How to take money out of a limited company

A limited company is a separate legal person in the eyes of the law, so all business income legally belongs to the company rather than its directors and shareholders. Consequently, you can’t take money out of a limited company for personal use whenever you like.

Fortunately, there are several legitimate ways to pay yourself, and most director-shareholders use a combination of them, including:

• Paying yourself a director’s salary
• Issuing dividend payments from distributable profits
• Taking money as a director’s loan
• Reimbursing personal funds you’ve paid into the company or spent on business expenses

With dividend tax rates having risen from 6 April 2026, it’s also a good time to review whether your current mix of salary, dividends, and other payments still makes sense.

Key takeaways

• Salary and dividends are the main ways director-shareholders pay themselves, and they’re often used together.
• Dividends must come from distributable profits, while salary is paid through PAYE and reduces taxable company profits.
• An overdrawn director’s loan can create additional tax charges and reporting requirements.
• Pension contributions, legitimate expenses, and certain benefits give you other ways to use company money for your benefit.

Can you take money out of your limited company whenever you want?

Once you form a limited company, the money in its bank account belongs to the company, even if you’re its only director and shareholder. So, you can’t treat the business account like your personal account or take ‘drawings’ in the way a sole trader can.

You can, of course, still pay yourself. The important thing is that each payment has a proper basis. In most cases, that means taking a salary or dividend, reclaiming a genuine business expense, or taking back money you’ve previously lent to the company.

If you transfer money to yourself and it doesn’t fall into one of those categories, it’ll usually be recorded through your director’s loan account. And if that leaves you owing money to the company, the loan account becomes overdrawn, which can bring additional tax rules into play.

So, before moving money out of the business, make sure you know what the payment is and record it accordingly.

• How do dividends work in a private limited company?
• Do I need to register for Self Assessment after I set up a company?
• What tax do I pay as a Scottish company director and shareholder?

5 legal ways to take money out of a limited company

As a director and shareholder, you have several ways to take money from your company. Salary and dividends usually cover your regular personal income, while director’s loans, expenses, benefits, and pension contributions come into play for different needs.

Here’s how the five main methods compare.

Method	Who can use it?	Tax paid by the company	Tax paid by you	Main paperwork
Director’s salary	Director	Usually deductible for Corporation Tax; employers’ NIC may apply	Income Tax and employee NIC may apply	PAYE and payroll
Dividends	Shareholder	Paid from profits after Corporation Tax	Dividend tax may apply; no NIC	Board minutes and dividend vouchers
Director’s loan	Director	Section 455 tax may apply	Tax may arise on a beneficial loan	Director’s loan account
Benefits in kind	Director or employee	Depends on the benefit; Class 1A NIC may apply	Some benefits are taxable; others are exempt	Payroll and/or benefits reporting
Pension contributions	Director or employee	Usually deductible if conditions are met	Normally no immediate Income Tax or NIC	Pension records

You can also reclaim genuine business expenses you’ve paid personally, which we cover later.

Paying yourself a director’s salary

If you’re a company director, you can pay yourself a regular salary through HMRC’s Pay As You Earn (PAYE) system. To do this, you must first register your company as an employer with HMRC. You can register online, or your company formation agent may be able to do it for you.

You can then start paying yourself a director’s salary alongside any employees you may have. Depending on the level of salary you take, you may have to pay Income Tax and National Insurance contributions (NICs) every pay period. The company will make these deductions and send them to HMRC every month or quarter.

What are the tax implications?

Salary payments are a tax-deductible business expense, so your company won’t pay Corporation Tax on this money. However, it’ll normally have to pay 15% employers’ National Insurance contributions on salary earnings above the NIC Secondary Threshold of £5,000 per year in 2026/27.

Many directors pay themselves an annual salary up to the NIC Primary Threshold, currently £12,570 per year. This is also the standard tax-free Personal Allowance – the amount of income most people can earn before paying Income Tax.

By taking this amount, you can avoid Income Tax and employee Class 1 NICs on your director’s salary. You’ll also earn above the Lower Earnings Limit of £6,708, so the year can count towards your State Pension and certain benefit entitlements.

