One of the most common questions we’re asked by owner‑managed businesses is: ‘What’s the best way to take money out of my limited company?’
For shareholder‑directors, there isn’t a one‑size‑fits‑all answer. The most tax‑efficient approach depends on profits, personal circumstances, and long‑term plans. Below, we outline the main ways funds can be extracted from a limited company.
1. Salary
Most shareholder‑directors take a basic salary from their company.
The salary is deductible against profits for corporation tax purposes and maintains entitlement to state pension.
Recent changes have meant that Employers National Insurance could now be payable on the basic salary,
Please see our blog here to read about the optimal salary for the 26/27 tax year.
2. Dividends
Dividends are the most common way to extract funds from the company.
Dividends are often taxed at a lower rate than salaries with no National Insurance. They must be paid from distributable profits (profits after corporation tax) and the tax is paid on these via your self-assessment tax return.
3. Pension Contributions
Company pension contributions are deductible for corporation tax and do not attract income tax or National Insurance, making them highly tax‑efficient for long‑term planning.
4. Benefits and Expenses
Examples include mobile phones, mileage, trivial benefits and home office allowances.
Please see our blog here, to read about trivial benefits and our blog here to read about home office allowances.
5. Selling or Closing the Company
Selling shares or closing a company via a Members’ Voluntary Liquidation may allow profits to be taxed at lower capital rates, subject to conditions.
Summary
The right combination of salary, dividends, pensions and other methods can significantly reduce tax. However, the right combination is different for everyone so always seek professional advice before extracting funds.
