How to Take Money Out of a Limited Company

Running a limited company gives you more control over how you pay yourself compared to being employed, but it also comes with rules you can’t ignore. As a director or shareholder, you’ll probably need to take money out for your living expenses, paying yourself back for all those late nights, or to reward yourself for the hard work you’ve put in.

There’s more than one way to extract money from a limited company. Salary, dividends, expenses, or a director’s loan - each option has different tax implications, and the wrong move could reduce your take-home pay faster than you think.

It’s crucial to get this right. Taking money out of a limited company without the right records or tax treatment could land you with unexpected bills or problems with HMRC. The upside? With a bit of planning, you can pay yourself legally and tax-efficiently.

This guide will walk you through the main ways directors and shareholders use to take money out of a limited company. I’ll explain how each option works in practice, point out the pros and cons, and include some simple examples. Whether you’re running a small business or contracting, you’ll come away with a practical understanding of how to get money out of your company, without losing out to unnecessary tax.

When you’re operating through a limited company, the money in the business bank account isn’t just yours for the taking. Legally, those funds belong to the company, not to you personally. So, grabbing cash whenever you feel like it? Not how it works. Instead, there are specific, legitimate ways to withdraw money, each with its own rules and tax implications. Here are four ways in which you can withdraw money from your company:

1. Director’s salary through PAYE
2. Dividends
3. Director's loan
4. Reimbursement of limited company expenses

This is the most obvious method to take money out of limited company. As a director, you can pay yourself a salary through the company’s payroll system, known as PAYE (Pay As You Earn). As a company director, you’re treated as an employee for tax purposes. That means you need to register with HMRC for PAYE and you’re responsible for making National Insurance Contributions on your salary. This works much like being employed elsewhere, you get a regular wage, and the company deducts Income Tax and National Insurance before paying you.

The money you withdraw to pay yourself salary is a tax-deductible limited company expense, meaning your company won't owe any Corporation Tax on it. However, it's important to note that starting from the 2025/26 tax year, there are changes to the Employer's National Insurance contributions:

Secondary Threshold: The threshold is reduced from £9,100 to £5,000 per year. So, your company will now owe Employer’s National Insurance on any salary paid above £5,000.

Contribution Rate: The rate is increased from 13.8% to 15% on the amount exceeding the secondary threshold.​
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These changes are in effect from 6 April 2025. ​

It's also worth noting that the Employment Allowance is increased from £5,000 to £10,000 per year, and the £100,000 threshold has been removed, allowing more employers to claim this allowance.

For directors, The optimum company director salary is £12,570 which is at the National Insurance primary threshold. This way, there’s no Income Tax or NIC due on that portion, but you still qualify for State Pension and other benefits since you’re above the lower earnings limit of £6,396 per year.

The remaining part of your income can be taken as dividends. Notably, the first £500 of dividends is tax-free due to the annual dividend allowance. 

Tax implications:

• You pay Income Tax on your salary after the personal allowance of £12,570.
• National Insurance contributions (NICs) are due once you earn above the threshold.
• The company can treat your salary as a business expense, which reduces its Corporation Tax bill.

Pros of Paying a Director’s Salary

• A steady salary can make life easier when applying for a mortgage or personal protection policies like critical illness cover.
• Builds entitlement to state benefits like the State Pension.
• A director’s salary counts as a business expense, which lowers your company’s taxable profits and in turn reduces its Corporation Tax bill.
• By taking at least the national minimum wage, you keep your eligibility for certain benefits such as maternity pay.
• If your salary is £10,000 or more each year, you qualify for automatic enrolment into a workplace pension. The company must make contributions, but these payments are also deductible for Corporation Tax.
• Unlike dividends, you can still draw a salary even if your company isn’t making a profit.

Cons of Paying a Director’s Salary

• Both you and the company need to pay National Insurance contributions once your salary passes certain thresholds, adding to the overall cost.
• Salaries are taxed under Income Tax rules, which generally means a higher tax rate compared to dividends.
• May not be the most tax-efficient method on its own.

Dividends are portions of company profits distributed to shareholders after corporation tax is paid. If you’re both a director and a shareholder, this tends to be a common approach.

Dividends are distributed according to each shareholder’s percentage of ownership in the company. If you’re the sole shareholder, you’re entitled to all post-tax profits after deducting costs and expenses.

Companies pay Corporation Tax on all taxable income, and dividends are paid from the profit that remains after tax deductions. The first £500 of annual dividend income is exempt from tax.

How and when to declare dividends:

• The company must have enough post-tax profit to pay them.
• A board meeting should be held (even if you’re the only director).
• You’ll need to issue dividend vouchers and keep proper records.

Dividend tax rates for 2025/26:

• £500 tax-free dividend allowance.
• 8.75% for basic-rate taxpayers.
• 33.75% for higher-rate taxpayers.
• 39.35% for additional-rate taxpayers.

