How to Pay Yourself from a Limited Company

How to Pay Yourself from a Limited Company — A Fierce, Real-World Guide

Updated for the 2025-26 tax year, because your money deserves urgent, intelligent handling.

Unpacking Your Options: Your Income, Your Power

Let’s not sugarcoat it: Paying yourself through your limited company is both an opportunity and a minefield. With clever strategy, you can keep more of what you earn — a bold statement against the status quo that says business owners always lose out. Here’s what you really need to know.

Four Ways to Take Money Out of Your Company

1. Director’s Salary (PAYE)
2. Dividends from shares
3. Director’s Loans
4. Reimbursement of Allowable Expenses

Most directors use a blend of salary + dividends, plus valid expenses. Loans? Only if you’re feeling bold, or a bit desperate.

"Maximising your reward isn’t about greed — it’s about justice for your work and risk. Take what’s yours, and take it smart."

Tax on Director’s Salary: Don’t Let the System Swallow You

• Salary is taxed at source via PAYE, just like for employees.
• Deductible business expense — reduces your corporation tax bill.
• But, if you lift your head above NIC thresholds, both you and the company pay extra. Let’s break it down:

Note: Scottish taxpayers, your bands are slightly different. Check your local rules!

Pro tip: If you’re a sole director, keep salary below the secondary threshold (£5,000) to avoid triggering employer NICs. But remember: earn at least £6,500 to protect future state pension.

Dividends: Lower Taxes… If You Navigate the Pitfalls

• Dividends are NOT business expenses. They come out of profits after corporation tax.
• But: No NICs, and rates are lower than salary.
• 2025-26 Dividend Tax Rates:
  • 8.75% (basic rate)
  • 33.75% (higher rate)
  • 39.35% (additional rate)

• Not taxed through payroll: you must report via Self Assessment.
• Don’t forget: You need profits (after CT) to pay dividends. Fake it, and you’re breaking the law.

Director’s Loan: Tread Carefully

• Pulling more than expenses, wages, or dividends? It’s a loan.
• Tax-free for the short term. But if you owe the company money 9 months after year-end, S455 tax (currently 33.75%) whacks your business.
• Over £10,000? HMRC calls it a benefit-in-kind: you’ll pay extra NICs and income tax.
• You can’t trick the system by re-borrowing right after repayment—HMRC knows all about ‘bed and breakfasting’.

"A director’s loan can help you cover a blip; misuse it and the government’s gloves come off."

Expenses & Benefits: Only What’s Real, Only What’s Right

Claim everything justified:

• Business travel/mileage
• Essential equipment
• Professional training
• Accountancy fees
• Work-from-home costs

If it’s not wholly for business, don’t risk it. Some expenses (like company cars) will still draw tax and NIC liabilities.

See: The HMRC A-Z Expense List — don’t wing it, check it!

The Tax-Efficient Playbook: How Directors Really Get Paid

1. Smart Salary

• If you have employees or another director:
  • Take up to £12,570 salary (Personal Allowance)
  • Claim Employment Allowance (if eligible) to minimise NICs.
• If you’re the lone wolf:
  • Keep salary at or below £5,000 (avoid employer NICs)
  • Just above £6,500? Keeps your state pension ticking over.

2. Topping Up With Dividends

• After your salary, draw dividends from post-tax profits.
• First £500 in dividends is tax-free.
• Dividends up to your total income of £50,270 are taxed at 8.75%.
• No NICs on dividends. That’s money in your pocket.

"Pay yourself what you need, not what’s just left. Leave enough in the company to keep it healthy—and take extra later if your tax band allows."

3. Don’t Forget the Extras

• Expenses and legitimate business benefits: Lower your company’s profits and your tax.
• Director pension contributions: Up to £60,000 a year tax-free; it’s money your future self will thank you for.
• Make the most of charitable giving for extra relief.

Red Flags and Pitfalls to Avoid

• Never pay yourself dividends if there isn’t enough profit after Corporation Tax. HMRC will come knocking.
• Watch for benefit-in-kind rules on perks like company cars or personal insurance.
• Don’t rely on director’s loans for regular income.

“Tax law can change with the political wind; be alert every April. If in doubt, consult a pro.”

Quick-Strike Checklist for Tax-Efficient Pay

• Take the optimal salary for your company structure
• Draw dividends only from post-tax profits
• Claim all justified work expenses
• Use your pension allowance
• Get professional advice when things get complicated!

Practical Reminders

• Your income pattern should balance personal needs, future growth, and optimal tax law. Don’t let practicality be sacrificed for pure optimisation.
• Think about mortgages or personal loans — sometimes, a higher salary makes sense for underwriting.
• If you’re unsure, collaborate with an accountant. This can save you way more than it costs.

Table: The Real-World Comparison

Ready to take back control?

• Review your income structure every year.
• Push back against wasteful tax payments—demand the best for your future.
• Share this guide with fellow company owners. Don’t let anyone else fall into the traps designed for the unwary.

"Economic justice starts with empowering the people taking the biggest risks. Don’t apologise for demanding your worth."

This guide is for information only. It is not professional tax advice — laws change, and your circumstances are unique. Always consult a qualified accountant or tax adviser before making decisions.