Paying yourself from a limited company: salary, dividends and the bank account

The short answer

A limited company is a separate legal person. The money in its bank account belongs to the company, not to you, even if you own every share. To get it into your own account, the company has to pay you in a recognised way:

• Salary, through a PAYE payroll, with Income Tax and National Insurance deducted;
• Dividends, paid to shareholders out of profits that remain after Corporation Tax;
• Expenses, reimbursing business costs you paid personally;
• Repaying money you lent the company, which is tax-free because it was yours to begin with.

GOV.UK is clear that if you take more money out than you have put in, and it is not salary or dividend, it is a director’s loan. That is the bucket most accidental withdrawals land in, and it carries its own tax rules.

Salary through PAYE

To pay a salary, GOV.UK says the company must register as an employer, run payroll and send Income Tax and National Insurance to HMRC, along with employer’s National Insurance. A director is an employee of their own company for this purpose. A salary is a business cost, so it reduces the company’s taxable profit.

These are the 2026 to 2027 figures from GOV.UK that matter most for a director’s salary (England, Wales and Northern Ireland; Scotland has its own Income Tax bands):

The Personal Allowance shrinks by £1 for every £2 of adjusted net income above £100,000, so it is gone entirely at £125,140.

Three features of these thresholds shape most directors’ salary decisions:

• Earnings between the lower earnings limit and the primary threshold protect your National Insurance record without you paying employee contributions. GOV.UK says contributions are treated as paid for employees earning £129 to £242 a week from one job, which is what builds entitlement to the State Pension.
• Employer’s NI starts at £5,000, well below the Personal Allowance. Above that, every pound of salary costs the company an extra 15p, although the salary and the employer’s NI are both deductible for Corporation Tax.
• Employment Allowance lets eligible employers reduce their employer’s NI bill by up to £10,500 in 2026 to 2027. But GOV.UK says that if a company has only one director, that director must not be the only employee liable for employer’s NI. A one-person company paying only its director usually cannot claim it.

That is why there is no single “best” salary. A sole director with no other income, a company with two directors, and a director with a well-paid job elsewhere will each land somewhere different. An accountant will work it out for your circumstances.

Dividends

A dividend is a share of the company’s profits paid to shareholders. GOV.UK sets out the rules:

• the company can only pay dividends out of available profits from the current and previous financial years;
• dividends are not a business cost, so they do not reduce Corporation Tax;
• you must usually pay dividends to all shareholders in line with their shares;
• the directors must hold a meeting to declare the dividend and keep minutes, even if you are the only director;
• each payment needs a dividend voucher showing the date, company name, shareholders’ names and amount, with a copy for each shareholder and one for the company’s records.

The shareholder pays Income Tax on dividends. For 6 April 2026 to 5 April 2027, GOV.UK gives these rates on dividends above the £500 dividend allowance:

Dividends are added on top of your other income to decide which band they fall into. Any dividend income covered by unused Personal Allowance is not taxed. GOV.UK’s worked example: £29,570 of wages and £3,000 of dividends gives taxable income of £20,000 after the Personal Allowance, with no tax on £500 of dividends and 10.75% on the other £2,500. If your dividends exceed your unused allowances, you report them through Self Assessment.

Corporation Tax comes first

Dividends come out of profit after Corporation Tax. GOV.UK gives the main rate as 25% for profits over £250,000, a small profits rate of 19% for profits of £50,000 or less, and Marginal Relief in between. The thresholds are reduced for short accounting periods and for associated companies. Corporation Tax is normally due 9 months and 1 day after the end of the accounting period, so the money for it has to sit in the company until then.

How salary and dividends fit together

The difference between the two comes down to who pays what:

Many small company directors take a modest salary set with the NI thresholds in mind and top up with dividends when profits allow. Whether that is right for you, and at what levels, depends on factors this page cannot see: your other income, pension contributions, student loans, whether you are in Scotland, and how much the company needs to keep for growth. Contractors also need to consider IR35, which our guide for limited company contractors touches on.