On salary earnings above £12,570, you’ll pay the following Income Tax rates if you live in England, Wales, or Northern Ireland:

Income	Income Tax rate
£12,571 to £50,270	20%
£50,271 to £125,140	40%
Above £125,140	45%

If you live in Scotland, you’ll pay Scottish Income Tax at different rates:

Income	Scottish Income Tax rate
£12,571 to £16,537	19%
£16,538 to £29,526	20%
£29,527 to £43,662	21%
£43,663 to £75,000	42%
£75,001 to £125,140	45%
Above £125,140	48%

You’ll also pay employee Class 1 National Insurance contributions at 8% on salary earnings between £12,571 and £50,270, then 2% on anything above that amount.

What is the best director’s salary for 2026/27?

If you pay yourself through a combination of salary and dividends, the salary figure matters because it affects both you and the company. A higher salary can make better use of your Personal Allowance and help protect your National Insurance record, but it can also create an employers’ National Insurance bill for the company.

To see the trade-off clearly, compare a salary of £5,000 with one of £12,570.

A salary of £5,000 keeps you at the Secondary Threshold, so the company won’t normally pay employers’ National Insurance. However, it uses only part of your £12,570 Personal Allowance and sits below the £6,708 Lower Earnings Limit, so it won’t give you a qualifying National Insurance year on its own.

A salary of £12,570 makes full use of the standard Personal Allowance and is high enough to count towards your National Insurance record. The trade-off is that your company will normally pay employers’ National Insurance on the part of the salary above £5,000.

Whether that extra employers’ NIC actually costs the company depends partly on the Employment Allowance. A company with only one director, where that director is the only employee above the Secondary Threshold, can’t claim it. A company with other qualifying employees may be able to, which is why the most tax-efficient salary can differ from one business to another.

Taking money out as dividends

As a shareholder, you can also take dividends on top of your salary. In fact, paying yourself a combination of a director’s salary and dividends can be more tax-efficient than taking all of your personal income from the company as salary, because dividends are taxed at lower personal rates and aren’t subject to National Insurance contributions.

However, there’s an important difference in how the two are paid. Dividends come from the company’s distributable profits after tax, so Corporation Tax has already been accounted for before that money becomes available to shareholders.

How much you can receive then depends on the rights attached to your shares. For example, if you’re the sole shareholder and your shares carry full dividend rights, you’re entitled to 100% of any dividend declared.

You don’t have to take all of the available profit straight away, either. You can leave some or all of it in the company to support the business or withdraw it as dividends in a future tax year.

What are the tax implications?

Companies pay between 19% and 25% Corporation Tax on taxable profits, with Marginal Relief potentially applying between the small-profits and main-rate thresholds. Once that tax has been accounted for, the remaining profit can form part of the distributable profits available for dividends.

That doesn’t mean the whole dividend is tax-free when it reaches you personally. There’s an annual dividend allowance of £500, so you won’t pay dividend tax on the first £500 of dividend income you receive in the tax year.

Above that allowance, the rate you pay depends on your Income Tax band:

Tax band	Dividend tax rate
Basic rate	10.75%
Higher rate	35.75%
Additional rate	39.35%

To work out your tax band and calculate your dividend tax liability, add your total dividend income to your salary and any other taxable income you receive, like earnings from another job or a pension. As a result, you might have to pay tax on dividends at more than one rate.

If you already file a Self Assessment tax return, you’ll need to include taxable dividend income on it. If you don’t normally file one, the way you report the income depends on how much you receive, with dividend income over £10,000 requiring a Self Assessment return. Below that, you can usually tell HMRC and have the tax collected through your tax code instead.

Consider moving a percentage of each dividend into a separate ‘tax pot’ savings account, so your eventual tax bill doesn’t catch you out.

How to declare and pay a dividend

Before issuing a dividend, the directors need to check how much distributable profit the company has available. That matters because paying out more than the company has available can result in an illegal dividend.

Once you know there’s enough profit, the directors declare the dividend at a board meeting and take minutes of the decision. You still need to follow this process if you’re the only director and shareholder; in that case, you simply record that you’ve issued a dividend to yourself.

You’ll also need to create a dividend voucher showing the date, company name, recipient shareholder, and amount of the dividend.

Salary and dividends worked example for 2026/27

Here’s how salary, employers’ NIC, Corporation Tax, and dividends could work together for a sole director-shareholder. We’ll assume a £12,570 salary, no other personal income, no associated companies or Employment Allowance, and that all remaining distributable profit is paid as dividends.

