How to Take Money Out of a Limited Company in 2026/27

"It's my company, so it's my money." I hear that sentence in about one first meeting in three. It's completely understandable. You built the business, you do the work, and the balance sits there in an account with your company's name on it. But it's also wrong, and the gap between what feels true and what is true is where most director tax problems begin.

Here's the rule that matters. Every pound you take out of a limited company has to fit one of a handful of recognised routes: salary, dividends, expense reimbursement, pension contributions, or a properly recorded director's loan. A pound that fits none of them doesn't vanish into a tax-free grey area. It defaults to a director's loan, and if that loan is still overdrawn nine months after your year end, your company pays tax at 35.75% on the balance for 2026/27.

The good news is that each route is straightforward once you know how it works. The better news is that using them in the right mix can save you thousands of pounds a year. This guide walks through each route in turn, compares what they actually leave you with, and answers the three questions I'm asked most often: whether you can simply transfer money to your own account, how much you can take, and which way is best.

Director's Salary

How it works

Salary is paid through payroll, like any other employee's. Your company deducts income tax and National Insurance, pays them over to HMRC, and reports each payment in real time. If you pay yourself above the lower earnings limit, you'll need to be registered as an employer and run payroll, even if you're the only person on it. Payments to HMRC are due by the 22nd of the following month if you pay electronically.

How much to take

For most sole-director companies with no other staff, £12,570 is the usual starting point. It uses your personal allowance in full, so no income tax is due, and it sits at the primary threshold, so no employee National Insurance is due either. The company pays a small amount of employer National Insurance on the portion above £5,000, currently at 15%.

There's a lower marker worth knowing about. Earning at least £6,708 gives you a qualifying year towards your State Pension, so a salary below that figure can quietly cost you pension entitlement for no real saving. Our guide to salary versus dividends works through the alternatives in detail.

Tax and National Insurance on salary

Above your personal allowance, salary is taxed at 20% up to £50,270, 40% up to £125,140, and 45% above that. Employee National Insurance is 8% between £12,570 and £50,270, and 2% above. On top of that, the company pays 15% employer National Insurance above £5,000.

The offset is that salary, including the employer National Insurance, is a deductible cost for the company, which reduces its corporation tax bill. That deduction is the main reason a modest salary usually beats taking nothing at all.

When salary is the right tool

Salary earns its place when you need earnings for a mortgage application, when you want to make personal pension contributions (relief depends on your earnings), when statutory pay matters to you, or when your company employs others and can claim the £10,500 Employment Allowance. It's rarely the cheapest way to take large sums out, but it's rarely a mistake to take a sensible amount.

Dividend Payments

What you need before you pay one

A dividend can only be paid out of distributable reserves, meaning realised profit after corporation tax. It isn't the same as the money in your bank account. I once worked with a client who saw a healthy balance, paid himself a large dividend, and discovered at year end that most of the balance was VAT and PAYE owed to HMRC. The dividend had to be reclassified as a director's loan, and we spent weeks unwinding it.

So check current management accounts first. Then do the paperwork at the time: a board minute recording the decision, and a dividend voucher for each shareholder showing the date, company, amount and recipient. It takes ten minutes. Reconstructing it months later takes far longer.

Tax on dividends in 2026/27

The first £500 of dividend income is tax-free. Above that, the rates are 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. Dividends sit on top of your other income, so the band they fall into depends on everything else you've earned.

There's no National Insurance on dividends, which is their main advantage over salary. But they're paid from profit that has already borne corporation tax, and no tax is taken at source, so it builds up until 31 January. Set the tax aside on the day you pay yourself.

Dividends must follow share ownership

Here's a rule that surprises people. Within a single class of shares, dividends have to be paid in proportion to shareholdings. If you own 60% and your spouse owns 40%, a dividend of £10,000 means £6,000 and £4,000, not whatever suits your tax position. Companies can create different share classes to allow different payments, but HMRC's rules on settlements can catch arrangements where one person receives income and someone else controls it. It's an area where advice before you act is worth far more than advice afterwards.