Expenses and benefits

If you pay for something the business needs with your own money, the company can reimburse you. That repayment is not income, provided the cost was genuinely for the business and you keep the receipt. It is the cleanest way to move money out, and the easiest to get wrong if the line between business and personal blurs.

The reverse also applies. GOV.UK says that if you or an employee make personal use of something that belongs to the business, it must be reported as a benefit and any tax paid. Paying a personal bill from the company card does not make it a business expense; it is either a benefit, a salary payment that should have gone through payroll, or a director’s loan.

The practical rule: use the company card only for company spending, and claim back anything you paid personally with a receipt attached. Most business banking apps let you photograph a receipt against a transaction, which makes the year-end much simpler.

The director’s loan account

GOV.UK defines a director’s loan as money you, or close family members, get from your company that is not a salary, dividend or expense repayment, or money you previously paid into or lent the company. You must keep a record of it, usually called the director’s loan account (DLA), and the balance appears on the company’s balance sheet at year end.

If the loan is still outstanding 9 months after the end of the company’s Corporation Tax accounting period, the company pays Corporation Tax at 33.75% of the outstanding amount (32.5% for loans made before 6 April 2022), with interest added until it is paid or the loan is repaid. The company can reclaim it once the loan is repaid, written off or released, but not before 9 months and 1 day after the end of the period in which that happened.

GOV.UK also has anti-avoidance rules for repaying a loan and quickly taking a new one: if a loan over £5,000 is repaid and another of £5,000 or more is taken within 30 days, or a loan over £15,000 is repaid with another arranged at the same time, the 33.75% charge can still apply. If you owe the company more than £10,000 at any point in the year, it must treat the loan as a benefit in kind and deduct Class 1 NI, and you report it on your Self Assessment return.

A DLA can run the other way too. If you lent the company money to get it started, the company owes you, and repaying you is simply returning your money. Our guide on using a personal account for business explains how mixing accounts creates DLA entries without you noticing.

Setting it up in your business bank

Whatever mix your accountant recommends, the banking set-up that makes it easy is much the same:

1. Keep the company account for company money only. Customer payments in, company costs out, nothing personal. The guide to business bank accounts for limited companies compares the options.
2. Pay salary on a schedule. Set a scheduled payment from the company account to your personal account for the net salary on payday, matching what payroll calculates. Scheduled payments are included on every Monzo Business plan. A company with several staff on Team can use bulk payments, up to 200 payments at once from a CSV.
3. Pay dividends as one-off transfers with a clear reference, such as “Dividend” and the date, matching the voucher. That makes the transaction easy for your accountant to match to the board minute.
4. Set aside Corporation Tax and VAT as you go. On Monzo Business Pro and Team, Tax Pots move a percentage of every incoming payment, moved automatically, with up to 3 Tax Pots. A limited company names them itself, for example Corporation Tax and VAT. Our tax set-aside calculator suggests percentages.
5. Leave PAYE money in the company until it is due. Income Tax and NI deducted from your salary belong to HMRC. A third pot for PAYE avoids spending them by mistake.
6. Connect your accounting software so salary, dividends and expenses are categorised correctly. Monzo Business Pro and Team sync with Xero, FreeAgent, Sage and QuickBooks.

Common mistakes

• Treating the company balance as yours. Part of it is owed to HMRC for Corporation Tax, VAT and PAYE.
• Paying dividends without the paperwork, or paying more than the company’s available profits, which GOV.UK says a company must not do.
• Unlabelled transfers to your personal account. Without a label they become director’s loans by default.
• Personal spending on the company card. It has to be treated as a benefit, salary or loan, and it muddies the records.
• Forgetting the personal tax bill. Dividend tax is usually paid through Self Assessment by 31 January after the tax year, so a director taking dividends needs a personal pot for it too.

If you are still choosing where to bank, our guide for new companies and startups covers which accounts accept a company on day one, and the review of the Monzo Business Team plan explains why we pay for it as a small limited company.