Your company's money is not your money
A limited company is a separate legal entity, so its bank balance is not your personal cash. You extract money through recognised routes — mainly salary and dividends — each taxed differently. Taking money out any other way (an unplanned 'director's loan') can create tax headaches.
The two main routes
- Salary: paid through payroll (PAYE), a deductible business cost, and it builds your State Pension record.
- Dividends: paid from post-tax company profits, taxed at their own (lower) dividend rates, with a tax-free dividend allowance.
Why directors often combine them
A common approach is a modest salary plus dividends. The salary can be set to make use of allowances and preserve your NI record, with the rest taken as dividends taxed at lower rates. The exact efficient split depends on that year's thresholds and your wider income — this is genuinely a model-it-or-ask-an-accountant question, and dividend rates change at Budgets.
Keep it clean
- Run salary properly through payroll.
- Only pay dividends from actual profits, and keep a record (a dividend voucher).
- Set aside money for the company's Corporation Tax and your own tax.
- Use accounting software so the numbers and filings stay tidy.
Frequently asked questions
Is it better to take salary or dividends?+
Most directors use a mix — a small salary plus dividends — because dividends are taxed at lower rates while a salary preserves allowances and your NI record. The best split depends on current thresholds and your total income.
Can I just take cash out when I need it?+
No — money taken outside salary or dividends usually counts as a director's loan, which has its own tax rules and can be costly if not repaid. Use the proper routes and keep records.
Where do I find the current dividend rates?+
Dividend allowances and rates change at Budgets, so check the latest figures on GOV.UK or model them with your accountant before deciding your split.