How to pay yourself from a limited company

Directors normally take a small salary plus dividends. Salary is deductible for the company but carries income tax and National Insurance; dividends carry no National Insurance but are paid from profit after corporation tax and taxed on you at 10.75%, 35.75% or 39.35% after a £500 allowance. Dividends can only be paid out of distributable profit.

The company's money is not your money until it is paid out, and how it is paid out changes what reaches you. There is no universal answer here — only arithmetic that depends on your profit, your other income and what you need to live on.

The three routes out

Salary

A deductible expense, so every pound reduces the profit corporation tax is charged on. It also builds your National Insurance record, which matters for the state pension. Against that: income tax, employee National Insurance and employer National Insurance all attach to it, and it needs a payroll scheme.

Dividends

Paid out of profit the company has already paid corporation tax on, so they do not reduce the company's bill. They carry no National Insurance, which is the whole reason they feature. After the £500 allowance they are taxed on you at 10.75%, 35.75% or 39.35% depending on your total income.

Two conditions are non-negotiable. There must be distributable profit — accumulated profit after tax, not cash in the account. And there must be paperwork: a board minute and a dividend voucher for each payment. Without both, what you took was not a dividend but adirector's loan, taxed at 33.75% if it is still outstanding nine months after the year end.

Employer pension contributions

The route directors most often overlook. Generally deductible for the company, no National Insurance, and no income tax on you at the point of contribution. Where the company's profit falls between £50,000and £250,000, a contribution saves corporation tax at the26.5% marginal rate rather than 25%.

Why the split is not a formula

Every guide that gives one number is assuming things about you: that this is your only income, that you need to draw everything, that you have no other dividends, no student loan, no property income, no plan to apply for a mortgage. Change any of those and the answer moves.

What actually decides it:

How much you need personally — money left in the company is taxed differently from money drawn out.
Your other income — a spouse's salary, rental income, a second job all shift which band the dividends fall into.
Company profit, and whether it sits in the marginal relief band.
Whether you are borrowing soon. Lenders assess what your returns show, and a tax-optimal split can be a mortgage-hostile one.
Your National Insurance record, if you have gaps.

Get the split modelled on your numbers

Tell us the company's profit, what you need to draw and what else you have coming in. We will show you what each route costs in total — company and personal tax together — rather than a rule of thumb from a forum.

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Free assessment first. If there is work to do, you get a fixed quote in writing before anything starts.

The mistakes that cost the most

Taking money and calling it a dividend later. If there was no distributable profit on the day, it was a loan.
No paperwork. A dividend nobody minuted is hard to defend and awkward to evidence to a lender.
Forgetting the personal tax. Dividends are taxed through Self Assessment — the bill arrives in January, long after the money was spent.
Ignoring the £12,570 personal allowance. A director drawing nothing wastes it; there is usually a better shape.
Optimising for tax alone in the year before a mortgage application.

Questions people ask

Salary or dividends — which is better?

Usually a combination. Salary is deductible for the company, so it reduces corporation tax, but carries income tax and National Insurance. Dividends carry neither National Insurance nor a corporation tax deduction, and are taxed on you at 10.75%, 35.75% or 39.35%. The right split depends on your profit, your other income and what you need to draw.

What are the dividend rates now?

10.75% at basic rate, 35.75% at higher rate and 39.35% at additional rate for 2026/27, after a £500 dividend allowance. The basic and higher rates each rose by two points this year, so any calculation built on the old figures now understates the tax.

Can I take a dividend whenever I like?

Only out of distributable profit — accumulated profit after corporation tax. A "dividend" paid when there is none is not a dividend; it is a loan, and it lands in your director's loan account with the consequences that follow.

Do I need paperwork for dividends?

Yes: a board minute declaring the dividend and a dividend voucher for each payment. It takes two minutes and it is the difference between a dividend and an unexplained withdrawal when anyone looks — a lender, a mortgage underwriter, or HMRC.

What about pension contributions?

An employer pension contribution is generally deductible for the company and carries no National Insurance. Where profit sits in the marginal relief band, each pound contributed saves 26.5% of corporation tax rather than 25% — one of the few places where the timing of a decision is worth a measurable amount.

Does this change what I can borrow?

It can. Lenders assess directors on salary plus dividends as evidenced by filed returns, so a split optimised purely for tax can reduce what a mortgage underwriter will lend against. If a mortgage application is coming, say so before the split is set — see our guide to the SA302 and income evidence.

Figures are for the tax year shown and change every April. They are general information, not advice — we check the current position for your circumstances before anything is filed.

Reviewed 19 October 2026.