Timing and the January bill

Dividends count in the tax year in which they're paid. One paid on 5 April falls into 2026/27, and the same one paid on 6 April falls into 2027/28, which can move you across a band. Also remember payments on account. If your Self Assessment bill is over £1,000 and less than 80% was collected at source, HMRC will ask for advance payments towards the following year. Our director's tax guide explains how that catches directors out.

Reimbursed Business Expenses

What can be repaid tax-free

When you pay for something personally that the business genuinely needed, your company can repay you, and the repayment isn't income. No tax, no National Insurance. The test is the usual one: the cost must have been incurred wholly and exclusively for the business.

Common examples include travel to see clients, equipment, software, professional fees, and mileage in your own car. For 2026/27, the approved mileage rate is 55p a mile for the first 10,000 business miles, then 25p. Your company can also pay you £6 a week tax-free towards working from home, provided it reflects how you actually work. Employees can no longer claim tax relief themselves for unreimbursed home-working costs from April 2026, so the payment needs to come from the company.

Records you need

Keep the receipt or invoice, note the business purpose, and put the claim on a simple expense form. For mileage, keep a log showing the date, destination, purpose and miles. None of it takes long at the time. All of it becomes hard to recreate later, and it's the first thing HMRC asks for in a review.

Where directors go wrong

Three mistakes come up again and again. The first is repaying personal spending dressed up as business cost. The second is claiming client entertaining, which is disallowed for corporation tax whatever the invoice says. The third is mixed-use costs, such as a phone contract or a car, where only the business share is claimable. Our allowable expenses guide has the full list.

Pension Contributions

Why it counts as taking money out

A pension contribution doesn't put cash in your pocket today, but it does move value from the company to you, and it's usually the most tax-efficient way of doing so. Your company pays it directly into your pension as an employer contribution.

It's deductible against corporation tax, it avoids National Insurance, and it isn't taxed as a dividend or salary on the way in. It also isn't tied to your salary, so a director on a modest salary can still receive a substantial contribution.

Limits

The annual allowance is £60,000 for most people, covering employer and personal contributions together. You can carry forward unused allowance from the previous three tax years, provided you were a member of a registered scheme. If your income is very high, the allowance tapers down towards £10,000, and if you've already drawn pension benefits flexibly, the money purchase annual allowance of £10,000 may apply instead.

The trade-off

The catch is access. Pension money is locked away until your late fifties at the earliest, and it's taxed when you draw it, though a portion can usually be taken tax-free. It suits profit you don't need right now. It's the wrong answer for cash you need for a house deposit or a business investment. Our pension contributions guide has the details.

Director's Loan

Two directions

A director's loan can run either way. You can lend money to your company and take it back later, or you can borrow from it. The tax treatment is very different.

Borrowing from the company

If your loan account is overdrawn at your company's year end, you have nine months to repay it before the company pays Section 455 tax on the outstanding balance. For 2026/27, that rate is 35.75%. It's refundable once you repay, but the refund isn't immediate.

If your balance rises above £10,000 at any point and the loan is interest-free or below the official rate of 3.75%, there may also be a benefit-in-kind charge on you, and Class 1A National Insurance for the company.

The bed and breakfasting rules

Repaying a loan and drawing it straight out again doesn't work. If you repay £5,000 or more and borrow £5,000 or more again within 30 days, HMRC can treat the repayment as if it never happened. There's also a wider rule aimed at cases where a director owes £15,000 or more and intends to redraw. Our director's loan guide explains both.

Lending to the company

Going the other way, if you've put your own money into the company, you can take it back at any time without tax, because you're simply being repaid what's yours. If the company pays you interest on top, that interest is taxable on you and the company may have to deduct tax from it, so take advice before setting it up.

Comparing the Routes: What £10,000 of Profit Becomes

It helps to see the numbers side by side. Take £10,000 of company profit, and assume the company pays the 19% small profits rate.

Paid as a dividend

Corporation tax takes £1,900, leaving £8,100 to distribute. For a higher-rate taxpayer, dividend tax at 35.75% takes a further £2,896, leaving about £5,204. For a basic-rate taxpayer whose allowance is already used, dividend tax at 10.75% takes about £871, leaving about £7,229.

Paid as a pension contribution

The full £10,000 goes into your pension. There's no corporation tax, no National Insurance and no income tax on the way in. The tax comes later, when you draw the money, and often at a lower rate.

