If you run a UK limited company, the most common way to pay yourself from a limited company is through a combination of director salary and dividends. You may also use pension contributions and business expense reimbursements. The right approach depends on your company profits, personal income and current tax rules.
Running a limited company gives you flexibility over how you take money from your business. However, company money is legally separate from your personal finances. Therefore, every payment should be properly recorded and reported.
Understanding your options can help you find the most tax-efficient way to pay yourself from a limited company.
What Is the Best Way to Pay Yourself from a Limited Company?
For many business owners, the most common approach is a combination of salary and dividends for company directors.
A salary provides regular income through PAYE, while dividends allow shareholders to receive money from available company profits.
The best combination will depend on your company profits, other income and overall tax position.
Paying Yourself a Director’s Salary
As a company director, you can receive a salary from your limited company through payroll.
Salary is generally an allowable business expense. Therefore, it can reduce the company’s taxable profit for Corporation Tax purposes.
However, depending on the amount you receive, Income Tax and National Insurance may become payable.
Choosing the right limited company director salary can therefore be an important part of your tax planning.
Paying Yourself Dividends
If you are a shareholder, you may also pay yourself dividends from a limited company.
Dividends can only be paid when the company has sufficient distributable profits. They are paid from profits after Corporation Tax and do not reduce the company’s Corporation Tax liability.
Depending on your total personal income, you may also need to pay Dividend Tax.
Salary vs Dividends for Limited Company Directors
One of the most common questions is whether it is better to take salary or dividends from a limited company.
Salary can normally reduce company taxable profits but may attract Income Tax and National Insurance.
Dividends are not subject to National Insurance, but they can only be paid from available company profits.
For this reason, many directors choose a salary and dividend combination rather than relying entirely on one payment method.
What Is a Director’s Loan?
Money withdrawn from the business that is not salary, dividends, an expense reimbursement or repayment of money owed to you may be recorded through a Director’s Loan Account.
If you owe money to your company, your Director’s Loan Account may become overdrawn.
This can create additional tax consequences for both you and the company.
Therefore, company withdrawals should always be correctly recorded.
Can Your Limited Company Pay into Your Pension?
Another option is making pension contributions through a limited company.
Your company can potentially make employer pension contributions directly into your pension. Qualifying contributions may also reduce the company’s taxable profits.
This can be a useful tax-efficient way to take money from a limited company, particularly when you do not need all the available funds immediately.
Can You Claim Business Expenses?
If you personally pay qualifying company costs, your business can usually reimburse those limited company business expenses.
These could include business travel, professional subscriptions, software, equipment and other qualifying costs.
Always keep receipts and supporting documents for expenses claimed through your company.
Common Mistakes to Avoid
When taking money from a limited company, avoid treating the company bank account as your personal account.
Common mistakes include:
- Paying dividends without sufficient profits
- Failing to keep dividend records
- Incorrectly processing payroll
- Allowing a Director’s Loan Account to become overdrawn
Keeping accurate company records can help prevent unnecessary tax problems.
Frequently Asked Questions
What is the most tax-efficient way to pay yourself from a limited company?
Many directors use a combination of salary and dividends. However, the most tax-efficient way to pay yourself from a limited company depends on company profits, other personal income and current tax rates.
Can I pay myself only in dividends?
Potentially. However, limited company dividends can only be paid when sufficient distributable profits are available.
How often can I pay myself dividends?
You can potentially pay dividends from your limited company monthly, quarterly or at other intervals, provided sufficient profits are available and the correct documentation is maintained.
Can I transfer money from my business account to myself?
Yes. However, the payment should be correctly recorded as salary, dividends, expenses, repayment of money owed to you or a Director’s Loan.
Is salary or dividends better?
There is no single answer. A combination of director salary and dividends is commonly used because the two payment methods receive different tax treatment.
Get Help Paying Yourself from Your Limited Company
Finding the best way to pay yourself from a limited company can help you manage both your personal and company tax position.
A professional accountant can help you determine an appropriate director salary, calculate available dividends, review pension contributions and ensure your company withdrawals are properly recorded.
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| Topic | Official Website |
|---|---|
| HM Revenue & Customs (HMRC) Homepage | https://www.gov.uk/government/organisations/hm-revenue-customs |
| HMRC Online Services | https://www.gov.uk/log-in-register-hmrc-online-services |
| Self Assessment | https://www.gov.uk/self-assessment-tax-returns |
| VAT Guidance | https://www.gov.uk/vat |
| Making Tax Digital | https://www.gov.uk/guidance/making-tax-digital |
| Corporation Tax | https://www.gov.uk/corporation-tax |
| PAYE for Employers | https://www.gov.uk/paye-for-employers |
| National Insurance | https://www.gov.uk/national-insurance |
| Register a Limited Company | https://www.gov.uk/limited-company-formation |
| Register for VAT | https://www.gov.uk/register-for-vat |
| Register as Self-Employed | https://www.gov.uk/register-for-self-assessment/self-employed |
| Capital Gains Tax | https://www.gov.uk/capital-gains-tax |
| Tax Rates and Allowances | https://www.gov.uk/income-tax-rates |
