How Do I Get Paid Out of My Limited Company?

Glenn Bowen, Director, Grampian Accounting – September 2026

There are five ways to get money out of your own limited company, and getting the mix right is the best way we can minimise your taxes. Get it wrong — or take the wrong advice — and you can find yourself paying tax you don’t need to and not even knowing it.

The short version

Five ways to take money out of your Limited Company: salary, dividends, pension, director’s loan, and closure. For most trading directors, most of the time, the efficient mix is a carefully-set salary plus quarterly dividends, with pension contributions mopping up profit you don’t need now, director’s loans used sparingly and repaid promptly, and closure planned for the end of the road.

But the right blend is always personal — it moves with your other income, your profit levels, what you need to live on, and your plans. It also shifts as the rates change, and several of them changed this April. At the end of the day our job is not to tell you what’s right to take out your company but instead to help you get what you need as tax efficiently as possible and provide options and alternatives for what to do with the rest.

Small side note: Every one of our clients, for free as part of their normal fees, gets a free tax planning session annually in Feb/Mar – we look at what you’ve taken and what you have left before the tax year ends.

Salary

Salary is usually the foundation, but the level matters enormously, and it depends on what other income you have.

For a director with no other income, we typically set a salary at the personal allowance — £12,570 — because there’s no income tax on it. There’s some employer’s National Insurance to account for, since the threshold for employer’s NI is now just £5,000, so the slice of salary between £5,000 and £12,570 attracts NI at 15%.

That extra slice of salary is a deductible cost to the company. If you pay it as salary, the company suffers 15% employer’s NI on it. If you don’t pay it, that same money stays in the business as profit and gets taxed at 19% corporation tax. On top of that, a salary at this level secures a qualifying year towards your state pension, which is a valuable bonus for the sake of that NI.

If your company can also claim Employment Allowance, better still — it wipes out the employer’s NI altogether, so you get the £12,570 salary with none of the NI cost. Sole directors with no other employees can’t claim it, but as the maths above shows, the £12,570 salary is still the efficient choice for them.

Dividends

Dividends are the reason a limited company is tax-efficient in the first place — and it’s worth being clear about why, because most people get this wrong.

It’s not the income tax rate, though that helps. It’s the absence of National Insurance. Salary carries NI; dividends don’t. That gap is what does the heavy lifting, and it’s why dividends are how most directors take the bulk of their money out.

A dividend is, by definition, a distribution of profit after corporation tax has been accounted for.

Dividends should look like dividends.We often see directors — usually because nobody’s advised them otherwise — taking a dividend every week or every month, in a nice regular pattern. The trouble is that a distribution of profit isn’t something you’d naturally do every week. Our usual advice is to take dividends no more than quarterly. It’s genuinely unlikely, but HMRC could argue that dividends paid with the regularity of a wage are really disguised salary — and tax them accordingly. Regular, wage-like payments belong in your salary; profit distributions belong in your dividends. Keep the two looking like what they are.

Pension contributions

Pension is a great way of taking money out of the business that you don’t need right now, without it being taxed on the way out.

Say your company makes £40,000 profit, and you draw £20,000 as dividends, leaving £20,000 in the business you don’t immediately need. Left as profit, that £20,000 attracts corporation tax — roughly £3,800 at the 19% small profits rate (more if you have over £50,000 in profit). But a pension contribution is a deductible cost to the company. Put that £20,000 into your pension instead, and you can wipe out the corporation tax on it and move a healthy lump sum into your retirement pot.

It’s one of the most efficient moves available for profit you don’t need to live on today — money that would otherwise be taxed, working for your future instead. (There are limits — annual allowances and rules on what’s reasonable — so it’s a conversation to have rather than a lever to pull blindly.)

Director’s loan

A director’s loan is the one we usually steer clients away from — not because it’s forbidden, but because it’s a loan, and a loan has to be repaid.

Take one during the year and genuinely repay it, and that’s fine. The problem is what tends to happen in practice: the loan doesn’t get repaid, so it ends up being cleared with a dividend — and if that dividend tips you into a higher tax band you weren’t expecting, it can be an expensive way to have borrowed your own company’s money.

There’s also a trap. If the loan is over £500 at the year end and still unpaid nine months after the year end, HMRC charges what’s called Section 455 tax — currently 35.75% of the outstanding balance. It’s effectively a withholding tax: HMRC’s view is that you’ve taken money out of the company in a form that isn’t really what company funds are for.

The sting is the cash flow. HMRC don’t repay the Section 455 tax immediately when you repay the loan — but nine months after the end of the accounting year in which you clear the loan. So you can be waiting a very long time to see that money again, and in the meantime it’s out of your business. That delay is exactly why we treat director’s loans with caution.

Closing the company

The last method, and the least flexible, is closing the business down — you can’t exactly do this whenever you want a bit of cash!

When you close a solvent company, you’re effectively selling your shares back for whatever the company is worth on its balance sheet. If you subscribed for your shares at £1 and the company’s worth £10,000 when you close it, you’ve made a gain of £9,999 — and that’s taxed at capital gains rates rather than income tax rates, which is usually a good deal more favourable.

Better still, closure can qualify for Business Asset Disposal Relief (BADR) — a preferential rate of capital gains tax for business owners. It’s worth knowing that BADR isn’t as generous as it was: the rate has climbed from 10% to 14%, and to 18% from April 2026 — but it’s still meaningfully below higher rates dividend rates.

Two things to keep in mind: extracting profit this way only makes sense when you’re genuinely winding the business up, and once you’ve taken advantage of these rules to close a company, you generally can’t start up again in the same trade for two years — otherwise HMRC can treat the whole thing as income rather than capital.