How to Pay Yourself from a Limited Company
How to Pay Yourself from a Limited Company
Salary, dividends or pension contributions? Discover how UK company directors can take money from their business legally, understand the tax consequences and choose a sensible payment strategy.
What is the best way to pay yourself from a limited company?
For many owner-managed limited companies, a combination of salary and dividends is a practical starting point. However, there is no single tax-efficient salary that works for every director.
Your decision should reflect the company's profitability, employer National Insurance, other income, pension needs, dividend entitlement and the amount of money you actually need to withdraw.
Five ways to take money from your limited company
Director's salary
Regular earnings processed through PAYE. Generally deductible when calculating corporation tax, subject to the usual rules.
Dividends
Distributions to shareholders from available profits after corporation tax. Not subject to National Insurance.
Pension contributions
Employer contributions into a pension can provide tax-efficient long-term remuneration, subject to relevant conditions.
Expense reimbursements
Repayment of genuine business costs you personally paid. Qualifying reimbursements are not additional taxable earnings.
Director's loan repayments
Recover money you previously lent the company. Repayment of genuine loan principal is generally not taxable income.
How much salary should a company director take in 2026/27?
Salary can make use of your Personal Allowance, support National Insurance qualifying years and reduce company taxable profits. However, employer National Insurance can make a higher salary more expensive than it first appears.
| 2026/27 threshold | Annual amount | Why it matters |
|---|---|---|
| Personal Allowance | £12,570 | Standard tax-free personal income allowance, subject to tapering and other circumstances |
| Employer NI secondary threshold | £5,000 | Employer NI generally begins above this level |
| Employee NI primary threshold | £12,570 | Employee NI generally begins above this level |
| Lower Earnings Limit | £6,708 | Can help secure NI qualifying benefits without employee contributions |
| Employer NI rate | 15% | Generally applies to relevant earnings above the secondary threshold |
| Employment Allowance | Up to £10,500 | Available to qualifying employers; many single-director companies cannot claim |
Comparing three common salary levels
£5,000 salary
Usually avoids employer NI at the standard secondary threshold, but is below the annual Lower Earnings Limit.
£6,708 salary
At the 2026/27 annual Lower Earnings Limit, potentially preserving qualifying benefits while creating some employer NI liability.
£12,570 salary
Can utilise the full standard Personal Allowance, but generally creates employer NI of £1,135.50 before any available relief.
Read our related guide to the most tax-efficient director's salary for further considerations.
How do you pay yourself dividends?
Dividends are payments made to shareholders, not wages paid to directors. You must hold shares carrying dividend rights to receive them.
- Prepare up-to-date accounts showing sufficient profits available for distribution.
- Check previous losses, corporation tax provisions and other liabilities.
- Confirm the relevant share rights and approve the dividend properly.
- Prepare a dividend voucher and retain appropriate company records.
- Transfer the amount to the shareholder, recording the transaction correctly.
Dividend tax rates for 2026/27
| Income tax band | 2026/27 dividend rate | 2025/26 rate |
|---|---|---|
| Basic rate | 10.75% | 8.75% |
| Higher rate | 35.75% | 33.75% |
| Additional rate | 39.35% | 39.35% |
The dividend allowance remains £500 for 2026/27. Dividends within this allowance are taxed at 0%, but still occupy space within the relevant income tax bands. Dividend tax is calculated using your overall taxable income, not by treating dividends in isolation.
For a broader explanation of dividend taxation, see our UK dividend tax guide.
Salary and dividend personal tax illustration
Explore the approximate personal tax on different combinations of salary and dividends for 2026/27. The illustration assumes England, Wales or Northern Ireland income tax rates, standard allowances and no other income.
Director's remuneration explorer
Change the figures to see an indicative personal tax breakdown.
Illustrative annual calculation only. Employee NI uses annualised thresholds; actual payroll deductions depend on the applicable director NI calculation. Employer NI is a company cost, not deducted again from the displayed personal net income. The tool excludes corporation tax, Employment Allowance, Scottish salary tax, student loans, pensions, benefits, other income and certain reliefs. It does not determine whether the proposed dividends are legally available.
Can your company afford the dividend?
Use this simplified retained-profit checker to understand why company bank balances and distributable profits are different.
Dividend availability checker
Estimate the profit potentially available for distribution.
This is a simplified accounting illustration, not a legal dividend declaration test. It assumes the entered profits and reserves are correctly calculated and legally distributable. It does not assess unrealised profits, capital maintenance, share-class rights, post-balance-sheet losses, solvency or the adequacy of the company's supporting accounts. Seek accounting advice before declaring dividends.