Why do so many directors mix a small salary with dividends?
The most tax efficient director’s salary and dividend strategy often involves taking a small salary, usually up to the National Insurance threshold, and then topping it up with dividends. This helps minimise Income Tax and NICs while making the best use of personal allowances.

Pros of Taking Dividends from Limited Company

• You usually end up with more cash in your pocket compared to a salary, because dividends are taxed at lower rates compared to salary.
• Unlike salaries, dividends aren’t subject to National Insurance, which can make them more tax-friendly.
• You can issue dividends as often as you like and in any amount, provided the company has sufficient profits.
• Paying regular dividends can make your company more appealing to potential investors, as it shows consistent returns.
• Shareholders receive dividends in proportion to their ownership, which can be a fair way to reward multiple business owners.
• There’s also a tax-free dividend allowance (£500 for 2025/26), giving you an extra saving before tax applies.

Cons of Paying Dividends from Your Own Limited Company

• You can only pay dividends from actual profits, and that’s after settling up with Corporation Tax and any other outstanding liabilities. No surplus? No payout.
• Unlike salaries, dividends don’t get you any tax breaks on the company side. They don’t lower your Corporation Tax bill.
• If there are multiple shareholders, dividends usually require a majority agreement before they can be declared.
• Also, dividends don’t count as “relevant UK earnings.” That means you can’t use them to boost your pension contribution allowances with tax relief.
• You have to follow formal procedures, like getting board approval and issuing dividend vouchers. It’s extra paperwork you can’t skip.
• Depending on your income level, dividend tax rates can still climb into the higher brackets.

Another tax efficient way to take money out of your limited company is a Director’s loan. A director’s loan is money you take from the company that isn’t salary, dividends, or expenses. In simple terms, it’s borrowing from the business.

This method is used to:

• lend money to your company
• borrow money from your company that exceeds the amount you have invested into the business
• reclaim money that you have previously invested into the company

Any time you, as a director, put money into or take money out of your company, you have to keep a record, that’s your director’s loan account. It’s basically a running tally of your financial give-and-take with the company. You’ll see this on your company’s balance sheet, so there’s full transparency.

Balances in the loan account indicate whether it is 'in credit,' 'nil,' or 'overdrawn,' in the same way as the status of a personal current account with an overdraft facility.

Now, if you take out more than you’ve contributed, and the account’s overdrawn, you need to pay attention. The tax you or the company might owe depends on how much you owe and for how long. If the company owes you instead, you can take your money back without any personal tax implications. Straightforward.

If you owe your company less than £10,000:

• No personal tax for you, but the company might still owe tax. 
• If the loan isn’t paid back within 9 months and 1 day from the company’s accounting reference date (ARD), the company must pay Section 455 Tax at 33.75% on the overdrawn amount.
• You’ve also got to disclose the loan on the company’s tax return.

If you owe your company more than £10,000:

• You must declare the loan in your Self Assessment tax return.
• If there’s interest due, you might owe income tax on it.
• The company must deduct Class 1 National Insurance on the loan.
• The company has to pay Section 455 Tax at 33.75% of the overdrawn amount.
• Make sure the company tax return reflects the outstanding loan amount.

At the time of loan write-off (non-repayment):

• The company needs to deduct Class 1 National Insurance through payroll.
• You are required to pay Class 2 and Class 4 Income Tax on the loan through Self Assessment.

If you cover legitimate business expenses out of your own pocket, you can get reimbursed by the company. You can reclaim these expenses if they were incurred solely and exclusively for business purposes. This isn’t classed as income, it’s simply the company returning your money, so there’s no additional tax involved.

Below are some examples of allowable limited company expenses:

• Use of home as office
• Business travel expenses 
• Stationery and Equipment expenses
• Business insurance 
• Mobile phone, landline and broadband expenses
• Financial and legal expenses
• Professional subscription
• Donations 

Your company has some flexibility here: you can reimburse expenses alongside your monthly salary, or at another interval that suits your operations. Just keep in mind, you’ll need to retain all receipts for at least six years, no exceptions. Make sure claim forms are completed properly, and that all refunds are accurately recorded in your company’s accounts.

At the end of each tax year, you’re responsible for completing a P11D form that details the total expenses claimed. Don’t forget: these expenses must also be included in your self assessment tax return, or you could end up with an unexpected tax liability.

When it's the time for the company’s annual tax return, any expenses reimbursed to directors or employees should be reported in the employment section. HMRC treats these reimbursements as allowable expenses, so they reduce the company’s taxable profits, effectively minimising any additional tax exposure.

Quick Comparison: The Smart Ways to Take Money Out of Limited Company

Paying yourself from your limited company isn’t just about grabbing as much as you can and hoping for the best. There’s a strategy to it, one that savvy directors use to maximise earnings and stay compliant with HMRC. The most tax-efficient way to pay yourself as a director? A balanced mix of a small salary, topped up with dividends.

Low Salary + Dividends

By taking a salary that sits around the National Insurance threshold, you still build up qualifying years for the State Pension and remain eligible for certain benefits. Plus, your salary is a deductible business expense, so your company’s Corporation Tax liability drops a bit.

