Director of a Limited Business
A limited company director cannot simply take drawings in the same way as a sole trader. Company money belongs to the company, so withdrawals must be recorded correctly.
Most owner-directors use a combination of salary and dividends, but the best approach depends on company profits, other income, Employment Allowance eligibility and long-term plans.
Taking a Salary
Salary is paid through PAYE and is normally deductible when calculating Corporation Tax. It can also protect your National Insurance record for the State Pension.
For 2026/27, the standard Personal Allowance is £12,570. Employee National Insurance generally begins above £12,570, while employer National Insurance is normally charged at 15% above the £5,000 secondary threshold.
This means £12,570 is not automatically the best salary for every director. Salaries around £5,000, £6,708 or £12,570 may be considered depending on whether the company can claim Employment Allowance, its Corporation Tax rate and the director’s other income. The figures should be calculated rather than copied from a general example.
Taking Dividends
Dividends are payments to shareholders from retained profits after Corporation Tax. They are not a deductible company expense and cannot be paid where sufficient distributable profits are unavailable.
The dividend allowance for 2026/27 is £500. Dividends above available allowances are taxed at:
- 10.75% within the basic-rate band
- 35.75% within the higher-rate band
- 39.35% within the additional-rate band
Dividends do not attract National Insurance, but they must be supported by board minutes and dividend vouchers. Regular withdrawals should not automatically be called dividends without checking that profits support them.
Other Ways to Receive Value
A company may also:
- Make employer pension contributions, subject to the relevant rules
- Reimburse genuine business expenses
- Repay money previously lent to the company
- Provide benefits, which may create personal tax and employer reporting obligations
Borrowing from the company is different. An overdrawn director’s loan account can create Corporation Tax and benefit-in-kind consequences, particularly if it exceeds £10,000 or remains outstanding after the repayment deadline.
Choosing the Right Combination
A low salary with dividends remains common, but there is no universal answer. Consider available profits, cash flow, other employment or rental income, pension objectives and future tax bills.
Directors in Cambridge and Nottingham should review their remuneration each tax year because rates and circumstances change. Proper planning keeps withdrawals compliant while helping the director and company manage tax efficiently.