Reading the result

Salary sits somewhere in between, and it depends on your income. For salary that falls above £50,270, where income tax is 40% and employee National Insurance is 2%, a director keeps roughly £5,040 of every £10,000 the company spends, once employer National Insurance is included. Expense reimbursements aren't really a comparison, because they repay a cost you've already borne, but they're the one route that leaves you with 100% of what you're owed.

The pattern is clear. For money you don't need immediately, pension contributions win by a wide margin. For money you do need, dividends usually beat additional salary, though not by as much as they used to.

Can I Transfer Money From My Limited Company to My Personal Account?

Yes, but label every transfer

Physically, you can move money from the company account to your own at any time. The bank won't stop you. What matters is what the transfer is. Every payment needs to be identifiable as one of the routes above: salary through payroll, a dividend with minutes and vouchers, an expense repayment with receipts, a pension contribution, a repayment of money you lent, or a recorded director's loan.

What happens to unlabelled transfers

A transfer that isn't any of those doesn't disappear. It goes into your director's loan account by default. If it stays overdrawn nine months after your year end, Section 455 tax applies at 35.75%, and there may be a benefit-in-kind charge too. I've seen directors accumulate £15,000 or more this way without realising, simply by making small transfers whenever they needed cash.

A simple routine

The habit that solves this is simple. Decide each month how you'll pay yourself, whether that's salary, a dividend, or both, and use the reference field on the transfer to say which. Keep the paperwork with it. And tell us before you make an unusual withdrawal, not afterwards. It takes two minutes and prevents most of the problems in this guide.

How Much Money Can I Take Out of a Limited Company?

No single limit, but several separate ones

There isn't one number, because each route has its own limit. Salary is limited by what the company can afford and what's reasonable for your role. Dividends are limited by distributable reserves. Expense repayments are limited to genuine business costs. Pension contributions are limited by the £60,000 annual allowance and carry forward. Loans are limited by what the company can lend without harming its ability to pay its debts.

How to work out a safe amount

Here's the three-step approach I use with clients:

1. Start with distributable reserves. Take your retained profit after tax, from your latest management accounts.
2. Subtract what's coming. Deduct corporation tax due, VAT and PAYE owed, and any other known liabilities.
3. Keep a working buffer. Leave enough cash to cover a few months of running costs, particularly if income is uneven.

What's left is your safe figure for dividends. It's usually smaller than the bank balance suggests, which is exactly the point.

Leave room for tax bills

Corporation tax is due nine months and one day after your year end, and it's the bill directors most often forget when they take cash out during the year. If you've been drawing everything, the money may simply not be there. Our Limited Company Tax Guide sets out what to check and when.

What Is the Best Way to Withdraw Money From a Limited Company?

A typical mix

There's no single best route, but there is a common pattern that works well for many sole-director companies. Take a modest salary, usually £12,570. Top up with dividends, paid from real reserves and with proper paperwork. Repay genuine expenses as you go. And if there's surplus profit you don't need now, make an employer pension contribution rather than taking it as a dividend. Use director's loans sparingly, and only as a short-term bridge.

Adjusting for your situation

The right mix changes with circumstances:

• You employ staff. Employment Allowance may make higher salary cheaper.
• You're near £100,000 of income. A pension contribution can help protect your personal allowance.
• You need cash now. Dividends are more flexible than pension contributions.
• You're planning to sell or close. How you extract money beforehand can decide whether it's taxed as income or as a capital gain.

Review it every year

Thresholds change every April, and so does your profit. What was best in 2024/25 may not be best now. A quick review each year, ideally a few months before your year end, usually pays for itself many times over.

Taking money out of your company isn't complicated, but it does reward care. Use recognised routes, label every transfer, keep the paperwork, and check before doing anything unusual. If you'd like us to work out the best mix for your own figures, get in touch with the team at Cannon Accountants. It's a short conversation, and it's often the most valuable one we have with clients all year.

For the wider picture of how this fits alongside corporation tax, salary and dividends, and everything else covered in this series, head back to our complete Limited Company Tax Guide 2026/27: Corporation Tax, Dividends & Director Tax →.

Disclaimer:

The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.