How to take money out of a limited company

If you own a limited company, you (and any co-workers) generate income for the business. So, how can you legally and tax-efficiently take money out of the company?

Before we explore the different methods of drawing down money from a company, it is essential to remember that a company is a distinct legal entity from its shareholders.

This guide has been updated for 2026/27.

Therefore, any funds in the company’s bank accounts belong to the company, not you.

Here are the different ways to withdraw money from a limited company.

• Salary
• Dividends
• Directors’ Loans
• Reimbursement of Expenses

Salaries

If you’re a sole director of your company, work with your partner/spouse, and/or have employees, the most common way to distribute company income to workers is through salaries.

• For the company, salaries are normally an allowable business expense and therefore reduce taxable profits for Corporation Tax purposes. The company may also have to pay Employers’ NICs. For 2026/27, the Secondary Threshold is £5,000 and the employer NIC rate above this level is 15%.
• Many limited company directors opt to draw relatively small salaries. The Personal Allowance is £12,570, which is also the annual employee NIC Primary Threshold for 2026/27.
• The annual Lower Earnings Limit is £6,708 for 2026/27. A salary at or above this level can help preserve entitlement to contributory benefits without the director actually paying employee NICs, provided the relevant conditions are met.
• If your company can claim the Employment Allowance, a salary of £12,570 is commonly used because the allowance may cover the employer NIC liability.
• If your company cannot claim the Employment Allowance, as is often the case with a company where the sole director is the only employee liable for employer NICs, the most tax-efficient salary depends on the figures. Paying £12,570 creates employer NIC above the £5,000 Secondary Threshold, although the salary and employer NIC normally generate Corporation Tax relief.
• Make sure you discuss salary setting with your accountant, as the company’s Corporation Tax rate, other employment income and personal circumstances may affect the calculation.

Dividends

Although not as tax-efficient a method of taking money out of a company as it once was, most shareholder-directors extract a significant proportion of their income as dividends.

• You can declare dividends up to the value of the company’s available distributable profits, with each shareholder receiving dividends according to the rights attached to their shares.
• If you distribute funds when there are insufficient distributable profits, the dividend may be unlawful, so make sure you check the company’s accounts or speak to your accountant if you have any doubts over the maximum distributable amount.
• The main advantage is that National Insurance is not payable on dividends.
• After the £500 dividend allowance, dividends are taxed according to the shareholder’s tax band. For 2026/27, the rates are 10.75%, 35.75% and 39.35%. :contentReference[oaicite:3]{index=3}
• There is a correct process for declaring and distributing dividends – much of it significantly simplified courtesy of online accounting software, such as Xero (80% off for 6 months + 30-day free trial).
• You can read more about dividends, what they are, and how they are taxed here.
• Try this Salary & Dividend tax calculator.

Directors’ Loans

There may be times when a director lends money to his/her limited company, during the start-up phase or when cashflow isn’t good, for example. The company can also lend money to directors, subject to strict rules.

• If you take a director’s loan from your company, Section 455 tax may apply if the loan remains outstanding more than 9 months and 1 day after the end of the company’s Corporation Tax accounting period.
• For loans made on or after 6 April 2026, the Section 455 charge is 35.75%. The company can normally reclaim this tax after the loan is repaid, released or written off, subject to the relevant rules. :contentReference[oaicite:4]{index=4}
• A separate beneficial-loan rule applies where the total outstanding balance exceeds £10,000 at any point during the tax year. If insufficient interest is charged, the loan may give rise to a taxable benefit in kind.
• HMRC’s official beneficial-loan interest rate is currently 3.75%. Loans that remain at or below £10,000 throughout the tax year are normally exempt from the beneficial-loan charge. :contentReference[oaicite:5]{index=5}
• You may be tempted to repay a loan just before the deadline and take out a fresh loan shortly afterwards. HMRC has anti-avoidance rules aimed at this type of ‘bed and breakfasting’. In particular, the 30-day rule can apply where repayments and new loans of £5,000 or more occur within the relevant period. :contentReference[oaicite:6]{index=6}
• You should also be aware that loans over £10,000 can create personal reporting and benefit-in-kind consequences, so check the position with your accountant and HMRC’s directors’ loan guidance.

Business expenses reimbursed to directors

Any services or products purchased on behalf of the company are tax-deductible providing that they were incurred wholly and exclusively for the purposes of the business.

• Limited company expenses can be paid for directly from the company’s bank account, or by a director or other staff member. In the latter case, the company can reimburse the director for the personal funds used to make the purchase.
• You won’t gain a tax advantage by reimbursing expenses; rather, you will ensure that you don’t make company purchases out of post-tax personal income, and allowable expenses are deducted when calculating the company’s taxable profits.
• Read our comprehensive guide to limited company expenses to find out more.

Taking money out of your limited company – in summary

• Directors commonly pay themselves a relatively modest salary, but the most tax-efficient level depends on whether the company can claim Employment Allowance and on the company’s and director’s circumstances.
• Salaries and associated employer costs are normally deductible when calculating taxable company profits.
• Many shareholder-directors take the remainder of their income as dividends, which do not attract National Insurance.
• Make sure you only distribute dividends where the company has sufficient distributable profits.
• If you take out a director’s loan, Section 455 tax may arise if it remains outstanding more than 9 months and 1 day after the end of the relevant accounting period.
• The £10,000 loan threshold relates mainly to the beneficial-loan rules. It does not mean loans below £10,000 are exempt from Section 455.

Please consult your accountant before making any decisions based on the information in this guide.