How Much Should You Pay Yourself From Your Limited Company?
One of the most common questions limited company directors ask is:
“How much should I actually pay myself?”
It sounds straightforward, but there is rarely one figure that works for every director.
Money can potentially be extracted from a company through salary, dividends and other legitimate routes, each with different tax and cashflow implications.
The right approach depends on the company’s profits, the director’s other income, personal circumstances and how much cash the business needs to retain.
For 2026/27, this is particularly worth reviewing because dividend tax rates have increased from 6 April 2026.
Start with what the company can afford
Before thinking about tax efficiency, consider the company’s financial position.
A director may want to withdraw £5,000 each month, but that does not necessarily mean the company can sustainably afford it.
Look at:
- Current cash
- Monthly operating costs
- Expected Corporation Tax
- VAT and PAYE liabilities
- Outstanding customer invoices
- Loan repayments
- Planned investment
- Future payroll
- Cash reserves
The objective should not be to extract the maximum amount possible.
It should be to balance personal income with the financial needs of the company.
Salary and dividends are different
Directors often receive a combination of salary and dividends, but they work differently.
Salary
Salary is employment income paid through payroll.
Depending on the amount paid, Income Tax and National Insurance may apply.
Salary is generally an allowable business expense for Corporation Tax purposes when incurred wholly and exclusively for the company’s trade.
Dividends
Dividends are payments made to shareholders from available distributable profits.
They are not simply another form of salary.
Before declaring a dividend, the company needs sufficient distributable profits.
Proper dividend documentation should also be maintained.
This distinction matters because taking money from the company does not automatically make it a dividend.
Dividend tax changed in April 2026
For the 2026/27 tax year, dividend taxation has become more expensive for many company owners.
From 6 April 2026, the basic dividend rate increased to 10.75% and the higher dividend rate increased to 35.75%. The additional dividend rate remains 39.35%.
That makes it even more important for directors to review their remuneration rather than automatically repeating what they did in the previous tax year.
A strategy that worked several years ago may no longer produce the same result.
Do not take dividends based on the bank balance
A healthy bank balance does not automatically mean the company has enough profit to pay a dividend.
Part of that cash might already be needed for:
- Corporation Tax
- VAT
- PAYE
- Suppliers
- Salaries
- Loans
- Future expenditure
More importantly, dividends depend on distributable profits rather than simply the amount of cash available.
This is why up-to-date accounting information is valuable before significant dividends are declared.
Be careful with the Director’s Loan Account
Another area that causes confusion is the Director’s Loan Account.
If a director takes money from the company and it is not correctly treated as salary, dividend, repayment of money previously lent to the company or another valid transaction, it may be recorded through the Director’s Loan Account.
An overdrawn Director’s Loan Account can create additional tax and reporting consequences.
Directors should therefore understand how withdrawals are being recorded rather than repeatedly transferring money from the company account without considering the accounting treatment.
Think about your personal tax position
The company is only one side of the calculation.
Your personal circumstances matter too.
Consider:
- Salary from the company
- Dividends
- Employment income elsewhere
- Rental income
- Investment income
- Pension income
- Other taxable income
A director who has no other income may need a different strategy from someone who already earns a substantial salary elsewhere.
This becomes particularly important around major tax thresholds.
For 2026/27, the standard Personal Allowance remains £12,570, with the higher-rate threshold at £50,270 for taxpayers in England, Wales and Northern Ireland. The Personal Allowance begins to be withdrawn once adjusted net income exceeds £100,000.
Watch the £100,000 threshold
Income above £100,000 can create an especially important planning issue.
The Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000.
For taxpayers subject to the main UK rates, this can produce an effective 60% marginal Income Tax rate within the Personal Allowance withdrawal band.
If your total income is approaching this area, blindly taking another dividend or bonus could have a much larger tax impact than expected.
This is where planning before taking the money can make a significant difference.
Consider pension contributions as part of the wider strategy
Directors should not necessarily think only in terms of money they can withdraw immediately.
Pension contributions may form part of the wider remuneration strategy.
Depending on the circumstances, company pension contributions can provide a tax-efficient way of moving value from the business into long-term retirement savings.
However, pension rules, allowances and the individual’s wider circumstances need to be considered.
It should therefore be treated as part of an overall tax plan rather than an automatic alternative to salary or dividends.
Leave enough cash inside the business
A profitable company can still run into difficulty if too much cash is extracted.
Before increasing personal withdrawals, consider maintaining a suitable business reserve.
That reserve can help the company deal with:
- A major customer paying late
- Unexpected repairs
- Reduced sales
- Recruitment
- Tax bills
- Equipment purchases
- New opportunities
Taking every available pound from the company may be tax-efficient on paper but commercially unwise.
Tax planning and cashflow planning should work together.
Review remuneration before year-end
Director remuneration should not be something you think about only after the financial or tax year has finished.
Reviewing the position in advance gives you more options.
You may be able to consider:
- Salary levels
- Dividend timing
- Pension contributions
- Personal tax thresholds
- Company cash requirements
- Future investment
- Other sources of personal income
Merranti’s own guidance emphasises reviewing tax liabilities in advance rather than waiting until after the year has ended.
There is no universal ‘perfect salary’
Online articles often present a particular director’s salary as though it applies to every limited company owner.
Real situations are more complicated.
The appropriate figure can depend on:
- Whether you have other employment
- Whether the company has other employees
- Company profitability
- National Insurance
- Corporation Tax
- Dividend income
- Pension planning
- Personal tax thresholds
- Your cash requirements
Use generic figures as a starting point, not as personalised tax advice.
Frequently Asked Questions
Should I pay myself entirely in dividends?
Not necessarily. Dividends and salary have different tax and legal treatments, and the appropriate combination depends on your circumstances.
Can I take a dividend whenever I want?
A company must have sufficient distributable profits to support the dividend. Proper records and documentation should also be maintained.
Why shouldn’t I just transfer money from my company account?
Because the withdrawal needs to be correctly accounted for. Depending on the circumstances, it could be salary, a dividend, a loan-account transaction or another type of payment.
Has dividend tax increased in 2026/27?
Yes. From 6 April 2026, the basic dividend rate is 10.75% and the higher rate is 35.75%. The additional rate remains 39.35%.
Should I review how I pay myself every year?
Yes. Tax rates, company profits and your personal circumstances can change, so a remuneration strategy should be reviewed rather than automatically repeated.
Final thoughts
The question should not simply be:
“How much can I take from my company?”
A better question is:
“What is the most appropriate way to take the income I need while protecting both my personal tax position and the company’s finances?”
That means considering salary, dividends, pension planning, personal tax thresholds, company profitability and cashflow together.
At Merranti Accounting, we work with owner-managed businesses and provide accounting, tax planning and wider business advice to help directors understand their numbers and make informed decisions.
Contact Merranti Accounting to discuss your company and director remuneration strategy.
Written by Jack Smith MAAT
Jack Smith MAAT – Senior Client Manager
Senior Client Manager, Merranti Accounting
Jack is an AAT-qualified accountant with more than 12 years of experience supporting SMEs and owner-managed businesses. His experience includes year-end accounts, management reporting, forecasting, tax planning and wider business advisory.
Author image: use Jack’s existing headshot from his Merranti profile page rather than generating one. The profile already contains an image labelled “Jack Smith.”
