2025-05-23 13:43:09

Getting paid through limited company

Finance money

So, you’ve finally taken the plunge and set up your own limited company. Maybe you’re freelancing, maybe you’re contracting, or maybe you just wanted to be your own boss. Whatever the reason, congrats! But now that you’ve got your business up and running, you’re probably wondering: “How do I actually get paid?” Not just how to send invoices, but how to get that money out of your company’s bank account and into your own, without falling into tax traps or getting on the wrong side of the taxman.

Let’s break down how to pay yourself from your limited company, step by step, in plain English. We’ll cover all the main options, the pros and cons, and some real-world advice to help you keep more of your hard-earned cash.

Why Getting Paid Through a Limited Company Is Unique

Here’s the first thing you need to know: your limited company is a separate legal entity. That means the money your business earns belongs to the company, not directly to you. You can’t just treat the company bank account like your own personal piggy bank. Every withdrawal needs to be done properly, or you could end up with a tax headache or worse.

The Four Main Ways to Pay Yourself

When it comes to getting paid, you’ve got four main options:

Salary (using PAYE)
Dividends (from company profits)
Claiming back business expenses
Director’s loans

Let’s dive into each one.

1. Paying Yourself a Salary

As a director, you’re also an employee of your company. That means you can pay yourself a salary, just like any other employee. To do this, your company needs to be registered as an employer and operate a payroll system.

Why Pay Yourself a Salary?

Salaries are a business expense, so they reduce your company’s profit and lower its tax bill.
You build up qualifying years for your state pension and other benefits.
You get a regular, predictable income.

What’s the Catch?

Both you and your company might have to pay National Insurance Contributions (NICs) and Income Tax, depending on how much you pay yourself.
There’s paperwork: you need to run payroll, issue payslips, and report to the tax authorities.

How Much Should You Pay Yourself?

Most directors set their salary just below the threshold where NICs kick in. This way, you avoid paying NICs but still get a qualifying year for your state pension. If you pay yourself more, you might start paying NICs, but you’ll also get a bigger salary. It’s all about finding the sweet spot for your situation.

How to Set Up Payroll

Register your company as an employer.
Add yourself to the payroll.
Use payroll software or get an accountant to help.
Pay yourself monthly or at whatever interval you prefer.

2. Taking Dividends

Dividends are payments made to shareholders from the company’s profits, after tax. If you own all the shares, that’s you. If you have business partners, they get their share too.

Why Take Dividends?

Dividends aren’t subject to NICs, so you can save money compared to taking a salary.
You can take dividends in addition to your salary, which can help you pay less tax overall.

The Rules Around Dividends

Your company must have made a profit, after tax, to pay dividends.
Dividends must be paid in proportion to shareholdings.
You need to record a directors’ meeting to declare the dividend, even if you’re the only director.
You should create a dividend voucher for each payment, showing the date, company name, recipient, and amount.

How Dividends Are Taxed

There’s a small tax-free dividend allowance each year.
Above that, dividends are taxed at rates that depend on your total income.
Dividends are taxed after your salary and other income, so they can push you into higher tax bands if you’re not careful.

How Much Can You Take?

You can only pay dividends from profits left after the company has paid its tax bill. If your company made a profit, you can pay out what’s left as dividends.

3. Claiming Business Expenses

If you spend your own money on business costs—like travel, equipment, or software—you can reimburse yourself from the company. These aren’t taxed as personal income, as long as they’re genuine business expenses.

Keep all your receipts and records. If you ever get audited, you’ll need to prove those expenses were for business purposes.

4. Director’s Loans

Sometimes you might need to take more money out of the company than you’ve put in, and it’s not a salary or dividend. That’s called a director’s loan.

How Director’s Loans Work

If you lend money to the company, you can take it back tax-free.
If you borrow money from the company, you’ll need to pay it back, or there could be extra tax charges.

Director’s loans can get complicated, so use them carefully and get advice if you’re unsure.

The Most Tax-Efficient Way to Pay Yourself

Most savvy company owners pay themselves a small salary (just below the NIC threshold) and top up their income with dividends if the company is profitable. This approach helps you:

Minimize Income Tax and NICs
Maximize your take-home pay
Still qualify for state benefits

You can also claim back legitimate business expenses and use director’s loans in certain situations.

A Year in the Life: Paying Yourself Step by Step

Let’s walk through what a typical year might look like for a one-person limited company.

1. Set Up Payroll

2. Do the Work, Get Paid

Send invoices to your clients as the company. All money goes into the company’s bank account.

3. Pay Yourself a Monthly Salary

Run payroll each month and pay yourself your chosen salary. File your payroll reports as required.

4. Claim Expenses

If you pay for business costs out of your own pocket, submit expenses to the company and reimburse yourself.

5. Calculate Profits and Pay Company Tax

At year-end, work out your company’s profit (income minus expenses and salary). Pay the company’s tax bill.

6. Declare and Pay Dividends

If there’s profit left after tax, hold a directors’ meeting (even if it’s just you), declare a dividend, and pay yourself. Keep a record of the dividend payment.

7. File Your Personal Tax Return

Report your salary and dividends on your personal tax return. Pay any additional tax due.

Common Mistakes to Avoid

Mixing personal and business money: Always keep your company’s money separate from your own.
Taking dividends without profits: Only pay dividends from post-tax profits.
Ignoring paperwork: Keep records of payroll, dividends, expenses, and any loans.
Forgetting about special tax rules for contractors: Make sure your work isn’t caught by special rules that could affect your tax situation.
Not getting advice: Tax rules change, and everyone’s situation is different. A good accountant can save you more than they cost.

Frequently Asked Questions

Can I just take all the company’s money as dividends?
No. You can only pay dividends from profits after tax, and you must follow the proper process. Taking more than the company can afford is illegal.

What if I need more money than my salary and dividends allow?
You can take a director’s loan, but you’ll need to pay it back. If you don’t, there could be extra tax charges.

Do I have to pay myself every month?
No, you can pay yourself as often as you like, but most people choose monthly for convenience.

What about pensions?
You can set up a company pension scheme and make employer contributions, which can be tax-efficient. This is a more advanced topic, so speak to your accountant.

Real-World Tips

Use accounting software to keep track of everything.
Keep receipts and records for all expenses.
Review your income structure every year—tax bands and rules change.
If your company’s profits vary, keep some money in the business for lean months.
Don’t forget to budget for company tax and your personal tax bill.

Conclusion: Getting Paid the Smart Way

Getting paid through a limited company isn’t as simple as just moving money from one account to another, but it’s not rocket science either. The key is to understand the different ways you can take money out—salary, dividends, expenses, and loans—and to use them in the most tax-efficient way for your situation.

Most directors find that a mix of a small salary and dividends gives the best result, but everyone’s circumstances are different. The rules can change, and the taxman is always watching, so keep good records and get professional advice if you’re unsure.