Can I Take Money Out of My Company Tax Free?

Company directors can withdraw money in several ways, but not all are tax free. Learn which methods are allowed, their tax implications, and how to stay compliant.

Introduction

Running your own limited company gives you flexibility in how you pay yourself, but it also comes with tax rules that must be followed carefully. Many directors wonder whether it is possible to take money out of their company without paying tax. While there are legitimate ways to withdraw funds tax efficiently, taking money out “tax free” is only possible in certain situations.

This article explains how you can legally take money out of your company, the tax implications of each method, and how to avoid penalties or unexpected tax bills.

Understanding Company Ownership

A limited company is a separate legal entity from its owner or director. This means that the money in the company’s bank account belongs to the company, not directly to you.

Any time you withdraw money, it must be recorded correctly and fall under one of a few specific categories recognised by HMRC:

  1. Salary or wages.

  2. Dividends.

  3. Director’s loan.

  4. Reimbursement of business expenses.

Each method has its own tax treatment, and only some can be tax free under the right conditions.

1. Reimbursement for Business Expenses

If you have personally paid for legitimate company expenses, you can reclaim that money from the company tax free.

To qualify, the expenses must be:

  • Wholly, exclusively, and necessarily for business purposes.

  • Properly documented with receipts or invoices.

Common examples include:

  • Travel for business meetings.

  • Office supplies or equipment.

  • Software subscriptions used for work.

  • Professional fees, such as insurance or accounting costs.

Reimbursements are not treated as income because you are simply being repaid for costs you covered on behalf of the company.

Example:
You buy a laptop for £1,000 using your personal credit card. The company reimburses you the same amount. No tax applies as long as the laptop is used solely for business.

2. Salary or Wages

If you are both a company director and an employee, you can pay yourself a salary through PAYE (Pay As You Earn). While salaries are taxable, paying yourself a small salary can be a tax-efficient strategy when combined with dividends.

Many directors pay themselves a salary just below the personal allowance threshold (£12,570 for the 2024 25 tax year). This allows you to:

  • Build entitlement to state benefits and pension contributions.

  • Avoid Income Tax on the salary.

  • Keep overall tax and National Insurance low.

You will still need to operate PAYE, file payroll submissions, and ensure that the salary is reasonable for your role.

3. Dividends

Dividends are payments made from a company’s post-tax profits to its shareholders. If you are a shareholder in your own company, you can pay yourself dividends after the company has paid Corporation Tax.

Dividends are not tax free, but they are often taxed at a lower rate than salary. For the 2024 25 tax year:

  • The first £500 of dividends is tax free (the dividend allowance).

  • Dividends above this are taxed at:

    • 8.75% for basic-rate taxpayers.

    • 33.75% for higher-rate taxpayers.

    • 39.35% for additional-rate taxpayers.

To pay dividends correctly:

  • The company must have sufficient post-tax profits.

  • Minutes must be recorded to authorise the payment.

  • Dividend vouchers should be issued to show the payment details.

Example:
Your company earns £40,000 profit after expenses. After paying 19% Corporation Tax, £32,400 remains. You can distribute this as dividends, paying only the applicable dividend tax rate after the £500 allowance.

4. Director’s Loan

A director’s loan is money you take from your company that is not a salary, dividend, or expense reimbursement. It can also include personal expenses paid with company funds.

If you take a loan, it must be recorded in a Director’s Loan Account (DLA), which tracks how much the company owes you or how much you owe the company.

  • If the company owes you (for example, you have loaned it money), you can withdraw those funds tax free.

  • If you owe the company money, it must be repaid within nine months of the company’s accounting year-end, or additional taxes may apply.

If the loan exceeds £10,000, HMRC considers it a benefit in kind, and it becomes subject to tax and National Insurance.

Example:
You lend your company £5,000 to help with start-up costs. When the company is profitable, it repays you the £5,000. This repayment is tax free because you are recovering your own money.

However, if you take £5,000 from company funds without recording it properly, HMRC will treat it as a loan or income, which could trigger additional taxes.

5. Pension Contributions

Your company can make pension contributions on your behalf, which are tax efficient for both you and the business.

These contributions are paid directly from the company’s pre-tax profits, meaning:

  • The company can deduct them as a business expense.

  • You do not pay Income Tax or National Insurance on the contributions.

To qualify, the payments must be part of a legitimate remuneration package and within HMRC’s annual pension allowance (£60,000 for 2024 25, including personal contributions).

What You Cannot Do

While there are legitimate ways to take money out of your company, there are also practices that can lead to tax problems or penalties:

  • Taking cash without recording it: HMRC will treat this as undeclared income.

  • Paying personal expenses through the company: Unless reimbursed, these are classed as benefits and may trigger tax.

  • Overdrawing your Director’s Loan Account: This can result in a Section 455 Corporation Tax charge of 33.75% on the outstanding balance.

The safest approach is always to record all transactions properly and seek professional advice before withdrawing large sums.

Example of a Tax-Efficient Combination

Many small business owners use a combination of salary and dividends for maximum efficiency. For example:

  • Pay yourself a salary up to the personal allowance (£12,570).

  • Take the remainder of your income as dividends within the basic rate band.

This approach reduces Income Tax and National Insurance contributions while remaining fully compliant with HMRC.

The Role of an Accountant

An accountant can help you:

  • Decide the best mix of salary and dividends for your situation.

  • Set up payroll and dividend records correctly.

  • Monitor your Director’s Loan Account to prevent tax charges.

  • Identify legitimate expenses and reimbursement opportunities.

  • Plan pension contributions for maximum tax efficiency.

Professional advice ensures that every withdrawal from your company is structured correctly and within HMRC’s rules.

Conclusion

You can take money out of your company tax free in certain cases, such as reimbursing business expenses or repaying money you loaned to the company. However, most withdrawals — including salary, dividends, or loans — are subject to some form of tax.

By planning carefully, keeping accurate records, and seeking advice from an accountant, you can take money out of your company in a tax-efficient and compliant way. Managing this properly not only avoids penalties but also ensures your company’s finances remain healthy and transparent.