If you run a limited company, how you take money out matters almost as much as how much your business makes. Salary, dividends, pensions and loans are all taxed differently, and the right mix can leave a lot more in your pocket at the end of the year.
Rates have moved in the last year too. Dividend tax rose in April 2026, and the same happened to the tax charge on director’s loans. If you haven’t looked at your setup since then, it’s worth a review. Here are four areas most limited company directors should think about.
- Balance salary and dividends
Most directors take a mix of a modest salary and dividends, rather than one or the other. The reason is simple: dividends aren’t subject to National Insurance, so they’re often taxed at a lower rate than the same amount paid as salary.
For 2026/27, the dividend tax rates are 10.75% for basic rate, 35.75% for higher rate, and 39.35% for additional rate, on anything above the £500 dividend allowance. Salary, by contrast, attracts Income Tax and National Insurance for both you and your company.
What counts as the right salary depends on your setup. If your company has more than one employee, it may be able to claim the Employment Allowance, which can cover the employer National Insurance on a salary up to £12,570, the level of the personal allowance. Sole director companies with no other staff can’t claim this allowance, so a lower salary, often closer to the £5,000 secondary threshold, tends to work out better once employer National Insurance is factored in.
There isn’t one right answer here, it depends on your company’s profit, whether you have other staff, and your own income needs. It’s worth checking each year, as thresholds and rates do move.
- Using your pension as a business expense
A company pension contribution is one of the more overlooked ways to take value out of a business without triggering personal tax straight away. Your company can pay directly into your pension, and that contribution is usually deductible against Corporation Tax.
The annual allowance for 2026/27 is £60,000, covering contributions from all sources. Company contributions aren’t limited by your salary in the way personal contributions are, so even a director taking a low salary can potentially have their company contribute the full £60,000 if profits support it. If you haven’t used your allowance in the last three tax years, you may also be able to carry some of it forward.
This route won’t suit everyone, since the money is tied up until retirement age. But for profits you don’t need right away, it’s one of the more tax-efficient ways to build long-term wealth from the business.
- Understand how your ownership structure affects dividend tax
If your business already has more than one shareholder, for example a spouse, civil partner, or business partner who genuinely co-owns and works in the company, it’s worth understanding how that affects your dividend tax position. Each shareholder has their own tax bands and their own £500 dividend allowance, so dividend income spread across genuine co-owners is taxed differently to the same amount paid to one person.
HMRC looks closely at ownership arrangements that don’t reflect a real stake in the business, and shifting shares around purely to reduce a tax bill can fall foul of anti-avoidance rules. This is a technical area with real risk attached if it’s not handled correctly, so it isn’t something to approach without proper advice from an accountant or solicitor.
- Make use of the trivial benefits allowance
Alongside salary and dividends, HMRC allows small tax-free perks called trivial benefits. Each gift must cost £50 or less, not be cash or a cash voucher, and not be linked to performance or written into your contract. Directors of close companies, which covers most small limited companies, can receive up to £300 of these a year, working out at around six £50 gifts.
These might be things like a meal out, flowers, or a small seasonal gift. Because they’re genuinely tax-free, they don’t need to go through payroll or appear on a P11D. It’s a modest allowance rather than a major source of income, but it’s often overlooked, and it’s worth keeping a simple record of what’s given and when to show the rules have been followed.
How an accountant and an IFA work together on this
These four areas rarely sit neatly with just one adviser. Your accountant usually leads on the day to day numbers: running payroll, filing your Corporation Tax return, and making sure salary, dividends and any benefits are recorded correctly. An independent financial adviser tends to look at the wider picture: whether a pension contribution fits your retirement plans, how much income you actually need to draw each year, and how today’s decisions affect your finances further down the line.
In practice, the two roles work best alongside each other. An accountant can tell you what’s compliant and how a strategy will be reported. An IFA can help you work out whether it’s the right strategy for your personal goals, not just your company’s tax position this year. For example, deciding how much to put into a pension versus how much to take as dividends is as much a personal planning question as a tax one, and it helps to have both perspectives before deciding.
If you already have an accountant, our team at Beesure is happy to work alongside them, so the tax and financial planning sides of your business line up. If you don’t have either in place yet, we can point you in the right direction.
Your Approach
Most directors end up using a combination of these: a sensible salary, dividends on top, pension contributions when profits allow, and small allowances like trivial benefits picked up along the way. What’s right for you depends on your profit level, whether you have other income, and what you’re trying to achieve, whether that’s take home pay now or building wealth for later.
If you’d like a second opinion on how you’re currently taking money out of your business, the team at Beesure would be glad to talk it through with you.
This article is for general information only and isn’t personal financial, tax, or legal advice. Tax rules and rates can change, and how they apply depends on your own circumstances. Speak to an accountant or independent financial adviser before making decisions about how you extract profit from your business.
References:
- GOV.UK: Tax on dividends
- GOV.UK: Corporation Tax rates
- GOV.UK: Pension annual allowance
- GOV.UK: Director’s loans, tax rules and s455
- GOV.UK: Employment Allowance
