Pay Yourself: Understanding Salary, Dividends, and Pensions

Welcome to the next article in our Accounting & Tax 101 series — short, plain-English guides to help you understand the numbers that matter.

One of the most common questions directors ask is: “How much can I actually take out of my company?” The answer depends on how you take the money, because not all routes are equal in the eyes of HMRC.

The safe ways to pay yourself

There are three main ways to take money out of your company:

• Salary – paid like a normal wage, taxed through PAYE.

• Dividends – taken from profits after Corporation Tax.

• Pension contributions – paid directly by the company into your pension. These reduce company profits (and Corporation Tax), but don’t count as your personal income right now.

These are the “clean” routes HMRC expects, and they’re usually the most tax-efficient.

How much can you take?

• Salary – usually set at a sensible level (sometimes low, sometimes higher if Employment Allowance or pension contributions make it worthwhile).

• Dividends – limited by how much profit is left after tax. You can’t take dividends if the company hasn’t made profits.

• Pensions – limited by your pension input annual allowance (normally £60,000 for 2025/26, but lower if you are a very high earner due to tapering). Pension contributions can be one of the most tax-efficient ways to save for the future.

What if you take more than that?

Anything that isn’t salary, dividend, or pension contribution usually ends up in your Director’s Loan Account (DLA).

• If the account is in credit (you’ve put more in than you’ve taken out) → no problem, you can draw on that balance.

• If it’s overdrawn (you’ve taken more than the company owes you) → HMRC may charge extra tax (Section 455) and possibly a benefit-in-kind charge.

And if the company ever got into financial trouble, a liquidator could ask you to repay that loan — because it belongs to the company, not you.

Why cash and profit aren’t the same

Even if your company has cash in the bank, that doesn’t always mean you can take it out. Some of that money may be needed for:

• Tax bills (Corporation Tax, VAT, PAYE).

• Paying suppliers or staff.

• Covering future costs.

That’s why we say: cash in the bank isn’t the same as spare money.

Our advice

The right answer depends on your company’s profit, cash flow, and your personal tax position.

Here at Accounts Action, we help directors develop a clear plan for salary, dividends, and pensions each year — so you know exactly how much you can safely take without any nasty surprises from HMRC later.

This article is part of our Accounting & Tax 101 series — short guides to help you understand your accounts without the jargon.