Taking money out of a limited company is different from withdrawing money as a sole trader. A limited company is legally separate from the people who own and run it, which means the money in your company bank account belongs to the company rather than automatically belonging to you.
There are, however, several legitimate ways to take money or receive value from your limited company. These include paying yourself a salary, taking dividends from available profits, reclaiming business expenses you have paid personally, receiving repayment of money you have lent to the company and making employer pension contributions.
Certain benefits and allowances can also form part of a tax efficient approach.
The important point is that there is no single method that works best for every limited company director. Your company profits, other income, personal circumstances and what you need the money for all affect the most appropriate approach. Understanding the options can help you plan ahead, remain compliant with HMRC and avoid paying more tax than necessary.
In Brief: Taking Money Out of a Limited Company
The main ways to take money out of a limited company are through salary, dividends, legitimate expense reimbursements, repayment of money the company owes you and, in some circumstances, a director’s loan. Your company can also provide value through employer pension contributions and certain allowable benefits.
For many owner-directors, tax-efficient remuneration involves using more than one of these methods rather than relying entirely on salary or dividends. Each is treated differently for tax purposes, so the right combination depends on the company’s financial position and your individual circumstances.
Most importantly, money should not simply be transferred from your business account to your personal account without knowing how it will be treated. Every payment needs to be correctly recorded and supported where necessary.
What Are the Main Ways to Take Money Out of a Limited Company?
The table below provides a quick comparison of the main options. The tax treatment can depend on individual circumstances, so it should be used as a starting point rather than as personal tax advice.
| Method | How it works | Tax position | Key consideration |
| Salary | The company pays you through PAYE | Income Tax and National Insurance may apply | Salary can normally reduce taxable company profits |
| Dividends | Shareholders receive a distribution from available profits | Dividend tax may apply | The company must have sufficient distributable profits |
| Business expenses | The company reimburses qualifying costs you paid personally | Can generally be reimbursed without creating personal income where the rules are met | The expense must qualify and appropriate records should be kept |
| Pension contributions | The company pays directly into your pension | Can be tax efficient | Pension rules, allowances and the circumstances of the contribution need to be considered |
| Director’s loan repayment | The company repays money it already owes you | The repayment itself is generally not salary or a dividend | Your director’s loan account must show that the company owes you |
| Borrowing from the company | You take money that does not fall into another category | Personal and company tax consequences can arise | Director’s loan rules require careful management |
| Benefits | The company provides qualifying goods, services or other benefits | Some are exempt while others are taxable | The rules vary considerably depending on the benefit |
1. Paying Yourself a Salary From Your Limited Company
As a director, you can receive a salary from your limited company through PAYE. The company will normally need to be registered as an employer and must account for the relevant Income Tax and National Insurance contributions. Salary is also generally treated as a business cost when calculating company profits for Corporation Tax purposes, provided it meets the relevant requirements.
Salary can therefore form an important part of how a company director is paid, but the most tax efficient amount is not necessarily the same for everyone. Your other income, National Insurance position, whether the company employs other people and whether it is eligible for Employment Allowance can all affect the calculation. Paying an appropriate level of salary may also help you build qualifying years towards your State Pension.
This is why following a generic recommendation for a director’s salary found online can be misleading. The figure that is appropriate for one director may not be appropriate for another, particularly where their personal income or company circumstances differ.
Related Tax Relax guide: Salary, Dividends and Director’s Loans Explained
2. Taking Dividends From Your Limited Company
If you are a shareholder and your limited company has sufficient distributable profits, the company can pay you dividends. Unlike salary, dividends do not attract National Insurance contributions, which is one reason they are commonly used as part of an owner director’s remuneration.
There are important restrictions. Dividends are paid from profits available after Corporation Tax and cannot simply be taken because there is cash sitting in the company bank account. The company must have sufficient available profits from the current and previous financial years, and dividends cannot be deducted as a business expense when calculating Corporation Tax.
There is also a formal process to follow. The company must declare the dividend and keep appropriate records, including minutes and a dividend voucher showing the relevant details. The shareholder may then have personal tax to pay on the dividend depending on their overall income and the allowances and rates that apply.