Dividends, meanwhile, make up the bulk of your income. Why? They’re taxed at a lower rate than salary and don’t incur National Insurance, so you keep more of what you earn. It’s a structure that leaves more in your pocket at the end of the year.

Using Expenses Wisely

Don’t forget to make full use of legitimate business expenses, either. If you pay for travel, office supplies, phone bills, or professional fees out of your own funds, your company can reimburse you. This isn’t just about covering your costs, it further reduces your company’s taxable profits.

Real-Life Example: Taking £50,000 Out of Your Company

To see how different withdrawal methods work in practice, let’s look at a director whose limited company has £50,000 profit before tax. We’ll compare three common approaches: taking it all as salary, all as dividends, and a mix of salary and dividends.

Scenario 1: Full Salary

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• The company pays the director a salary of £50,000 through PAYE.
• This is treated as a business expense, so the company’s taxable profit becomes £0 (no Corporation Tax to pay).
• However, the director pays Income Tax and National Insurance on the full £50,000.

Outcome:

• Income Tax (after £12,570 allowance): roughly £7,486.
• Employee NI: around £4,800.
• Employer NI: approx. £5,500 (paid by the company, not deductible once profit is £0).
• Take-home pay: about £37,700.

Summary: Simple, but not very tax-efficient.

Scenario 2: Full Dividends

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• The company keeps £50,000 as profit, then pays 19% Corporation Tax = £9,500.
• Post-tax profit available for dividends: £40,500.
• Director takes this amount as dividends.

Outcome:

• First £500 is tax-free (dividend allowance).
• Next £37,700 taxed at 8.75% = about £3,300.
• Remaining £2,300 taxed at 33.75% = about £776.
• Dividend tax total: approx. £4,076.
• Take-home pay: about £36,400.

Summary: Lower NI costs but slightly less take-home than mixing salary and dividends.

Scenario 3: Low Salary + Dividends (Balanced Approach)

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• Director takes a salary of £12,570 (up to the personal allowance).
• The rest remains as profit: £37,430.
• Corporation Tax on £37,430 at 19% = £7,111.
• Post-tax profit available for dividends = £30,319.

Outcome:

• Salary (£12,570) = no Income Tax (covered by allowance).
• Dividends:
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  • First £500 tax-free.
  • £30,319 taxed at 8.75% = about £2,625.
• Total tax: £7,111 (CT) + £2,625 (dividend tax) = £9,736.
• Take-home pay: £12,570 + £27,694 = £40,264.

Summary: Most tax-efficient option. The director keeps over £2,500 more than in the all-salary route.

Plan Ahead - The Best Way to Pay Yourself

Generally, the most tax-efficient strategy is a mix of a modest salary, dividends, and legitimate expenses reimbursed. That combo usually means a lower tax bill, keeps everything above board, and leaves you more profit at the end of the day.

But here’s the thing: there’s no universal answer. The optimal mix depends on your earnings, company profits, and personal situation. Get it wrong and you could end up on HMRC’s radar or paying more tax than you need to.

At GoForma, our limited company accountants specialise in helping directors and small business owners find the best way to take money out of a limited company. We’ll break down your options, handle the details, and help you choose the most tax-efficient approach for your circumstances.

Book a free consultation with GoForma to see how you can maximise what you take home, all while staying compliant.

FAQs on Limited Company Director's Withdrawal

Can I just transfer money from my company account to my personal account?

No, you can’t freely move money between your company and personal accounts. Any withdrawal must be recorded properly, either as salary, dividends, expenses repayment, or a director’s loan. Taking money without recording it could lead to tax problems.

Do I pay tax twice (Corporation Tax and personal tax)?

Yes, in a way. Your company first pays Corporation Tax on its profits. When you take money out as salary or dividends, you pay personal tax on what you receive. Careful planning helps reduce the overall tax you pay.

Can I take money out if my company makes a loss?

You can only take out money as a salary or repayment of business expenses if the company makes a loss. Dividends are not allowed unless the company has profit after tax.

What happens if I take out too much money?

If you take out more than the company has available, it may be treated as a director’s loan. If not repaid on time, it could create extra tax charges for both you and the company.

Do I need an accountant to help with this?

While it’s possible to manage withdrawals yourself, having an accountant for limited company helps you stay tax-efficient, avoid mistakes, and keep proper records. They can guide you on the best way to take money without paying more tax than needed.

What is the most efficient way to take money out of a company?

A mix of a low salary and dividends is often the most tax-efficient approach. You may also use business expenses and director’s loans where appropriate. The right mix depends on your company’s profits and personal income.

What is it called when you take money from your company?

The method depends on how you take it. It could be salary, dividends, expense repayment, or a director’s loan. Collectively, these are called withdrawals from a limited company.

Who can withdraw money from a limited company?

Only directors and shareholders can withdraw money. Directors may take salary, expenses repayment, or loans, while shareholders can receive dividends. Employees can only be paid wages.