What about pensions, expenses and director's loans?
Employer pension contributions
A company may contribute directly to a director's registered pension scheme. Qualifying employer contributions can be deductible for corporation tax and generally do not create an immediate personal income tax charge.
However, annual allowance rules, pension input from other sources, the wholly and exclusively test and other restrictions must be considered. Pension money is also subject to access restrictions.
Reimbursing business expenses
If you personally pay genuine business costs, the company can generally reimburse qualifying expenditure. Maintain invoices, receipts and an accurate expense claim.
Private expenditure, benefits in kind and mixed-use costs require separate consideration. An expense reimbursement should never be used to disguise salary or dividends.
Repayment of money lent to the company
If your director's loan account is in credit because you previously advanced funds, the company can generally repay that principal without treating it as salary or dividend income.
Any interest paid to you is subject to separate tax and reporting rules.
Borrowing from your company
An overdrawn director's loan account can trigger corporation tax charges under section 455, beneficial loan implications and repayment obligations.
Learn more in our guide to reclaiming section 455 tax.
Three situations where the right answer can change
Sole director and shareholder
A single-director company with no other employees may not qualify for Employment Allowance. Employer NI is therefore an important factor when setting salary.
Director with another job
Employment income elsewhere may already use the Personal Allowance and basic-rate band. Additional company salary or dividends can therefore face different marginal rates.
Director building a pension
A director who does not need to withdraw all available company funds might consider employer pension contributions or retaining profits for future business needs.
Before transferring money to your personal account
- Identify whether the payment is salary, dividend, expense reimbursement or loan movement.
- Run salary payments through the appropriate PAYE process and submit required RTI reports.
- Check distributable profits and shareholder rights before declaring dividends.
- Keep dividend vouchers, payroll records and supporting accounting entries.
- Reserve sufficient cash for corporation tax, VAT, PAYE and other liabilities.
- Consider your overall personal income and Self Assessment obligations.
- Review the remuneration strategy whenever profits or personal circumstances change.
For additional guidance, see our pages on limited company tax, director duties and whether a limited company needs an accountant.
Questions directors commonly ask
Can I transfer money directly from my limited company to myself?
Yes, provided the transaction is correctly classified and authorised. A bank transfer alone does not establish whether a payment is salary, dividend, expense reimbursement or a director's loan.
Is it better to take salary or dividends?
Often a combination is appropriate. Salary can reduce company taxable profits but may create National Insurance liabilities. Dividends do not attract National Insurance but must be paid from distributable profits after corporation tax.
Can I pay myself dividends every month?
Yes. Monthly interim dividends can be lawful if the company has sufficient distributable profits, follows its articles and maintains appropriate supporting records. They should not be treated as automatic guaranteed monthly wages.
Do I need to pay myself a salary as a director?
Not necessarily. A director is not automatically required to draw a salary. The appropriate arrangement depends on employment obligations, the work performed, tax considerations and other circumstances.
Are dividends a business expense?
No. Dividends are distributions of profits to shareholders and do not reduce taxable company profits for corporation tax purposes.
Can I take dividends when my company makes a loss?
Potentially, if sufficient accumulated distributable profits remain from previous periods. A current-year loss does not automatically prevent dividends, but losses must be reflected in the available reserves.
How much dividend tax will I pay in 2026/27?
Dividend income above the £500 allowance is generally taxed at 10.75%, 35.75% or 39.35%, depending on the applicable income tax band. Your other income and available allowances affect the calculation.
What happens if I withdraw more than the company can legally pay as dividends?
The payment may need to be treated as a director's loan or otherwise corrected. Unlawful distributions can create repayment obligations and tax consequences. A dividend voucher alone does not make an unlawful dividend valid.
Do I need a Self Assessment tax return for dividends?
Not automatically in every case. The requirement depends on your circumstances and HMRC's reporting rules. Taxable dividends may need to be reported to HMRC even where a full Self Assessment return is not required.
Does Scotland have different dividend tax rates?
Dividend tax rates are UK-wide. However, Scottish non-dividend income tax rates can differ, so a Scottish director's overall salary and dividend calculation may produce a different result.
Make your company income work harder
Choosing how to pay yourself should be part of a wider plan for corporation tax, personal tax, pensions and cash flow. The Online Accountants helps owner-managed UK limited companies keep their finances organised and make informed decisions.
View Our Fixed Fees → Limited Company AccountsPrepared by The Online Accountants, a trading name of Parkinson (UK) Limited. This guide covers general UK tax principles for 2026/27 and does not constitute personalised tax advice. Tax rules and individual circumstances can change.