There are numerous benefits associated with the incorporation process, which turns a sole trader or partnership into a private limited company (LTD) or limited liability partnership (LLP).
Probably the biggest benefit is the protection that the directors and owners of limited companies receive from business debts. However, while the act of incorporation provides valuable protection, it also makes the process of taking money out of the company a lot more complicated.
A limited company is a separate financial and legal entity in the eyes of the law. That means you can’t simply take money out of the company’s bank account as you would as a sole trader. Every penny you take out of the company must be properly recorded in the company’s accounting records. Although it may require a little more work to take money out of a limited company, it can be more tax efficient. That means, once you understand how the process works, you can maximise your take-home pay by taking advantage of the different payment options that are available.
In this guide, we’ll break down the four ways to take money out of a limited company and provide details about the specific procedures for each.
What Different Ways can you Take Money out of a Limited Company?
There are four different ways you can take money out of the company’s bank account and pay it into your own. They are:
- Salary
- Dividend payments
- Director’s loan
- Reimbursement of expenses
You have no obligation to take any money out of your limited company at all, and in the early days, when it’s still establishing itself, you may choose to reinvest all the profits in the business. However, over time, you’ll need to take money out of the company to live. By using the right combination of the methods above, you’ll be able to do so in a tax-efficient way that suits your specific needs.
How to Take a Salary out of a Limited Company
Paying yourself a salary is the most straightforward way to take money out of a limited company. It’s unlikely that you’ll take the majority of the money you earn as a salary as it’s not the most tax-efficient way to do so. However, paying yourself a salary at or above the Lower Earnings Limit (£6,708 for 2026/27) and no higher than the Primary Threshold (£12,570) usually makes sense. The thresholds are reset every tax year, so check the current figures on GOV.UK rather than working from a number you read somewhere last year. A salary in that band gives you a qualifying year for state pension and benefit entitlements without employee National Insurance. The company pays employer National Insurance on any pay above the £5,000 secondary threshold. The rest of the money you take out of the company can be in the form of dividends.
To pay yourself a director’s salary, your company must be registered with HMRC. If you pay yourself a salary above the relevant National Insurance threshold or the tax-free personal allowance, which is £12,570 for 2026/27, you will have income tax and National Insurance deducted every pay period through PAYE. The company must also report each salary payment to HMRC through payroll on or before the day it pays you.
How to Take Dividends out of a Limited Company
If your company is making a profit, you can choose to keep the money in the business and reinvest it or withdraw it in the form of dividends to supplement your income. Dividends can only be taken out of a limited company once deductions for corporation tax have been made. Dividends must be paid from profits for the year or undistributed profits from previous years. A dividend paid when the company has insufficient distributable reserves is unlawful. It is not simply a penalty: the dividend can be treated as repayable by the shareholder, it may be recharacterised as salary or as a loan to the director with the tax consequences that follow, and in a later insolvency a liquidator can pursue recovery. Check the reserves before declaring anything.
Dividends are issued based on the proportion of the company you own as represented by your shares. If you are the sole shareholder in the company, you can take all the profit out of the company if you choose to do so. There is a separate dividend allowance, which is £500 for 2026/27, on top of your personal allowance. It has been cut repeatedly in recent years, so confirm the current figure before you plan around it. No National Insurance is payable on dividends, and the first £500 of dividend income is taxed at 0%. Above that, dividend income is taxed at the rates below. These are the 2026/27 rates, checked on 18 August 2026 against GOV.UK. Dividend rates change at Budgets, so check before relying on them:
- Basic rate – 10.75 percent
- Higher rate – 35.75 percent
- Additional rate – 39.35 percent
Under the standard model articles, the directors decide interim dividends, and the shareholders declare a final dividend by ordinary resolution on the directors’ recommendation. The directors can decide at a board meeting, unanimously in writing, or alone if there is only one director, and the company must keep a written record of the decision. In practice, if you’re the only director and shareholder, you’ll simply need to record the fact that you issued a dividend on a certain date and keep a record of the payment. Limited companies can issue dividends at the end of the financial year and at various points throughout the year. The payment date should be set when the dividend is decided.
