There are plenty of advantages to setting up your business as a limited company — from lower tax bills to limited personal liability. But it also comes with more admin than being a Sole trader, including how you get money out of the business.

As a Sole trader, it’s simple: all the business’s profits belong to you. You can withdraw them as you wish, as long as you cover your bills and tax.
With a limited company, the money belongs to the company — and you need to follow certain rules to pay yourself.

Watch my breakdown of the most tax-efficient ways to pay yourself as a UK limited company director — including salary, dividends, and other options.

So, what are your options?

1. Salary

Even if you’re the sole director, you’re officially an employee of your company. This means you can pay yourself a salary through PAYE.

Key points:

  • You’re entitled to a salary whether or not the business is making a profit.
  • Your salary is an allowable business expense, reducing your Corporation Tax bill.
  • It’s subject to Income Tax and National Insurance (though keeping it at or below the NI threshold can minimise these).
  • For 2025/26, the primary NI threshold is £12,570, and the secondary threshold (employer NI) is £9,100.

Many directors set their salary around the lower threshold to qualify for state pension and benefits, while avoiding unnecessary NI contributions.

2. Dividends

If you own shares in the company (as most directors do), you can pay yourself dividends from post-tax profits.

Advantages:

  • Lower tax rates than salary (8.75% basic rate in 2025/26).
  • No National Insurance contributions on dividends.
  • Annual dividend allowance of £500.

Limitations:

  • You can only take dividends if the company has enough post-Corporation Tax profit.
  • Must be properly declared with meeting minutes and dividend vouchers.

3. Salary + Dividend Mix

For many directors, the most tax-efficient approach is a combination:

  • A small salary at the NI threshold to keep state benefits and reduce Corporation Tax.
  • The rest of your income as dividends to benefit from lower tax rates.

This balance helps reduce overall tax and NI while maintaining compliance.

4. Other Ways to Pay Yourself

In addition to salary and dividends, there are other legitimate ways to take money from your limited company:

  • Repaying Capital Investment – If you’ve invested personal funds into the business, you can repay yourself when the company has the profit to cover it. As long as you only withdraw what you put in, this is normally tax-free.
  • Claiming Business Expenses – Reimburse yourself for allowable expenses you’ve paid personally (e.g. travel to client meetings, professional subscriptions, equipment). Keep receipts and ensure the expense is wholly for business use.
  • Director’s Loan – Borrowing from the company is possible if funds allow, but:
    • Loans over £10,000 may trigger a benefit-in-kind charge and interest.
    • If not repaid within 9 months of year-end, a 33.75% Section 455 tax charge applies.

Which Option Is Best for You?

It depends on:

  • Your total income from all sources
  • Your personal allowances and thresholds
  • The company’s profits and cash flow
  • Long-term plans, such as pension contributions or reinvestment

Getting the mix wrong could mean paying more tax than necessary — or breaching HMRC rules.

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A note from the author: