Top tips for withdrawing money from your limited company
A Limited Company is a separate business entity incorporated at Companies House as a legal person. This means you cannot simply take money out of the company account whenever you wish. Its debts belong to the company, not you, and all finances legally belong to the company first.
When you first register your limited company, you put yourself down as a director of the company. The primary role of a director is to run the Limited Company on behalf of its shareholders. This means that the Director is typically an employee of the Limited Company.
The goal of the Director is to run the Company to ensure that it makes a profit for the shareholder(s), and therefore, there is a certain procedure that you must follow in order to take the money out. This can surely be done in following ways:
Paying Yourself a directors salary:
As the director, you can pay yourself a regular salary through PAYE (Pay As You Earn). If structured correctly, this can be tax-efficient:
- A salary counts as an allowable business expense, reducing corporation tax liability.
- It keeps you eligible for state benefits, including the State Pension.
- Your company must register with HMRC as an employer in order to pay you via PAYE.
You also need to register for Self Assessment to report this income. Taxes and National Insurance Contributions (NICs) apply depending on your salary level, which the company must pay over to HMRC monthly or quarterly.
For the 2025/26 tax year:
- The Personal Allowance is £12,570. You do not pay Income Tax on this portion.
- The Primary Class 1 NIC Threshold (Primary Threshold) is £12,570 per year (or £242 per week / £1,048 per month). This means employees start paying National Insurance contributions on earnings above this level.
- You generally pay 8% employee NICs between £12,570 and £50,270, and 2% above that.
- The company pays 13.8% employer’s NICs on salary above the secondary threshold (£9,100 per year).
Tax planning advice from a professional accountant is strongly recommended to minimise liabilities.
Issuing dividend payments from available profits:
As a shareholder, you can choose to leave surplus income in your company. You can take a share of your business profits as dividend payments. Dividends are issued in relation to the percentage of ownership represented by your shares. If you are the sole shareholder in a company, you are entitled to receive all remaining income after the deduction of the cost, tax and expenses.
Key points for 2025/26:
- Companies pay 25% Corporation Tax on profits above £250,000, and 19% (small profits rate) on profits below £50,000. The main rate of 25% applies to most medium and large companies.
- Dividends are paid on post-tax profits and are not deductible for Corporation Tax purposes.
- The first £500 of dividend income is tax-free (Dividend Allowance for 2025/26).
- Dividend tax rates are:
- 8.75% for income within the basic rate band (£12,571–£50,270).
- 33.75% for the higher rate band (£50,271–£125,140).
- 39.35% for the additional rate (over £125,140).
While paying a dividend, you must hold a board meeting to declare the dividend. Minutes of the meeting should also be taken. This procedure is followed irrespective you are the sole shareholder and director of the company. You just need to record the fact that you’ve issued yourself the dividend on a certain date and keep a dividend voucher to show details of the payment.
Take money out of the limited company as a director’s loan:
You can take money out of the company as a director’s loan. A director’s loan account records all transactions between a director and the company itself. A record of such amount must be kept in directors loan Account and shown as part of your company’s balance sheet.
Never remove money from your company that exceeds the amount you have put into business otherwise your loan account will be overdrawn. There will be tax implications in this.
According to the UK government, where a director’s loan account remains overdrawn nine months after the end of the accounting year, Section 455 Tax will be charged by HMRC at the rate of 33.75%. This tax is repayable to the business once the overdrawn loan is repaid.
If you owe your company less than £10,000:
- You will not have any personal tax liabilities, but there may be tax consequences for your company.
- If your loan account remains overdrawn for longer than 9 months and 1 day from the company’s accounting reference date (ARD), your company will have to pay Section 455 Tax on the overdrawn amount.
- You must show the outstanding loan amount in your Company Tax Return.
- Section 455 Tax is always charged at 33.75% your company will pay this with the rest of its corporation tax liabilities.
If you owe your company more than £10,000:
- You will have to declare the loan on your Self Assessment Tax Return.
- In some cases, you may have to pay Income Tax on any interest due on the loan.
- The company must deduct Class 1 National Insurance on the loan.
- You must show the outstanding loan amount in your Company Tax Return.
- The company will have to pay Section 455 Tax at 33.75% of the overdrawn amount.
There may be times when you have to pay business expenses from your own pocket. But you can claim these expenses by keeping receipts and completing claim forms, provided the expense was for business purposes only.
Following are the business expenses that can be claimed as a business expense:
- Travel and accommodation
- Mileage and parking charges
- Mobile phones
- Entertainment
- Meals
- Computer and office equipment
- Training fees
- Postage costs
To claim you need to have followed things:
- Receipts and records for at least six years.
- Submit claim forms to the company.
- Reimbursements should be recorded in company accounts.
Although not a major source of take-home pay, expense claims are valuable as they are tax-free.
Check out our accounting services: https://cloudcogroup.com/buckinghamshire/accountants-milton-keynes/
At the end of every tax year, you should complete form P11D to show how much you called in for expenses. You must include the expense your self-assessment tax return. The company should include the expenses it has reimbursed to directors (any other employees) in the employment section of the Company Tax Return be submitted to HMRC with the annual accounts and Company Tax Return. This money will be treated by HMRC as allowable expenses so the company will not be charged extra tax.
Some expenses are eligible for dispensation, which means you do not have to report them in the Company Tax Return or include them on form P11D. Applying for dispensation could save you a lot of time in the long run, but you may need an accountant to check your expenses. All finances must be transferred through a proper channel and recorded in your company’s accounting records to make task simpler for everyone.
Knowing how best to take money from your company can be complicated, and the implications of doing this wrong could have serious ramifications not only financially, but also on you personally as a director. Having a dedicated accountant can take the stress out of tax planning.
Conclusion
Taking money out of a limited company requires careful planning and adherence to legal and tax regulations. Whether you choose to pay yourself a salary, issue dividends, take a director’s loan, or reclaim business expenses, each method has distinct tax implications and reporting requirements. Proper record-keeping, compliance with HMRC rules, and strategic tax planning are essential to avoid penalties and ensure efficiency. Consulting a qualified accountant can help you manage your company finances effectively and make the most tax-efficient decisions for your business.
Frequently Asked Questions
How to take money out of a limited company?
You can take money out legally by paying yourself a salary, issuing dividends, taking director’s loans or reclaiming business expenses.
Can a director withdraw money from the company account?
No, directors cannot freely withdraw money. Funds must be withdrawn through salary, dividends, loans or expense reimbursements recorded properly.
What are the tax implications of withdrawing money as salary vs dividends?
Salary is subject to income tax and National Insurance but is a deductible business expense. Dividends have no NIC but attract dividend tax at different rates and are paid from post-tax profits.
What happens if I overdraw my director’s loan account?
Overdrawn loans over £10,000 attract Section 455 tax at 33.75% payable by the company unless repaid within 9 months of the year-end.
Can I take money out if my company makes a loss?
You can pay yourself a salary or reclaim business expenses, but dividends can only be paid if the company has distributable profits.
Do I need to keep records of withdrawals?
Yes, accurate records for salaries, dividends, expenses and loans must be kept complying with HMRC and Companies House regulations.
