Maximising your Income

Tax efficient ways to pay yourself from your company

Running a limited company comes with a number of advantages, but it also means thinking carefully about how you take money out of the business.

A limited company is a separate legal entity from its shareholders and directors, which means that the profits belong to the company first and are usually subject to Corporation Tax before any money can be taken personally.

So how do you pay yourself in a tax efficient way?

There’s no one-size-fits-all answer. Each method has different tax and cashflow consequences, so having a clear strategy can make a significant difference to how much tax you ultimately pay. Here is a look at some of the most common options.

Dividends

Dividends are one of the most popular ways for shareholders to take money from a company.

They can only be paid from profits after Corporation Tax, and the company must have sufficient retained profits before dividends can be declared. This can be tricky for owners of new companies who may not have enough profits to draw dividends immediately, or for those whose profits vary greatly year on year.

Individuals have a Dividend Allowance of £500, meaning the first £500 of dividend income is tax-free. After that, dividends are now taxed at the following rates; those rates rose by 2% for basic and higher rate taxpayers from April 2026:

Income Band	Taxable Income	Dividend Tax Rate
Personal Allowance	Up to £12,750	0%
Basic Rate	£12,571-£50,270	10.75%
Higher Rate	£50,271-£125,140	35.75%
Additional Rate	Over £125,140	39.35%

One of the key benefits of dividends is that National Insurance contributions do not apply, which is why many company owners use dividends as part of their income strategy.

Salary

Directors can also pay themselves a salary through the company’s PAYE scheme, just like any other employee.

Unlike dividends, salaries are subject to Income Tax as well as National Insurance contributions (NICs). This means both the employee (the director) and the company may have National Insurance to pay on the salary.

For the 2026/27 tax year, the main Income Tax and employee National Insurance rates are:

Income band	Taxable Income	Income Tax	Employee NIC
Personal Allowance	Up to £12,750	0%	0%
Basic Rate	£12,571-£50,270	20%	8%
Higher Rate	£50,271-£125,140	40%	2%
Additional Rate	Over £125,140	45%	2%

In addition to the gross salary, the company may also have to pay Employer’s National Insurance, which is currently 15% on earnings above £5,000. If the company employs more than one sole director, the employment allowance can be claimed to give relief for the first £10,500 of employers National Insurance in the 2026/27 tax year, making the salary much more tax efficient.

Salaries and Employer’s National Insurance contributions are a deductible business expense, therefore reducing the company’s taxable profits and in turn, its corporation tax liability saving corporation tax at either 19% or 25%. Paying yourself a salary also gives a qualifying year towards your all-important state pension entitlement. For this reason, many directors choose to take a salary alongside dividends as part of a balanced and tax efficient approach to paying themselves.

Charging interest on a loan

If you lend money to your company, the company can pay you interest on that loan.

The interest paid is usually a deductible expense for the company, reducing taxable profits. However, the interest received counts as taxable income for the individual and must be declared on your personal tax return. As this interest can be taken without being subject to National Insurance, this can be a very good option to extract funds.

Director’s loans

Another option is to withdraw money through a director’s loan account, effectively borrowing funds from the company.

This can be useful in the short term, but it needs to be handled carefully. If the loan isn’t repaid within 9 months and 1 day of the company’s accounting period end, the company may have to pay an additional tax charge (known as a Section 455 charge) of 33.75% on the outstanding balance. This rate rises to 35.75% for loans advanced on or after 6th April 2026.

As a result, director’s loans should always be properly documented and monitored.

Paying rent to a director

If you personally own property that your company uses, such as land or buildings, the company may be able to pay rent to you.

The rent is typically treated as a business expense for the company, reducing profits. However, it will be taxed as property income for the individual and must be declared on your tax return.

Creating a tax efficient strategy

In practice, the most tax efficient approach often involves a combination of methods.

Of course, tax rules change regularly and everyone’s circumstances are different. That’s why it’s important to review your remuneration strategy regularly, alongside your other income streams to make sure it remains both compliant and tax efficient.