	£50,000 profit	£80,000 profit
Profit before salary and employers’ NIC	£50,000	£80,000
Director’s salary	£12,570	£12,570
Employers’ NIC	£1,136	£1,136
Profit subject to Corporation Tax	£36,295	£66,295
Corporation Tax	£6,896	£13,818
Dividends available	£29,399	£52,476
Income Tax and employee NIC on salary	£0	£0
Dividend tax	£3,107	£9,282
Net personal take-home	£38,862	£55,765

The £80,000 example includes Corporation Tax Marginal Relief. Your own figures may differ once other income, pension contributions, associated companies, or Employment Allowance come into the picture.

Borrowing money through a director’s loan

A director’s loan is another way money can move between you and your limited company. You can use it to lend money to the company, borrow more than you’ve put in, or reclaim money you previously paid in. These transactions are recorded in a director’s loan account and shown on the company’s balance sheet.

The balance on that account tells you who owes whom. If you take out more than you’ve paid in, the account is overdrawn, and you owe money to the company. If the company owes you money, the account is in credit, and you can normally reclaim that amount without creating a personal tax liability.

What are the tax implications?

If the loan is still outstanding nine months and one day after the end of the company’s accounting period, your company will have to pay Section 455 tax on the outstanding amount. You’ll also need to show the loan on your Company Tax Return.

For loans made on or after 6 April 2026, Section 455 tax is charged at 35.75%. Loans made from 6 April 2022 to 5 April 2026 stay at the previous 33.75% rate. The company can reclaim the tax once the loan is repaid, written off, or released, in full or in part, although HMRC only repays it nine months and one day after the end of the accounting period in which that happens.

If you owe your company more than £10,000, there are a couple of extra things to bear in mind. The loan will generally need shareholder approval, and if it’s interest-free or low-interest, it may be treated as a benefit in kind. That can mean Income Tax for you and Class 1A National Insurance for the company.

If the loan is written off rather than repaid, it’s usually taxed as dividend income through Self Assessment, while Class 1 National Insurance is dealt with through payroll.

Claiming back business expenses

There may be times when you have to pay for business expenses out of your own pocket. If those expenses are for business purposes, though, you can reclaim the money from your company. Just make sure you keep the receipts and other records to back up the expense.

The types of tax-deductible expenses you can claim include:

• travel and accommodation;
• mileage and parking charges;
• mobile phones;
• working-from-home costs;
• general office expenses, like stationery and postage;
• computer and office equipment;
• training fees;
• business insurance costs; and
• professional services, like accountancy and legal fees.

Your company can reimburse these expenses when you receive your monthly salary or at another convenient interval. You’re simply getting back the money that you’ve already spent on the company’s behalf, rather than taking it as salary or dividends.

Whichever timing you choose, the company should record the reimbursement in its accounts and keep the supporting evidence.

Reporting expenses and benefits to HMRC

If you receive taxable expenses and benefits, like company cars or health insurance, they may need to be reported to HMRC through payroll or separately at the end of the tax year.

Where a taxable benefit is dealt with through payroll, the company accounts for the Income Tax as part of the normal payroll process. It’ll still need to report any employers’ Class 1A National Insurance due at the end of the tax year by submitting form P11D(b).

If the benefit isn’t payrolled, the company may need to complete form P11D for HMRC instead, as well as form P11D(b) for any Class 1A National Insurance it owes.

You can also claim tax relief on certain business expenses you pay personally and don’t reclaim from the company. You can’t do both, though: if the company reimburses you, you can’t also claim personal tax relief on the same expense.

Whichever route applies, keep your receipts and supporting records organised as you go. Limited companies generally need to retain their accounting and tax records for six years, so keeping on top of the paperwork now can save you a lot of work later.

Employer pension contributions

If you don’t need all of the money personally now, your company can also make contributions directly into your pension. That can be a useful alternative to taking a higher salary or more dividends, particularly if you’re happy to leave the money invested for later.

Employer pension contributions are normally free from Income Tax and National Insurance for the director. They can also reduce the company’s Corporation Tax bill if they’re paid wholly and exclusively for the business. For a director-shareholder, the contribution should still be reasonable as part of the overall package you receive from the company.

Pension contributions count towards your annual allowance, which is normally £60,000. Your allowance can be lower if you have a high income or have already accessed a pension flexibly, although unused allowance from the previous three tax years can sometimes be carried forward.

The trade-off is that you can’t use the money now: once it goes into your pension, it’s being set aside for later. So, before making a substantial company contribution, it’s worth checking the tax position and your wider retirement plans with an accountant or regulated financial adviser.

