How to Pay Yourself from a Limited Company

Learn how to pay yourself from a UK limited company using salary, dividends, expenses and pension contributions

If you run a limited company, you are not technically an employee in the same way as someone working for a traditional business. You are both the director and a shareholder, which means there are several ways you can legally pay yourself. Understanding the different methods and their tax implications can help you extract money from your company efficiently.

This guide explains how to pay yourself from a UK limited company, how each option works, and how to keep things compliant with HMRC.

1. Take a director’s salary

As a director, you can pay yourself a salary through the company’s PAYE payroll scheme. This is the most common way to receive a regular income.

Key points:

  • You must register as an employer with HMRC

  • You must report salaries using Real Time Information (RTI) each month

  • You need to provide payslips and submit monthly returns

  • The company will need to pay employer National Insurance contributions above certain thresholds

Why take a salary?

  • It counts towards your state pension and other benefits

  • It is a tax-deductible business expense, reducing your company’s Corporation Tax bill

  • You can keep the salary low to reduce tax but still qualify for NI credits

Typical strategy:
Most directors pay themselves a salary just below the National Insurance threshold (currently £12,570 per year), which avoids employee and employer NI but still qualifies for state benefits.

2. Take dividends from company profits

Once your company has paid Corporation Tax on its profits, you can distribute the remaining profits as dividends to yourself as a shareholder.

How it works:

  • You can only pay dividends from retained profits

  • You must declare dividends through a board meeting and keep proper records

  • You need to issue a dividend voucher showing the amount and payment date

  • Dividends are not subject to National Insurance

Dividend tax (2024/25 rates):

  • First £500 is tax-free (dividend allowance)

  • Basic rate: 8.75%

  • Higher rate: 33.75%

  • Additional rate: 39.35%

Why use dividends?

  • More tax efficient than taking only salary

  • No NI contributions

  • You can time payments to match your personal tax position

Typical approach:
Combine a small salary with dividends to make the most of tax allowances and keep your total tax bill low.

3. Reimburse yourself for business expenses

If you pay for business-related costs personally, your company can reimburse you tax-free.

Examples of allowable expenses include:

  • Business travel and accommodation

  • Office supplies

  • Software and subscriptions

  • Use of home for business (a portion of utility bills or a flat-rate allowance)

Keep clear records and receipts for all reimbursed expenses.

4. Director’s loan account

You can borrow money from the company through your director’s loan account, but it must be treated carefully.

Important rules:

  • If the loan exceeds £10,000, it may count as a benefit in kind and trigger personal tax

  • Loans not repaid within nine months of the company’s year-end may trigger a 33.75% Corporation Tax charge (known as s455 tax)

  • Any personal use of company money outside of salary or dividends should be recorded as a loan

This method is best used occasionally or in emergencies. It is not a long-term solution.

5. Pension contributions

Your limited company can make contributions to your pension scheme. These are treated as an allowable business expense and are not subject to Income Tax or National Insurance.

  • The annual pension contribution limit is currently £60,000 per person (or 100% of earnings, whichever is lower)

  • Contributions made by the company are not restricted by your salary, so even low-salary directors can benefit

  • You must use a registered pension scheme and make sure contributions meet “wholly and exclusively” rules

This is a useful way to extract profits from the company while saving for the future and reducing Corporation Tax.

Which is the most tax-efficient method?

Most directors use a combination of methods:

  • Small salary to make use of the tax-free Personal Allowance and qualify for state benefits

  • Dividends to top up income without paying National Insurance

  • Pension contributions to reduce taxable profits and save for retirement

  • Expense reimbursements for out-of-pocket business costs

By blending these methods, you can legally reduce your tax bill while keeping your finances in good order.

Example strategy (2024/25):

  • Director takes a salary of £12,570

  • Dividends of £30,000 from post-tax company profits

  • Company contributes £5,000 to director’s pension

  • No National Insurance is due, and personal tax liability is reduced

Final thoughts

Paying yourself from a limited company offers flexibility, but it also comes with responsibilities. You must stay compliant with HMRC rules, keep accurate records and file the correct returns. With careful planning, you can structure your income to be tax-efficient and sustainable.

Speak to an accountant before making any decisions, especially if you are unsure how much to take or when to declare dividends. A well-planned income strategy can make a big difference to your take-home pay and long-term finances.