How to Take a Director’s Loan out of a Limited Company
A director’s loan is another way to take money out of a business, but the procedure must be handled extremely carefully as it’s inherently risky. A director’s loan can be used by a company director to:
- Lend personal funds to the company to purchase an asset, invest in a new opportunity, etc., in which case, the director’s loan account will be ‘in credit’.
- Borrow money from the company that exceeds the amount you have put in, in which case, the director’s loan account will be ‘overdrawn’.
Every transaction in the director’s loan account, whether the director lends money to or borrows money from the business, must be accounted for in the director’s loan account and recorded in the company’s balance sheet. An overdrawn balance owed by a director who is also a shareholder of a close company must be reported on the company tax return. Your loan account goes on your self-assessment tax return only where it creates taxable income, such as a cheap-loan benefit, a written-off loan or interest the company pays you on money you have lent it.
If you have lent the company money and your director’s loan account is in credit, repaying that money to you is not taxable income, although any interest the company pays you on the loan is taxable. If the company is insolvent or close to it, do not repay yourself ahead of other creditors. A repayment to a director in the two years before liquidation or administration can be reversed as a preference, and the law presumes the company meant to prefer a connected person. If you take money out of the company that exceeds the amount you have put in, there may be tax implications.
If a director who is also a shareholder of a close company (most owner-managed companies) borrows money from the company and the loan is repaid within nine months of the end of the company’s accounting period, the company does not have to pay the section 455 charge. Anti-avoidance rules can disregard a repayment that is followed by fresh borrowing. If the amount remains outstanding, the company faces a section 455 charge. For loans made or benefits conferred on or after 6 April 2026 the rate is 35.75 percent. Different rates apply to earlier loans, and the rate follows the date the loan was made. The charge is paid alongside corporation tax and is refundable once the loan is repaid, released or written off, subject to the statutory conditions and timing. Separately, if your loans from the company exceed £10,000 at any time in the tax year and you pay no interest or less than HMRC’s official rate, the interest you save is a taxable benefit. The company reports it and pays employer National Insurance on it, and you pay income tax on that benefit, not on the loan itself.
If the loan is written off by the company, it must be declared on the director’s self-assessment tax return so the correct rate of income tax can be charged.
Read more about the potential implications of an overdrawn director’s loan account.
How to Take Expenses out of a Limited Company
There are likely to be plenty of times when you pay for business expenses out of your own pocket rather than using company funds. Although it will not represent a large portion of your income, there is a tax-free method to recoup the money you spend.
The company can refund business expenses you have paid, but the refund is tax-free for you only if the cost would be deductible for an employee: incurred ‘wholly, exclusively and necessarily’ in performing your duties, with separate rules for travel. Other refunds are taxable benefits. To reclaim this money, you will need to keep receipts (receipts must be kept for at least six years), complete claim forms and record the expense refunds in company accounts. Your business will also receive tax relief on these expenses.
Examples of the expenses you can claim include:
- Computer and office equipment
- Mileage and parking charges
- Travel and accommodation
- Insurance
- Mobile phones
- Training fees
- Postage costs
Any expenses you’ve paid for personally can be reimbursed by your company every month when you receive your salary or at any other interval that’s convenient. Refunds of allowable business expenses are exempt, so they do not go on a form P11D or on your self-assessment tax return. The company must report taxable benefits and non-exempt expense payments to HMRC, either through payroll or on a P11D by 6 July after the end of the tax year, and only those need to be declared on your return.
What’s the Best way to pay Myself as a Company Director?
With a number of different options available, it’s not always easy to know what the best way to take money out of your limited company is. Most directors find that taking a low salary supplemented by dividends is the most tax-efficient way to operate. However, having the option to take a director’s loan can provide additional flexibility as long as the process is handled correctly.
If you would like advice about an overdrawn director’s loan, are being chased by HMRC or are unable to take money out of your company due to a lack of profit, please get in touch with our team today. We’ll provide a free, no-obligation consultation to help you understand your position.