Your company is making money. How do you actually pay yourself?
You've got money coming into your limited company, bills are being paid and there's something left in the bank.
Great!
But transferring that money into your personal account isn't quite as straightforward as it might seem.
As a limited company director, there are different ways to receive money from your business, and each has its own rules.
Let's explain them.
1. Paying yourself a salary
A salary is a payment for the work you do as an employee or director.
Depending on the circumstances, the company may need to operate PAYE and calculate Income Tax, employee National Insurance and employer National Insurance.
Salary is generally a deductible company expense where it meets the relevant rules.
However, the overall tax position needs to account for employer costs and the individual's circumstances.
2. Paying yourself dividends
Dividends are payments made to shareholders from a company's available distributable profits.
They are not an ordinary business expense and do not reduce Corporation Tax profits.
Before paying dividends, the company needs to establish that it has sufficient distributable profits and comply with the relevant company law requirements.
Dividend payments should also be supported by appropriate company records and dividend vouchers.
3. What is the dividend allowance?
For the 2026/27 tax year, the dividend allowance is £500.
For dividends above the allowance and any available Personal Allowance, the rates are:
Basic rate - 10.75%
Higher rate - 35.75%
Additional rate - 39.35%
The actual amount payable depends on your total taxable income, tax bands and circumstances.
4. Is salary or dividends better?
There's no single answer that works for every director.
You need to consider:
Other income
Corporation Tax
Employer National Insurance
Employee National Insurance
Personal Income Tax
Available company profits
Share ownership
Pension arrangements
Whether Employment Allowance is available
A combination of salary and dividends may be appropriate for some directors.
For others, the position could be different.
Don't copy someone else's salary and dividend split just because it worked for them.
5. What about two directors?
If you and another person both work in the business, the company may pay salaries based on genuine employment arrangements.
Dividends normally follow the rights attached to the shares.
Two directors don't automatically have the right to receive dividends in whatever proportions they want.
The company's share structure and distributable profits matter.
6. What is a director's loan?
A director's loan can arise when you take company money that isn't properly treated as salary, dividends or an expense reimbursement.
Director's loan balances need to be monitored.
Overdrawn balances can give rise to additional tax consequences, particularly where amounts remain outstanding after the relevant deadlines.
There can also be benefit-in-kind implications in certain circumstances.
7. Can the company pay your personal bills?
Sometimes a company pays a bill that belongs personally to a director.
That doesn't automatically turn the payment into a legitimate company expense.
Depending on the facts, it may need to be treated as a director's loan, remuneration, a benefit or another type of transaction.
The correct treatment matters.
8. Don't forget tax provisions
A dividend payment doesn't mean you've already paid the personal tax due on it.
And just because the company bank account has money available doesn't mean it's all free to distribute.
Your company may still need funds for Corporation Tax, VAT, payroll, suppliers and ongoing costs.
9. Review your position regularly
Tax-efficient remuneration isn't something you should decide once and forget about.
Profit levels, personal income, tax rates, shareholdings and business circumstances can change.
Regular reviews can help you understand what is affordable and appropriate.
How AOY helps directors
At Accounting On You, we help limited company directors understand salaries, dividends, Corporation Tax and ongoing financial planning.
Our bookkeeping and financial trackers also help clients see what they may need to put aside.
It's your money and your business. We just want you taking it out the right way.
Visit www.accountingonyou.com to explore our limited company packages.
This article is general information, not a personal salary or dividend recommendation.