Tips & Advice

How To Pay Yourself From A Limited Company: Salary, Dividends Or Loans?

Published: 12 September 2025

Reading time: ~4 minutes

How To Pay Yourself From A Limited Company shown with icons for PAYE salary, dividends and a director’s loan in the UK.

How To Pay Yourself From A Limited Company

Just set up your business and wondering how to pay yourself from a limited company? There are three ways most owner-directors take money from their limited company: salary through payroll, dividends from post-tax profits, and via a director’s loan account. The right mix keeps you compliant, makes cash flow predictable, and avoids surprise tax bills.

The Three Ways Owners Take Money

  1. Salary via PAYE.

  2. Dividends from profits after Corporation Tax.

  3. A director’s loan account to track any money you put in or take out.

Salary: Run PAYE For Directors

A salary is the regular payment a director or employee receives for work done for the limited company. Salaries must be processed through a Pay As You Earn (PAYE) scheme so HMRC is told exactly what each person is paid and what tax and National Insurance Contributions (NICs) have been deducted. Salary (and employer’s NICs) are allowable expenses, so they reduce your company’s profits before Corporation Tax is calculated (i.e., salaries reduce your company's profit and Corporation Tax).

If you plan to pay salaries but don’t yet have a PAYE scheme set up, contact us and we’ll handle it for you. When making salary payments, make the reference clear (e.g., “Salaries” or “Wages") so your records and statements are unambiguous.

Dividends: The Basics And Paperwork

Dividends are payments to shareholders out of distributable profits. You can only declare them if the company has enough retained profit (i.e. income, less allowable expenses, less Corporation Tax, equals profits available for dividends). Only shareholders can receive them, and, unless you have different share classes or a more complex structure, they’re paid in proportion to each person’s shareholding (e.g. 75% holder gets 75% of the dividend).

If you’re both a director/employee and a shareholder, you can take dividends in addition to any salary. Dividends are taxed at dividend tax rates and do not attract National Insurance, but remember they’re paid after Corporation Tax (so you still pay Corporation Tax on the profits first).

Before paying any dividend, you must:

  • Confirm sufficient distributable profits.

  • Prepare and approve board minutes authorising the dividend.

  • Issue a dividend voucher to each shareholder.

  • Make the bank payment with a clear reference such as “Dividend”.

Payment is simply a transfer from the company bank account to the shareholder’s personal account. If you’d like compliant templates for minutes and vouchers, or help checking profits, contact us.

Director’s Loan Account: Keep It Clean

A Directors’ Loan Account (DLA) records any money a director puts into the company or takes out that isn’t salary, dividends, or reimbursed business expenses. It’s a running balance: if the company owes you, the DLA is in credit; if you owe the company, it’s overdrawn. Keep every entry clear: amount, date, purpose, and use unambiguous bank references such as “Director's loan, funds in” or “Director's loan repayment”.

If the DLA is overdrawn at the year-end and isn’t cleared within nine months of the period end, the company may face a temporary Corporation Tax charge (CTA 2010 s.455). This tax charge is repayable once the loan is repaid or written off, but it’s still a cash-flow hit.

Also, if you borrow over £10,000 interest-free (or below HMRC’s official rate) from the company, the loan can create a benefit-in-kind for you, reportable on a P11D with Class 1A NICs payable by the company. If a loan is written off, it’s usually treated as income for the director and is not a deductible expense for Corporation Tax. These loans must be disclosed on the company tax return (CT600A).

Good housekeeping prevents problems: avoid personal spending on the company card, minute any loans, set an interest policy, and reconcile the DLA monthly. If you’d like us to review your DLA, set up clean processes, or provide approval templates, contact us.

A Simple, Sensible Pay Mix For New Companies

Many new owners start with a modest salary through PAYE for directors, then top up with dividends when profits are clear and cash is in the bank. Avoid running an overdrawn director’s loan account to fund day-to-day living. Keep money for personal tax in a separate savings pot so you are ready for Self Assessment.

Example Pay Timeline In Year One

Month 1: Register payroll and pay a regular monthly salary. File  Real Time Information (RTI) on time.

Quarterly: Review management accounts. If profits exist and cash is strong, approve a dividend with minutes and a voucher.

Ad-hoc: If you need a temporary draw, record it in the director’s loan account and plan to clear it quickly using salary or dividends.

Compliance Checklist

  • Register and operate PAYE, file RTI each pay day, and issue a P60 at year end.

  • Keep board minutes and a dividend voucher for each dividend.

  • Maintain a running director’s loan account ledger.

  • Keep company and personal bank accounts separate to avoid muddles.

  • If unsure, get in contact and we will help.

Getting Set Up With Confidence

The best structure depends on your profit forecasts, other income, family situation and plans for investment or lending. We can help you model different mixes and set up the processes so everything is tidy and on time, wherever you are in the UK.

FAQs on Paying Yourself From A Limited Company

When can I pay my first dividend?

Once the company has sufficient distributable profits. Check your management accounts and minute the decision before paying. The dividend is separate from salary and must have a voucher.

Do directors have different National Insurance rules?

Yes. Directors’ National Insurance is calculated on an annual basis, which can lead to adjustments later in the year compared with ordinary employees.

What happens if my director’s loan account is overdrawn at year end?

Extra tax can arise if the loan remains outstanding. It is best to clear it within the required timeframe and keep clear records.

Do I need to tell HMRC about my dividends?

If you receive dividends, you may need to report them through Self Assessment and pay any tax due by the Self Assessment deadlines.

Disclaimer

This article is provided for general informational purposes only and does not constitute tax, legal, accounting, or financial advice. The information is based on UK law and HMRC guidance as at the date of publication, but rules and interpretations may change. We do not accept any liability for actions taken, or not taken, based on this content. Always seek tailored advice from SCCS Accountants before making financial or business decisions.