How Should I Pay Myself from My Limited Company?

If you run your own limited company, the money in the company’s bank account does not automatically belong to you personally.

A company is a separate legal entity, so taking money from it needs to be dealt with correctly. For many owner-directors, remuneration involves a combination of salary and dividends, but these are not the only ways money can be taken from or value provided by a company.

The right approach depends on the company’s profits, your other income, whether the company has employees, how much money you need personally and your wider circumstances.

This guide explains some of the main options.

Can I just transfer money from my company to myself?

You can transfer money from the company bank account, but the reason for the payment needs to be identified and recorded correctly.

Money taken from a limited company might represent:

• Salary
• A dividend
• Repayment of money the company owes you
• Reimbursement of a business expense
• A director’s loan
• Another form of payment or benefit

Simply transferring money to your personal account does not automatically make it a dividend or salary.

If money is withdrawn without being correctly treated as another type of payment, it may need to be recorded through your director’s loan account.

Paying yourself a salary

A director can receive a salary from their company.

Salary is normally processed through PAYE payroll, just as it would be for another employee. Depending on the amount paid, this can create Income Tax and National Insurance liabilities.

Salary can generally be deductible when calculating the company’s taxable profits, subject to the normal rules.

For 2026/27, some of the important National Insurance thresholds are:

For most employees using the standard National Insurance category, employee National Insurance is generally charged at 8% between the Primary Threshold and Upper Earnings Limit and 2% above it.

Employer National Insurance is generally charged at 15% above the Secondary Threshold.

Important

There is not one “best director’s salary” that applies to every company. The appropriate level can depend on factors including other income, National Insurance history, Employment Allowance eligibility, whether other employees are on the payroll and the company’s overall tax position.

What is the Employment Allowance?

The Employment Allowance can reduce an eligible employer’s Class 1 National Insurance bill.

For 2026/27, the maximum Employment Allowance is £10,500.

However, there is an important restriction for many small owner-managed companies.

A limited company cannot claim Employment Allowance if it has only one director and that director is the only employee for whom the company incurs secondary Class 1 National Insurance liabilities.

Where there are other employees or directors, the position can be different depending on the circumstances.

This is one reason two apparently similar companies can arrive at different salary recommendations.

Paying yourself dividends

A dividend is a distribution of company profits to shareholders.

Unlike salary, a dividend is not a deductible business expense for Corporation Tax purposes.

A company can only pay dividends where it has sufficient profits available for distribution. Appropriate company records should also be prepared, including the relevant dividend documentation.

Having £20,000 sitting in the company bank account does not necessarily mean the company has £20,000 available to distribute as a dividend.

Important

Dividends should not simply be declared because there is cash in the bank. The company needs sufficient profits available for distribution.

How are dividends taxed?

Dividends received by an individual can be subject to Income Tax.

For 2026/27, the Dividend Allowance is £500.

Dividend income above the available allowance is generally taxed at:

The actual tax due depends on your overall income and circumstances.

The £500 Dividend Allowance does not simply remove £500 of dividend income when determining which tax band your income falls within, so the calculation can be more complicated than applying a single dividend rate.

Should I use salary or dividends?

For many owner-managed companies, the answer is a combination of the two.

Salary and dividends are taxed differently and have different consequences for the company and the individual.

A salary can:

• Be deductible when calculating company profits, subject to the normal rules
• Potentially create National Insurance liabilities
• Help maintain a National Insurance contribution record at appropriate earnings levels
• Require payroll reporting

A dividend:

• Is paid from profits available for distribution
• Is not deductible for Corporation Tax purposes
• Does not attract National Insurance in the same way as salary
• Can create personal dividend tax
• Requires the appropriate company records

The appropriate combination depends on the circumstances.

What about my director’s loan account?

A director’s loan account records money owed between you and your company.

If you have previously put your own money into the company, the company may be able to repay that money to you without the repayment being treated as salary or a dividend.

The opposite can also happen. If you take money from the company that is not salary, dividend, reimbursement of an expense or repayment of money already owed to you, you may become indebted to the company.