3. Is It Better to Take Salary or Dividends?
For many limited company directors, the answer is not simply salary or dividends. A combination of the two is commonly used because they are treated differently for tax purposes. Salary can generally reduce the company’s taxable profits but may attract Income Tax and National Insurance, while dividends do not attract National Insurance but must come from available company profits after Corporation Tax.
The balance between the two should therefore be considered in the context of your overall position. Other employment income, investment or pension income, the level of company profits and whether there are other shareholders can all affect what makes sense.
Rather than asking what salary and dividend split other directors are using, the more useful question is what combination works efficiently for you and your company while remaining compliant with the rules?
4. Reclaiming Business Expenses You Have Paid Personally
Taking money from your company does not always mean receiving taxable income. Directors frequently pay genuine business costs personally, and where an expense meets the relevant rules, the company can generally reimburse that expenditure without treating the repayment in the same way as salary or dividends.
This can include qualifying business travel, mileage, certain professional subscriptions, business equipment, work related training and other costs incurred for the purposes of the business. What can be reimbursed depends on the nature of the expense and the relevant HMRC rules, so it is important not to assume that something becomes a business expense simply because it was useful to you while running the company.
Keeping accurate records matters. Receipts, invoices and details of the business purpose of expenditure help demonstrate why the company reimbursed the expense. It is also worth reviewing expenses regularly, as directors sometimes pay legitimate company costs personally and simply forget to claim them back.
5. Claiming Business Mileage From Your Limited Company
If you use your own car or van for qualifying business journeys, your limited company can reimburse you using HMRC’s approved mileage rates. The current approved rate for cars and vans is 55p per business mile for the first 10,000 business miles in the tax year and 25p per mile thereafter. Different rates apply to motorcycles and bicycles.
The key word is business. Ordinary commuting between your home and a permanent workplace is not automatically qualifying business travel. Journeys made for business purposes, such as travelling to meet a client or attending a temporary workplace, may qualify depending on the circumstances.
You should keep a mileage record showing your qualifying business journeys rather than estimating the mileage at the end of the year. HMRC can change approved rates, so the current figures should always be checked before making or reviewing claims.
6. Making Employer Pension Contributions
Not every tax efficient way of taking value from your company involves putting cash into your bank account. A limited company can make employer contributions directly into a registered pension scheme for a director, making pensions worth considering as part of wider remuneration and tax planning.
Employer pension contributions can potentially be deductible when calculating the company’s taxable profits where the relevant conditions are satisfied. They are treated differently from simply taking the equivalent amount as salary or dividends, but the money is being placed into a pension rather than becoming immediately available for personal spending.
Pension allowances and tax rules still apply, and larger contributions in particular should be considered carefully. The right question is therefore not simply whether a pension contribution saves tax, but whether it fits your wider financial plans and the circumstances of the company.
7. Taking Back Money You Have Put Into the Company
Many directors put their own money into their company, particularly when starting the business or during periods of investment and growth. You may have lent the company money directly or paid company expenses from your own bank account or credit card.
These transactions should be recorded through your director’s loan account. If the account shows that the company owes you money, the company can repay what it owes. Because this is repayment of money you previously put into or lent to the business, it is fundamentally different from receiving additional salary or a dividend.
Maintaining an accurate director’s loan account is important because it needs to show both money you have put into the company and money you have taken out. The balance should also be reflected correctly in the company’s annual accounts.
8. Borrowing Money From Your Limited Company
A director’s loan can also work in the opposite direction. HMRC generally describes a director’s loan as money you or certain close family members receive from your company that is not salary, a dividend or an expense repayment, and is not money you previously paid into or lent to the company.
This is where taking money from a limited company without deciding what the payment represents can cause problems. If you withdraw more than the company owes you and the payment cannot properly be treated as salary, dividends or expenses, your director’s loan account may become overdrawn.
An overdrawn director’s loan can create tax consequences for both the director and the company, depending on the amount involved and how long it remains outstanding. A director’s loan should therefore not be treated as an informal or automatically tax-free alternative to paying yourself properly.
9. Using Trivial Benefits
A limited company can provide certain small benefits to employees and directors without creating a tax or National Insurance liability where HMRC’s trivial benefit conditions are met. A qualifying benefit must cost £50 or less, cannot be cash or a cash voucher, cannot be a reward for work or performance and cannot be something the employee is entitled to under their contract.
