How to pay yourself from a limited company

Many company directors ask the same question: how to pay yourself from a limited company in a way that is tax-efficient, lawful and sensible for the business.

It is a sensible question, but it is not the only one.

Before you decide how to take money out of the business, you need to know what the company can safely afford, what profits are available, and how each payment should be treated for tax and accounting purposes.

For many owner-managed companies, the answer is a mixture of salary and dividends. In some cases, directors’ loans, pension contributions or expense repayments may also be relevant.

However, each route has its own rules. If the paperwork is poor, or if money is taken without enough profit to support it, the tax consequences can be expensive.

What are the main ways to pay yourself from a limited company?

There are several ways to take money from a limited company. The most common are:

• Salary
• Dividends
• Directors’ loans
• Repayment of business expenses
• Employer pension contributions

The best mix depends on your personal income, the company’s profits, your other shareholders, and whether the company can claim reliefs such as Employment Allowance.

It is also important to remember that the company’s money is not your personal money. A limited company is a separate legal entity. Even if you are the only director and shareholder, payments need to be recorded correctly.

Paying yourself a salary

A salary is usually the starting point.

If your company pays you a salary, it will normally need to register as an employer and run payroll. The company must deduct Income Tax and employee National Insurance where due, and it may also need to pay employer National Insurance.

A director’s salary is normally an allowable business expense for Corporation Tax purposes, provided it is paid for work done for the company and meets HMRC’s usual ‘wholly and exclusively’ test. Dividends are different. They are paid from profits after Corporation Tax and cannot be deducted as a business cost.

However, salary also brings PAYE and National Insurance into the calculation.

How much should a director’s salary be?

For 2026/27, a director’s salary needs to reach £6,708 before it counts towards the State Pension entitlement. Above £12,570, the director starts paying employee National Insurance at 8%. The company begins paying employer National Insurance at 15% once the director’s salary exceeds £5,000 (unless Employment Allowance is available to offset that cost).

This is why many company directors take a salary pitched around those thresholds. The aim is usually to build State Pension entitlement while keeping National Insurance costs as low as possible – though it is worth noting that employer National Insurance begins at £5,000, below the level needed for State Pension qualification, so Employment Allowance can make a material difference to the calculation.

There is no single salary figure that is right for every director. For example, the answer may differ depending on whether:

• The company has other employees
• Employment Allowance is available
• The director has income from elsewhere
• The company is profitable
• State Pension entitlement is a concern
• The director is based in Scotland, where Income Tax bands for earned income differ

If the company can claim Employment Allowance, the salary calculation may change. Employment Allowance can reduce eligible employers’ annual National Insurance liability by up to £10,500. However, limited companies cannot claim it if the director is the only employee liable for secondary Class 1 National Insurance – which covers many owner-managed companies. If you are unsure whether your payroll is set up to make the most of this, THP’s payroll outsourcing service can help.

For a detailed breakdown of the salary and dividend split for the current tax year, see our salary vs dividends 2026/27 guide.

Paying yourself dividends

Dividends are payments made to shareholders from company profits.

They are often used by owner-directors because dividends are not subject to National Insurance. But they come with their own legal and administrative requirements, and they cannot simply be paid whenever cash is available.

A company can pay dividends only if it has sufficient available profits. It must not pay out more in dividends than its available profits from current and previous financial years. Dividends also cannot be counted as business costs when calculating Corporation Tax.

This is where some directors get into difficulty.

A company may have cash in the bank but still lack enough distributable profit to support a dividend. For example, the business may need to keep cash aside for VAT, Corporation Tax, PAYE, supplier bills, loan repayments or future costs.

Before paying dividends, you should normally make sure that:

• The company has enough retained profit
• The dividend is declared properly
• Board minutes are kept
• Dividend vouchers are prepared
• All shareholders of the same class are treated correctly
• The payment is recorded accurately in the accounts

For 2026/27, the dividend allowance is £500. Dividends above that allowance are taxed at 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

Dividends can still be tax-efficient, but the tax advantage they hold over salary has narrowed. This makes it worth reviewing the numbers each year rather than defaulting to last year’s approach.

Find out more about THP’s tax planning services and corporation tax services.

