How Can I Legally Take Money Out Of My Limited Company?

When you set up your limited company, you may think you can dip into your company’s monies, as and when you like, as it is your cash! Unfortunately, this approach is wrong and can often lead to financial problems for directors of troubled companies.

When a limited company is incorporated at Companies House, it becomes a legal entity in its own right. This means the assets and profits belong to the company rather than the owners or shareholders. So, you are not able to take money out of the business in the same way that a sole trader can. Sole traders are, effectively, the business so it is their money and their debts. Limited liability is one of the main benefits of forming a company, as directors are not automatically personally liable for the debts of the company, as is the case for a sole trader or partnership.

Although it may sound like we are being pedantic, most small company directors need to stop merging the company and themselves together in their minds. This is plain wrong.

You as a person, when acting as a director are not the company. As a designated member you are not the limited liability partnership either. You are an officer of the company.

Likewise, the company assets and company debts are not generally yours personally either. So, it is vital to recognise that there are four parts or “constituencies”, to every limited company.

It is important to separate these constituencies:

• The Company
• The Business
• The Directors
• The Shareholders or Members

The company is a legally recognised entity that you can set up to run your business. It is responsible in its own right for everything it does and its finances are separate to the directors’ or shareholders’ personal finances.

Any profit it makes is owned by the company, not by the directors. The company can then share its profits with the shareholders or members if the directors decide it is appropriate to do so. This is not the same as directors’ wages or salary.

Any profit the company makes is not directly yours as a director or employee.

How can money be taken out of a company legally?

Here are three ways in which money can be taken out of a limited company:

• Dividends
• Director’s loan
• Director’s salary, expenses and benefits

If you use these methods in combination, this may be a tax-efficient way to minimise personal tax liabilities and run a business.

The main rate of corporation tax is 25% on taxable business profits above £250,000. A small profits rate of 19% applies to profits up to £50,000, with marginal relief applying between £50,000 and £250,000. These limits may be reduced if there are associated companies.

By comparison, income tax on salary ranges from 20% to 45% in most of the UK, or 19% to 48% in Scotland depending on the band. Taking money out of a company in the form of dividends is subject to dividend tax after corporation tax has been paid.

Dividends

Directors tend to be shareholders in profitable companies who pay taxes and have a cash buffer. When this is the case, dividends may be distributed as a means of taking out income from retained profits. Corporation tax is paid by the company on its profits first.

However, for dividends over the dividend allowance, shareholders may have to pay dividend tax depending upon the rate of tax they normally pay. For the 2025/26 tax year the dividend allowance is £500.

Working out tax on dividends above your allowance

The tax you pay depends on which income tax band you are in, as per below.

Add your income from dividends to your other taxable income to work out your tax band. You may pay tax at more than one rate.

Dividends that fall within your Personal Allowance do not count towards your dividend allowance.

Example

You get £3,000 in dividends in the 2025/26 tax year. The dividend allowance is £500, so this means you pay tax on £2,500 of your dividends.

Your other taxable income is £35,000. Add this to your dividends of £3,000 and your total taxable income is £38,000.

You pay a rate of 8.75% on £2,500 of dividends because your total taxable income is within the basic tax band.

Company Rescue is not a tax advisor. You should take advice from tax experts before doing this.  As it happens this site is owned by RMT Accountants and Advisors who can certainly give you advice!

Directors Loans

This method can be efficient so long as it is handled correctly. A director’s loan account records all of the transactions between a director and the company itself. The account balance can be in credit if the director has paid more into the company than taken out, or overdrawn if the director withdraws more than has been paid in.

All transactions in the director’s loan account should be accounted for in the company’s balance sheet and included in the company tax return and, where applicable, the director’s self-assessment tax return.

Generally, when directors have overdrawn loan accounts, they do not pay tax personally simply because the loan exists. However, if the loan is not repaid to the company within 9 months and 1 day of the end of the accounting period, the company may have to pay tax under section 455 of the Corporation Tax Act 2010.

If the director’s loan exceeds £10,000 at any point in the tax year and either no interest is charged or interest is charged below HMRC’s official rate, a benefit in kind may arise and may need to be reported on a form P11D, with tax consequences for the director and National Insurance consequences for the company.

You should take advice from tax experts before doing this.

Beware of repaying loans owed to you by an insolvent company, as this could create a preference risk under section 239 of the Insolvency Act 1986. Speak to us for guidance on this preference risk.

Directors Salary Through PAYE

This tends to be the most obvious method; directors pay themselves a salary. As well as this, expenses and bonus payments can be taken out. Directors must ensure they are employed as an employee of their company and their salary is paid via PAYE. Not all directors will take a large salary; some prefer a smaller salary and take a larger share of their pay in dividends instead. You should take advice from tax experts before doing this.

If an employee makes personal use of a company asset, such as property or a car, this should be reported as a benefit in kind, with any tax paid. Most company directors have to prepare a tax return under Self Assessment rules, although this depends on their circumstances.

For 2025/26, the Personal Allowance is £12,570. The Lower Earnings Limit is £6,500 and the NIC Primary Threshold is £12,570. This means a salary can be taken up to the Primary Threshold without employee Class 1 National Insurance becoming payable, while a salary at or above the Lower Earnings Limit can still help preserve entitlement to certain state benefits including the state pension.

Employee Class 1 National Insurance is generally charged at 8% on earnings above the Primary Threshold, subject to the usual limits and rules. Employer National Insurance is a separate matter and may also be due.

What if the company is struggling?

If the company cannot pay its taxes or creditors, the company may not be viable. In these cases, drawings should not be taken. If they are taken under these circumstances, the directors may simply be building up a negative balance which may need repaying if the company becomes insolvent and enters liquidation, pre-pack administration or company voluntary arrangement.

The problem will not go away either, so do not think you can just bury your head in the sand. HMRC may start to investigate and penalties may be charged. If the company goes into liquidation then you may be a debtor of the company and the liquidator may be able to recover money from you personally. If you have taken out excessive amounts or acted badly then you may be disqualified as a director as well.

A word of warning.

Remember that accountants will often advise you to take out dividends as they are tax efficient. However, if you do not talk to them regularly or they are just involved in the year-end accounts, they are not duty bound to tell you to stop if the company starts making big losses. The direct debit into your own bank account could just carry on storing up problems for you in the future.

What if I want to close the company and take the money out?

Finally, if the company has no further use and you wish to close it but it has money and assets, then the correct way to do this, if the assets are more than £25,000, is via a Members’ Voluntary Liquidation.

If you are in need of some professional, helpful advice or a discussion regarding repaying overdrawn loans, restructuring your company to boost financial performance, being chased by HMRC, or even being unable to take any money from your company due to a lack of profit, call us today on 0800 970 0539.