The short answer
You can take money out of a limited company by paying yourself a salary, declaring dividends, claiming back expenses, using a director’s loan, making pension contributions or taking certain benefits. Each is taxed differently, so most directors use a mix, usually a small salary, dividends and pension contributions.
Checked 26 October 2026. Rates for 2026/27.Key facts
| Fact | Detail |
|---|---|
| Most common mix | Small salary plus dividends |
| Cheapest for NI | Dividends and pensions |
| Needs profit | Dividends (retained profit) |
| Taxed in company | Salary, pension and benefits are deductible |
| Reported on | Payroll, Self Assessment and P11D |
The six main routes
A limited company is a separate legal person. The money in its bank account belongs to the company, not to you, so you cannot just spend it. To take money out personally you have to use one of a handful of recognised routes, and each has its own tax effect.
The six that matter for most small companies are salary, dividends, expense repayments, director’s loans, employer pension contributions and benefits in kind. They are not mutually exclusive, and the best approach usually combines several.
1. Salary
A salary is paid through payroll, so it is subject to PAYE and National Insurance. It is deductible for the company, so it reduces Corporation Tax. Its main benefits are that it builds up State Pension entitlement if it is at or above £6,708, and that it counts as earnings when you apply for a mortgage.
Its main drawback is cost. Salary above the personal allowance is taxed as income, and above £5,000 the company pays employer National Insurance at 15%. That is why directors normally keep the salary modest.
2. Dividends
Dividends are paid from profit that has already borne Corporation Tax. They are not subject to National Insurance, which makes them cheaper than salary for most amounts above the personal allowance. For 2026/27 they are taxed at 10.75% in the basic rate band after a £500 allowance.
The condition is that the company has enough retained profits to pay the dividend. Paying one without profits is unlawful, and the amount is treated as a loan from the company that may trigger section 455 tax.
3. Expenses and mileage
If you pay for a business cost personally, such as a laptop, a train ticket or business mileage, the company can repay you tax-free, provided the cost is wholly and exclusively for business. The company deducts the expense from its profit.
Examples include 45p a mile for the first 10,000 business miles, a simplified home-working allowance of £6 per week without receipts, and subscriptions and training related to the business. Keep receipts and a simple log so you can prove each claim.
4. Director’s loans
You can borrow money from the company, which is recorded in your director’s loan account. A loan is not income, so there is no tax at the time. But if the loan is still outstanding nine months and one day after the year end, the company pays section 455 tax of 35.75% until the loan is repaid, and a benefit in kind arises on loans above £10,000.
Loans are best used for short-term needs and cleared quickly, not as a regular way to draw income.
5. Employer pension contributions
The company can pay into your pension, up to an annual allowance of £60,000, with Corporation Tax relief and no National Insurance. It is among the most tax-efficient ways of taking value out, because the money moves from the company to you without income tax or NI, though you cannot access it until retirement age.
Pension contributions suit directors who have already taken enough salary and dividends to meet their living costs and want to save for the future.
6. Benefits in kind and the mix
Some benefits can be provided tax-efficiently. Electric company cars carry a low benefit-in-kind rate, trivial benefits up to £50 per person are exempt, and a company can fund certain training or equipment. Others, such as private medical cover, create a P11D reporting duty and tax.
The mix that works for you depends on profit, other income and how much you need to live on. A typical sole director might take a £6,708 to £12,570 salary, dividends up to the higher rate threshold, and any surplus as a pension contribution. An accountant can model the combinations and show the lowest total tax.
A simple example of combining the routes
Suppose your company has £80,000 of profit before any director pay and you need £45,000 a year to live on. One efficient plan could be a £12,570 salary, dividends of about £32,000, and an employer pension contribution of the remaining profit you do not need straight away.
The salary secures your State Pension credit and uses your personal allowance. The dividends top up your income at the lower dividend rates. The pension contribution moves surplus profit into a tax-advantaged fund instead of leaving it in the company or paying higher rate dividend tax. Without the pension step, the extra profit would be taxed at corporation rates and then again on extraction, so the combination can leave you thousands of pounds better off over a few years.
Mistakes that cost directors money
The most expensive mistakes are avoidable. Directors often draw cash from the company account without recording whether it is a salary, a dividend or a loan, which creates an overdrawn director’s loan account. Others pay dividends from a company that has no distributable profit, or miss the nine-month window to clear a loan.
Another common error is paying personal expenses from the company account. Those payments are not allowable, so they must be treated as drawings and recorded as a loan or a dividend. Good bookkeeping, with a clear rule that money out of the company is always classed as one of the six routes, prevents nearly all of these problems.
Which route should you use first?
A practical order is to start with the routes that cost the least tax and need no profit. Repay genuine expenses and mileage first. Then set the salary at the level that suits your National Insurance position. Next, take dividends up to the top of the basic rate band, because those cost only 10.75% in personal tax. Finally, consider a pension contribution with any profit left over, because that is both deductible and free of National Insurance.
Use director’s loans last, and only for short-term needs. A loan feels convenient, but it comes with a 35.75% charge if you forget to clear it, and it adds another layer of record keeping at the year end.
The bottom line
You can take money out of a limited company by paying yourself a salary, declaring dividends, claiming back expenses, using a director’s loan, making pension contributions or taking certain benefits. If you would rather not do it alone, our fixed fees start at £45.83 + VAT a month.
Frequently asked questions
What is the most tax-efficient way to take money from a limited company?
For most directors it is a small salary, dividends within the basic rate band and employer pension contributions for anything beyond that. The best combination depends on profits and other income.
Can I take money out of my company without paying tax?
Expenses repaid to you, pension contributions and the repayment of a credit director’s loan balance are not taxed on you. Other withdrawals are taxed as salary, dividends or loans.
How often can I take dividends?
As often as you like, provided each one is properly declared and comes from available profits. Some directors take a monthly dividend, others take one or two larger dividends a year.
What happens if I take money out without a record?
The withdrawal is treated as a director’s loan. If the account is overdrawn at year end and not repaid within nine months, the company pays section 455 tax of 35.75% of the balance.
Is it better to leave profits in the company?
Sometimes. Retained profit pays Corporation Tax but no personal tax until you extract it. It can be a good choice if you plan to reinvest, but the money is still company property, and extracting a large amount later may push you into higher tax bands.
Can I take a company car instead of salary?
You can, but a company car is a benefit in kind that you are taxed on. Electric cars have low benefit-in-kind rates, which can make them attractive, but a fully taxed petrol or diesel car is rarely efficient.
This article is general information, not personal tax or financial advice. Rules and rates change, so check GOV.UK or speak to an accountant about your circumstances. Rates shown are for 2026/27, last checked November 2026.