Directors of close companies are subject to an additional limit. The total value of qualifying trivial benefits provided to a director of a close company cannot exceed £300 in a tax year. This should not be confused with a £300 cash allowance: each individual benefit still needs to satisfy HMRC’s conditions.
Used correctly, trivial benefits can form a small part of the overall benefits a company provides. They should not, however, be stretched beyond their intended purpose simply to extract money from the business.
10. Paying for Annual Company Events
HMRC also provides an exemption for qualifying annual social functions, which can include events such as a Christmas party or annual summer event. For the exemption to apply, the function must meet the relevant conditions, including being annual, being open to employees generally and costing £150 or less per person.
The £150 figure is an exemption rather than an allowance. If several annual functions are held, the rules need to be considered across those events, and exceeding the qualifying amount can change the tax treatment.
This is another example of why understanding the rules is more useful than simply compiling a list of things a company can supposedly “pay for”. The tax treatment depends on the circumstances and whether the qualifying conditions are actually met.
11. Other Benefits Your Limited Company Can Provide
There are other circumstances where your company may be able to provide something that you might otherwise have paid for personally. Some benefits have specific tax exemptions, while others create a taxable Benefit in Kind and need to be reported to HMRC.
A useful example is a mobile phone. HMRC currently allows an employer to provide an employee with one mobile phone or SIM card without a tax or National Insurance charge where the qualifying conditions are met, including that the contract is between the employer and the supplier. This is different from simply reimbursing the director’s personal mobile phone contract.
Other areas that may be worth considering include work-related equipment and training, certain insurance arrangements, company vehicles and some health or wellbeing benefits. Each has its own rules, so the fact that the company pays for something does not automatically mean that it is tax-free.
What About Working From Home?
Directors who work from home should also consider whether the company can meet or reimburse qualifying additional household costs. This area needs particular care because the rules around an employer reimbursing eligible homeworking costs are different from the rules governing an employee personally claiming tax relief from HMRC.
Employers can currently reimburse qualifying additional household expenses under the homeworking rules without Income Tax or National Insurance where the conditions are met. HMRC provides a guideline amount of £6 per week or £26 per month in qualifying circumstances without requiring the employer to justify the actual additional expenditure; higher amounts require evidence of the additional costs.
This is an area where the rules have changed, so directors should check their circumstances rather than relying on older online guidance about working-from-home tax relief.
Can My Limited Company Pay My Personal Expenses?
Using the company bank account or company card does not turn a personal purchase into a business expense. If your company pays a personal bill, the payment needs to be treated correctly and could result in a taxable benefit, salary or a director’s loan depending on what has been paid and the circumstances.
Keeping company and personal spending separate makes the position much clearer. Where an expense has both business and personal elements, the correct treatment can depend on the particular expense and the relevant HMRC rules, so it is better to check before claiming rather than assuming it can be put through the business.
This distinction is particularly important for owner-managed companies because the director may control both bank accounts, but legally the company and the individual remain separate.
Can I Just Transfer Money From My Business Account to My Personal Account?
You can physically make a bank transfer, but making the transfer does not determine its tax treatment. What matters is why the company is paying you the money and how that payment is recorded.
A transfer might represent salary, a dividend, reimbursement of an expense, repayment of money the company owes you or a director’s loan. Each has different rules and potentially different tax consequences. Regularly transferring money without recording what those payments represent can therefore create problems when the company’s accounts and tax returns are prepared.
Good tax planning works in the opposite direction: decide how the money should legitimately be taken and then make and record the payment accordingly.
What Is the Most Tax-Efficient Way to Take Money Out of a Limited Company?
There is no universal formula. For many owner-directors, a tax efficient approach may involve a combination of salary, dividends, legitimate business expense reimbursements, employer pension contributions and appropriate company benefits, with repayment of money owed to the director where applicable.
The right balance depends on the company’s profits, your other personal income, whether there are other shareholders, how much money you need personally and what you want to achieve with it. A pension contribution, for example, may be tax efficient but does not provide the same immediate access to money as salary or dividends.
Tax efficiency should therefore be considered alongside compliance and your wider financial needs. The aim is not simply to find the method with the lowest headline tax rate, but to structure remuneration appropriately for both you and your company.