Tax-free benefits you can take from your company

Some benefits come with specific tax exemptions, so your company can provide them without the usual Income Tax or National Insurance charge if the conditions are met.

Trivial benefits are one example. They can cost up to £50 each, provided they aren’t cash or a cash voucher, aren’t contractual, and aren’t given as a reward for your work. If you’re a director of a close company, there’s also a £300 annual cap.

The same principle applies to certain staff events. An annual function can be exempt if it’s open to all employees and costs no more than £150 per head. Bear in mind that £150 is a threshold rather than an allowance, so going over it can change the tax treatment of the whole event.

There are a couple of other useful exemptions, too. Your company can normally provide one mobile phone tax-free if the contract is between the company and the supplier. And if you regularly work from home under an agreed arrangement, it can pay up to £6 a week, or £26 a month, towards additional household costs without requiring evidence of the exact amount.

You can also charge the company rent for business use of your home, although that needs a little more care. The rent counts as personal taxable income, and exclusive business use of part of the property can have Capital Gains Tax implications when you sell. It’s worth taking advice before putting that arrangement in place.

How to take money out of a limited company when closing it

If you’re closing a solvent company, any money left after paying its debts and taxes can be distributed to the shareholders. How you close the company matters, though, because it can affect how those final payments are taxed.

If you close the company through voluntary striking off, you can usually treat up to £25,000 of the money left to distribute as capital rather than income, provided the relevant conditions are met. Once you go above £25,000, that treatment normally changes, which is where a Members’ Voluntary Liquidation (MVL) may be worth considering.

An MVL is a formal winding-up procedure for solvent companies and must be handled by a licensed insolvency practitioner. Distributions to shareholders are normally treated as capital, which can be useful if the company has larger reserves to distribute. If voluntary striking off is the better fit, Rapid Formations’ Company Dissolution Service can prepare and file the strike-off application for you.

Qualifying shareholders may also be able to claim Business Asset Disposal Relief. (For qualifying disposals from 6 April 2026, the rate is 18%.) Be aware that if you carry on a similar business within two years of an MVL, HMRC may tax the distributions as income instead.

The tax difference between the available routes can be substantial, so it’s worth speaking to an accountant before deciding how to extract the remaining funds or close the company.

Common mistakes when paying yourself from a limited company

When you’re taking money out of your company, the main problems tend to come from using the wrong method, missing the paperwork, or overlooking the tax rules that apply afterwards. A few mistakes are especially common:

• Using the business account like a personal account – a separate business bank account makes company and personal spending much easier to distinguish.
• Taking ‘dividends’ without the paperwork – make sure you have sufficient distributable profits, board minutes, and dividend vouchers.
• Paying illegal dividends – money in the bank doesn’t necessarily mean you have enough profit to distribute.
• Forgetting to report taxable dividends – depending on the amount involved, you may need to tell HMRC or register for Self Assessment.
• ‘Bed and breakfasting’ a director’s loan – repaying an overdrawn loan just before the Section 455 deadline and then borrowing the money again soon afterwards. If you repay £5,000 or more and borrow £5,000 or more within 30 days, HMRC can ignore the repayment under the 30-day rule, so Section 455 tax still applies. A similar rule can catch repayments where the loan is £15,000 or more, and you already plan to borrow again. Neither rule applies if you clear the loan with a dividend or bonus that you pay tax on.
• Assuming the dividend allowance is more generous than it is – it remains £500 in 2026/27.

Choosing the right way to pay yourself

Most director-shareholders don’t rely on one payment method alone. Salary and dividends usually form the backbone of their personal income, while expenses, pension contributions, benefits, and director’s loans can all play a part depending on what they need from the business.

There’s no single combination that works best for everyone, either. The right mix depends on your company’s profits, your other income, and what you plan to do with the money you leave in the business. And because tax thresholds and rates change, an arrangement that worked well last year may not be the best one this year – it’s worth reviewing your approach with an accountant before simply carrying on as before.

If you’re still a sole trader or haven’t launched yet, you’ll need to incorporate before you can pay yourself through a director’s salary, dividends, or a director’s loan account – and we can help you register your company when you’re ready. If you’re already trading through a company, our Hassle-Free Compliance service can help keep your company’s admin and compliance under control, so you can spend more of your time running your business.