An overdrawn director’s loan account can have tax consequences.

For many owner-managed companies, if a relevant loan remains outstanding 9 months and 1 day after the end of the company’s accounting period, the company can become liable to a Section 455 tax charge.

For relevant loans made on or after 6 April 2026, the Section 455 rate is 35.75%.

If the loan is subsequently genuinely repaid, released or written off, the company may be able to reclaim the Section 455 tax, subject to the relevant rules and timing requirements.

There can also be a separate benefit-in-kind issue where a director or shareholder owes the company more than £10,000 and does not pay sufficient interest.

Important

A director’s loan is not a substitute for properly declaring salary or dividends. Taking money from the company and deciding how to account for it later can create unexpected company and personal tax consequences.

Director’s loan accounts have their own tax rules, particularly where the account becomes overdrawn. Read our guide to director’s loan accounts for a more detailed explanation.

Can my company make pension contributions for me?

Yes. Employer pension contributions can form part of an owner-director’s overall remuneration strategy.

Where the relevant conditions are met, contributions made by the company to a registered pension scheme can be deductible when calculating the company’s taxable profits.

Unlike salary, employer pension contributions do not generally create employee or employer National Insurance in the same way.

For 2026/27, the standard pension annual allowance is £60,000, although this can be reduced in certain circumstances.

Employer contributions count towards the individual’s annual allowance, and unused annual allowance from the previous three tax years may sometimes be available to carry forward.

The position can be different for higher earners and for people who have already flexibly accessed pension benefits. For example, the Money Purchase Annual Allowance can apply in relevant circumstances.

Company pension contributions therefore need to be considered alongside the director’s existing pension arrangements, previous contributions and wider remuneration strategy rather than assuming that any amount can simply be paid.

What about business expenses I’ve paid personally?

If you personally pay a genuine business expense on behalf of the company, the company can generally reimburse you without treating the reimbursement as salary or a dividend, provided it is dealt with correctly.

For example, you might personally pay a business software subscription or another company expense and then reclaim the amount from the company.

Good records should be retained showing what the expense was and why it related to the business.

For more on which costs qualify, read our guide to expenses you can claim through a limited company.

That is different from simply taking money from the company for personal spending.

What about benefits provided by the company?

Companies can also provide directors with benefits, such as certain vehicles, private medical insurance or other assets and services.

Depending on the benefit, this can create Income Tax for the director and National Insurance or reporting obligations for the company.

Buying something through the company does not automatically make it tax-free simply because the company pays the bill.

Should I leave some profit in the company?

You do not necessarily have to withdraw all of the company’s available profits each year.

Some owner-directors choose to retain money in the company for:

• Working capital
• Future investment
• Equipment
• Recruitment
• Future tax liabilities
• Building a financial reserve

Retaining profits can also affect the timing of personal taxation because a shareholder is not automatically taxed personally on all of the company’s retained profits simply because they own the company.

However, there can be wider tax considerations where substantial funds or investments accumulate in a company, so retaining profits should not simply be viewed as an indefinite tax-deferral strategy.

So what is the most tax-efficient way to pay myself?

There isn’t a single answer that applies to every director.

The calculation can depend on:

• Company profits
• Other personal income
• Whether you have another employment
• Employment Allowance eligibility
• Other employees or directors
• Your National Insurance record
• How much money you actually need personally
• Available distributable profits
• Pension planning
• Benefits
• Directors’ loans
• Whether profits will remain in the company

A salary and dividend combination is common, but the figures should be considered using the circumstances of the company and individual rather than copied from a generic online example.

Important

A director’s remuneration strategy should normally be reviewed at least annually. Tax rates, thresholds and your own circumstances can change.

How can Baldwin’s Accountancy Services help?

We can help owner-managed limited companies understand the different ways directors can take money from their businesses and put an appropriate remuneration strategy in place.

This can include payroll, dividend planning, Corporation Tax considerations, directors’ loan accounts and year-end tax planning as part of the wider accounting service.