Taking a director’s loan

A director’s loan is money taken from the company that is not salary, a dividend, an expense repayment or repayment of money you previously lent to the company. The law requires you to keep a record of any money you borrow from or pay into the company. This record is usually called a director’s loan account.

Director’s loan accounts are common in owner-managed companies, but they must be carefully controlled.

If your director’s loan account becomes overdrawn, it means you owe money to the company. That is not automatically a problem, but the clock starts ticking from the moment it happens.

If the balance has not been repaid within nine months and one day of the company’s accounting year-end, HMRC can charge the company a Section 455 tax on the outstanding amount – not on any profit, but on the loan itself. For loans made or benefits conferred on or after 6th April 2026, that rate is 35.75%. Older loans may be subject to the previous rate. The company can reclaim the tax once the loan is repaid, but the charge must be paid first.

There can also be personal tax consequences for the director. A loan of more than £10,000 is treated as a benefit in kind: the company must report it on a P11D, and the director pays Income Tax on the notional value of the benefit. If interest is charged below HMRC’s official rate, the shortfall is taxed in the same way.

A director’s loan should not become a casual way to take money from the business when salary or dividends would be more appropriate. It needs regular review, especially before the company year-end.

For more on the tax implications and how to resolve an overdrawn balance, see our guide to overdrawn director’s loan accounts.

Reimbursing business expenses

Expense repayments are different from salary, dividends and loans.

If you personally pay for a genuine business cost, the company can usually reimburse you. This might include business mileage, travel costs, software, professional subscriptions or other costs incurred wholly for the company.

However, expense claims should be supported by proper records. You should keep receipts, note the business reason for the cost, and make sure personal spending is not mixed with company spending.

Good bookkeeping matters here. Poor records can make it harder to separate business costs, personal drawings and director’s loan account movements.

Find out more about THP’s bookkeeping service.

Employer pension contributions

Company pension contributions can also form part of wider director remuneration planning.

They are not the same as paying yourself cash, because the money goes into your pension rather than into your bank account. However, they can still be valuable when the company is profitable and the director wants to build long-term retirement savings.

The tax treatment depends on the circumstances, including annual allowance rules and whether the contribution qualifies as a business expense. Pension contributions need proper planning. They should not be decided at year-end as an afterthought.

Cash in the bank is not the same as profit

This is one of the most important points for directors to understand.

A healthy bank balance does not always mean the company can safely pay a dividend or increase drawings. The business may still have unpaid tax, future Corporation Tax, VAT, PAYE, supplier bills or other liabilities.

This is why up-to-date accounts are so useful.

Annual accounts tell you what happened after the year has finished. Management accounts can help you make better decisions during the year, while there is still time to adjust.

If you regularly take money from the company without checking the figures, you may only discover the problem when the year-end accounts are prepared. By then, dividends may have been overpaid, the director’s loan account may be overdrawn, or the company may have less cash than expected.

Find out more about THP’s annual accounts service and management accounts service.

So, what is the best way to pay yourself from a limited company?

The best way to pay yourself from a limited company depends on the numbers in front of you: company profits, cash flow, your personal tax position, National Insurance, Corporation Tax, Employment Allowance, pension plans and any director’s loan balance.

In many cases, the answer is still a mixture of salary and dividends. A salary can help protect your National Insurance record and reduce your company’s taxable profit. Dividends can then top up your income without triggering National Insurance (provided the company has enough retained profit to support them).

However, the right answer is not simply the lowest-tax route. It is the route that is tax-efficient, lawful, properly documented and suitable for the company’s cash position.

When should you review how you pay yourself?

It is worth reviewing director remuneration at least once a year, ideally before the company year-end – and whenever profits, personal income or the company’s circumstances change significantly.

How THP can help

Paying yourself from a limited company is not just a salary-versus-dividends calculation.

The right approach depends on your company’s profits, tax position, payroll, bookkeeping, cash flow and personal circumstances. It also needs to be reviewed as tax rates and business circumstances change.

THP works with owner-managed businesses to make these decisions clearer. We can help you review your salary and dividends, check your director’s loan account, plan for Corporation Tax, and make sure your records support the way you take money from the company.

If you would like to review how you pay yourself from your limited company, please contact our tax planning team. We would be glad to look at the numbers with you.