today for capital that's only taxed, generally lightly, once you eventually draw it at retirement.