Taking Money Out of a Limited Company: Salary, Dividends and Director’s Loans Explained (2026/27)

Taking money out of a limited company is not as simple as transferring cash from the business account. As a director and shareholder, you have four main routes: salary through PAYE, dividends, expenses and benefits, and a director’s loan. Most owner-managers use a combination, usually a small salary plus dividends, because it keeps both personal and company tax down. The money you extract must follow formal rules, and getting the paperwork wrong can turn a tax-free withdrawal into a taxable benefit or a penalty.

Key takeaways:

•  The four extraction routes are salary (via PAYE), dividends, expenses and benefits, and director’s loans.
• The 2026/27 tax-free dividend allowance is £500; dividend tax rates are 10.75% (basic), 35.75% (higher) and 39.35% (additional rate).
• Dividends can only be paid out of retained profits and must be formally declared and minuted.
•  A director’s loan repaid within nine months and one day of the company year-end usually avoids the section 455 charge.
•  As at September 2026, HMRC has not announced any changes to the tax treatment of money taken out of a limited company.

What Are the Four Routes for Taking Money Out of a Limited Company?

A limited company is a separate legal entity, so its money is not automatically yours. Every withdrawal needs a legal basis, and the rules for taking money out of a limited company differ depending on the route used. The four practical routes are :paying yourself a salary through PAYE as an employee of your company; paying dividends as a shareholder; reimbursing genuine business expenses and providing benefits; and borrowing money from the company through a director’s loan account. The right mix depends on your profits, other income and cash-flow needs. If you have money stuck in limited company reserves, Apex Accountants can help assess the available extraction routes and the tax impact of each before you take funds from the business. 

Salary, Expenses and Benefits

Run salary through PAYE: the company deducts income tax and employee National Insurance at source and pays employer National Insurance on pay above the secondary threshold. Salary is deductible for corporation tax, which is why even a modest salary usually beats dividends on the first slice of extraction. You can reimburse the business expenses you pay personally (travel to a client, professional subscriptions, equipment) tax-free, as long as they serve the business wholly and exclusively. Benefits such as a company phone follow their own tax and National Insurance rules, so check each one individually.

Our payroll services can manage director salaries, PAYE submissions and ongoing payroll compliance. 

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Dividends: The 2026/27 Rules and Rates

Dividends are payments to shareholders out of the company’s retained profits. Before paying one, check if the company has sufficient distributable reserves, then the directors formally declare the dividend and keep minutes, even in a single-director company. Every shareholder receives a dividend voucher showing the date, amount and company.

The tax treatment of dividends depends on your total income and the tax band into which your dividend income falls. The 2026/27 dividend tax rates are: 

Dividend income after the allowance	2026/27 tax rate
Within the basic rate band	10.75%
Higher rate band	35.75%
Additional rate band	39.35%

The dividend allowance covers the first £500 of dividend income each year. These rates rose in April 2026, so older guidance showing 8.75% or 7.5% is out of date. Dividends do not reduce the company’s taxable profit: they come out of profit that has already suffered corporation tax (19% for small profits, 25% above the £250,000 main-rate threshold, with marginal relief between £50,000 and £250,000).

Director’s Loans: The Nine-Month Rule

A director’s loan is any money a director (or their close family) takes from the company that is not a salary, dividend, or reimbursed expense. It sits in the director’s loan account until repaid. Repay it within nine months and one day of the end of the company accounting period, and the company generally avoids the section 455 corporation tax charge on the outstanding balance. Repay later, and the company pays the charge, then reclaims it once the loan clears.

Two further rules matter. First, a loan of more than £10,000 at no or low interest creates a taxable benefit for the director unless the company charges HMRC’s official rate of interest. Second, if the company writes the loan off, the director pays income tax on the released amount as income. Used properly, a loan is a short-term cash-flow tool, not an extraction strategy.If you need to withdraw money from limited company funds before declaring a dividend or running salary, Apex Accountants can review whether a director’s loan is appropriate and explain the potential tax and repayment implications. 

Salary and Dividend Extraction: Worked Example

Take a one-person company with £60,000 of profit before any director remuneration in 2026/27. 

A common structure is:

1. Salary of £12,570, covered entirely by the personal allowance (£12,570 in 2026/27, tapered above £100,000 of income), so no income tax is due personally. Employer National Insurance applies above the secondary threshold (£9,100 for 2026/27). Many small companies can offset some or all of this using the Employment Allowance (up to £5,000), subject to eligibility conditions. 
2. Dividends of £37,430 from post-corporation-tax profit. The first £500 is covered by the dividend allowance; the remaining £36,930 falls in the basic rate band and is taxed at 10.75%, which is about £3,970.

Total personal tax on £50,000 of extraction: roughly £3,970, under 8% of the amount taken out. Compare that with taking the entire £50,000 as a salary, where income tax and National Insurance would take a much larger share. The exact optimum shifts with your circumstances, other income and the company’s profit level, which is why tax planning should be reviewed each year to make sure your extraction strategy remains appropriate as rates, allowances and profits change. If you have money stuck in limited company reserves, reviewing the available extraction options can also help you decide when and how to take profits while managing the tax impact.

Are the Rules on Extracting Money Changing?

HMRC ran a consultation on modernising the taxation of distributions that closed on 14 September 2026. It could eventually change how dividends, share buybacks and certain capital repayments are taxed and how the director’s loan rules interact with them. No law has changed. For what the consultation proposes and the timeline, see our dedicated guide to the 2026 distributions consultation, helping directors understand the possible changes before reviewing future extraction decisions.

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Frequently Asked Questions

How much can I take out of my limited company tax-free?

In 2026/27, salary up to your available £12,570 Personal Allowance will normally be free of personal Income Tax, provided you have no other income using that allowance and your adjusted net income is not above £100,000. Employer National Insurance may still be payable by the company. 

Can I pay dividends if my company has no profit?

No. Dividends must come out of retained profits. Paying one without sufficient distributable reserves is an illegal distribution: HMRC can reclaim it from shareholders, and it creates a tax mess for both sides.

Do I need paperwork for every dividend?

Yes. The directors declare each dividend, minute it, and record it on a dividend voucher for each shareholder. Even a one-director company needs the minutes. HMRC can ask for them.

What happens if I don’t repay a director’s loan?

The company owes the section 455 charge on the balance, and if the company writes the loan off, you pay income tax on it. Interest-free loans over £10,000 also create a taxable benefit.

Is a salary or dividends better in 2026/27?

Usually both. A modest salary uses your personal allowance and employer National Insurance rules efficiently; dividends on top attract lower rates than salary. The exact split depends on your total income, so review the mix with your accountant each year.

How Apex Accountants Can Help

Choosing how to take money out of your limited company is one of the most valuable things an accountant does for you. Our corporation tax planning covers the salary-versus-dividend mix for your profit level; our payroll and auto-enrolment service runs your director salary through PAYE correctly; and our year-end tax planning declares dividends with proper paperwork and times them against your personal tax position, including Self Assessment registration deadlines. 

If you use director’s loans for cash flow, we review your loan account before every year-end so nothing lands as a surprise Section 455 charge. We help directors who want to withdraw money from limited company profits compare salary, dividends and director’s loans, model the tax cost and choose an appropriate extraction strategy for 2026/27. Book a free consultation, and we will model your optimum extraction mix for 2026/27.

If you are looking to know, feel free to contact us.