What’s the best way to pay myself from my company?

What’s the Best Way to Pay Myself from My Company?

When you run a limited company, you have flexibility over how you pay yourself. The two main methods are salary and dividends, usually used together for tax efficiency.

Salary

A salary is paid via PAYE, just like an employee. It’s a business expense, reducing your company’s Corporation Tax. Many directors choose a low salary — often around £12,570 — to stay within the tax-free personal allowance while minimising National Insurance.

Dividends

Dividends are paid from profits after Corporation Tax. They’re not subject to National Insurance and have lower tax rates than salary. For 2024/25, the first £500 is tax-free, then rates are 8.75%, 33.75%, and 39.35% depending on your income level.

The Common Approach

Most directors take a mix:

• Small salary for tax efficiency and National Insurance benefits.

• Dividends for the remainder of income, drawn from company profits.

Other Options

• Pension contributions (tax-efficient)

• Reimbursement of expenses

• Director’s loan repayments (if applicable)

Things to Consider

• Dividends require profits; no profit = no dividends.

• Higher dividends may push you into a higher tax bracket.

• Some lenders prefer salaries over dividends for mortgage applications.

Summary

The usual balance is a low salary plus dividends, supported by pensions or expenses if appropriate. This keeps tax efficient while meeting legal requirements.