Common Mistakes When Taking Money Out of a Limited Company
One of the most common mistakes is taking money first and deciding what it was later. This can result in an unexpected director’s loan balance, dividends being declared without sufficient profits or personal expenditure being incorrectly treated as a company expense.
Directors can also miss legitimate opportunities by failing to claim business expenses they have personally funded, overlooking pension contributions or assuming that salary and dividends are the only options available. At the other extreme, trying to put too many personal costs through the company can create additional tax and reporting obligations rather than saving money.
Another mistake is copying somebody else’s tax strategy. A salary and dividend combination discussed online may be perfectly legitimate for the person describing it but inappropriate for someone with different income, company profits or personal circumstances. Tax planning should reflect your own position and should be reviewed when either your circumstances or the tax rules change.
When Should You Review How You Take Money From Your Company?
How you pay yourself should be reviewed regularly rather than considered only when your annual accounts are being prepared. Planning earlier gives you the opportunity to consider the available options before payments have already been made and tax deadlines have passed.
A review is particularly worthwhile when company profits change significantly, your personal income changes, another shareholder joins the business or you are considering a substantial dividend, pension contribution or company benefit. Changes to UK tax rules can also alter the relative advantages of different methods.
Your accountant can help you look at the overall position rather than considering salary, dividends, pensions and expenses in isolation.
Frequently Asked Questions About Taking Money Out of a Limited Company
What is the most tax-efficient way to take money out of a limited company?
There is no single method that is most tax efficient for everyone. Many owner-directors use a combination of salary and dividends alongside legitimate business expense reimbursements, employer pension contributions and appropriate company benefits. The right combination depends on the company’s financial position and the director’s individual circumstances.
Is it better to pay yourself salary or dividends?
Often, both form part of the way an owner-director is paid. Salary and dividends have different tax treatments: salary can generally reduce taxable company profits but may attract Income Tax and National Insurance, while dividends do not attract National Insurance but can only be paid from sufficient distributable profits.
Can I take money from my limited company whenever I want?
Money can be transferred from the company, but every payment needs to be correctly accounted for. Depending on the circumstances, it might be salary, a dividend, reimbursement of an expense, repayment of money owed to you or a director’s loan.
Can I take dividends every month?
A limited company can pay dividends at different points during the year provided it has sufficient distributable profits and follows the correct process for declaring and documenting them. Having enough cash in the bank does not, by itself, mean the company has sufficient profits to pay a dividend.
Other Things to Consider When Taking Money From Your Company
Dividends are not automatically tax-free. Depending on your total income and the allowances and rates that apply, you may have Income Tax to pay on dividends you receive. Your company must also have sufficient distributable profits before a dividend can legally be paid, so having money available in the company bank account is not enough on its own.
There are also ways for your company to provide value without simply paying more salary or dividends. Employer pension contributions can form part of wider tax planning and may be deductible when calculating the company’s taxable profits where the relevant conditions are met. Similarly, certain company provided benefits can receive favourable tax treatment. For example, one mobile phone or SIM card provided to an employee can qualify for an exemption where HMRC’s conditions are satisfied and the contract is between the company and the supplier.
If you use your own vehicle for qualifying business journeys, your company can also reimburse you using HMRC’s approved mileage rates. Accurate records of your business journeys should be kept, and it is worth checking the current rates when making a claim as these can change.
Care is particularly important if you take more money from the company than can properly be treated as salary, dividends, expenses or repayment of money already owed to you. This can create an overdrawn director’s loan account, which may have tax consequences for both you and the company depending on the amount and how long it remains outstanding.
Take Money From Your Limited Company With Confidence
There are several legitimate ways to take money or receive value from a limited company. Looking at salary, dividends, expenses, pensions and other options together can help you make informed decisions rather than simply withdrawing money when you need it. The right approach should balance tax efficiency with HMRC compliance, the financial health of your company and your own circumstances.
At Tax Relax, we help limited company owners understand their options and plan ahead. Whether you need advice on salary and dividends, expenses, director’s loans or wider tax planning, our team can help you understand what is appropriate for you and your business.
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Speak to Tax Relax about your limited company tax planning.
Published: July 2026 | Reviewed by: Tax Relax Accountants