How to Take Money Out of Your Limited Company Tax-Efficiently
How to Take Money Out of Your Limited Company, Tax Efficiently
As of 18 September 2026, dividend tax rates have just risen and Section 455 has followed suit, which means the "salary plus dividends" formula many directors have relied on for years now needs a fresh look. Getting money out of your limited company the wrong way can mean paying far more tax than necessary, or worse, triggering an unexpected bill from HMRC. Here is how to extract profit efficiently under the current 2026/27 rules.
Key Takeaways
- A salary of around £12,570 (the Personal Allowance) is still the standard starting point for most director/shareholders.
- Dividend tax rates rose from 6 April 2026 — basic rate is now 10.75%, higher rate 35.75%, additional rate 39.35%. The £500 dividend allowance is unchanged.
- Employer pension contributions remain one of the most tax-efficient ways to extract value, reducing Corporation Tax with no personal tax due on the way in.
- Director's loans left outstanding attract Section 455 tax at 35.75% for loans made on or after 6 April 2026.
- Corporation Tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief tapering between the two.
Start With Salary, Set Just Right
For most owner-managed companies, the optimal director salary for 2026/27 is still around £12,570, matching the Personal Allowance. Pay yourself this and you use up your tax-free income allowance with no personal income tax and no employee National Insurance to pay, while still building a qualifying year towards your State Pension.
Dividends After the April 2026 Rise
Once the salary is set, dividends from company profits (after Corporation Tax) are typically the next port of call. From 6 April 2026, the rates increased by two percentage points across the board:
- Basic rate taxpayers: 10.75% on dividends above the allowance
- Higher rate taxpayers: 35.75%
- Additional rate taxpayers: 39.35% (unchanged)
The first £500 of dividend income in the tax year remains tax-free, but this allowance has stayed frozen for several years now and its real value keeps shrinking. If you and a spouse or partner are both shareholders, splitting dividends between you can still make a meaningful difference to the household tax bill.
Pension Contributions, Still One of the Best Options
Employer pension contributions continue to be one of the most tax-efficient ways to move money out of a limited company. Contributions made directly by the company:
- Are usually fully deductible against Corporation Tax, provided they meet the "wholly and exclusively" test
- Are not subject to employer or employee National Insurance
- Are not treated as personal income, so no Income Tax is due when paid in
You can contribute up to the lower of 100% of relevant earnings or the £60,000 annual allowance for 2026/27, with unused allowance from the previous three years potentially available too. For directors with profits sitting above the level they need to draw personally, this is well worth exploring alongside your personal tax planning.
Other Routes Worth Considering
Beyond salary, dividends and pensions, a handful of other methods can help extract value tax-efficiently, depending on your circumstances:
- Rent for a home office: if you use part of your home for company business, a formal rental arrangement can extract cash with modest tax cost.
- Trivial benefits: gifts up to £50 per occasion (capped for directors of close companies) are tax and NI free.
- Director's loans, used carefully: a short-term loan can bridge a cashflow gap, but must be repaid within nine months of the company year end or it triggers Section 455 tax at 35.75%, repayable to the company only once the loan itself is cleared.
- Capital extraction on winding up: for companies closing down, extracting reserves as capital rather than income can attract Capital Gains Tax rates instead, though anti-avoidance rules mean this needs proper advice.
Bringing It All Together
The right mix of salary, dividends, pension contributions and other extraction methods depends on your profit level, your personal tax position, and what you need the money for. With dividend and S455 rates both up since April 2026, the gap between an efficient strategy and an expensive one has widened. Our Smart Money Extraction Manual walks through the full decision process step by step if you want to work through it yourself, or our team can build a personalised extraction plan as part of your limited company accounts service.
Questions and Answers
Is £12,570 still the right salary for every director in 2026/27?
It is the right starting point for most single-director companies, but not universal. If you have other employment income using up your Personal Allowance elsewhere, a lower salary or none at all may suit you better. Always check against your full personal tax position.
Why did dividend tax rates go up in April 2026?
The increase was announced in the Autumn 2025 Budget as part of wider changes to how income from work versus investment income is taxed. All three dividend bands rose by two percentage points, while the £500 allowance stayed the same.
What happens if I do not repay a director's loan in time?
If the loan is still outstanding nine months and one day after your company year end, the company must pay Section 455 tax at 35.75% of the outstanding balance. This is refundable once the loan is repaid, but the refund is not automatic and can take a while to come back from HMRC, so it is not a strategy to rely on for cashflow.
Can my company pay into my pension even if I take a low salary?
Yes. Employer pension contributions are not tied to your salary level in the same way personal contributions are, and there is no lower earnings requirement for the company to contribute. This makes it a genuinely flexible tool for extracting profit tax-efficiently.
Does the £50,000 to £250,000 Corporation Tax band affect a small company like mine?
Only if your profits fall within that range. Below £50,000, you pay the small profits rate of 19%. Above £250,000, the main rate of 25% applies. In between, marginal relief tapers the rate up gradually, but the effective rate on the profit within that band can reach 26.5%, so it is worth reviewing your extraction timing if you sit near these thresholds.
Should I just take everything as dividends and skip the salary?
Usually not. A salary at the Personal Allowance level is Corporation Tax deductible and NI-free up to the secondary threshold, and it protects your State Pension record. Dividends cannot do either of those things, so a blend almost always beats an all-dividend approach.
Want a tax-efficient extraction plan built around your company?
Talk to the 360 Accounts & Bookkeeping team in Guildford and we will work through salary, dividends, pensions and everything in between with you.
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