How to Pay Yourself from a Limited Company (Without Overpaying Tax)
Paying yourself from your limited company is one of the most important decisions you will make as a director. Do it the right way and you keep more of your money. Do it the wrong way and you hand far too much to HMRC.
This guide explains the simplest and most tax efficient way to take money from your company in 2025. No complicated jargon. No confusing charts. Just clear everyday guidance you can actually use.
Why the way you pay yourself matters
Once you run a limited company, your company becomes a separate legal entity. That means the money in the company bank account is not your personal money. You have to extract it correctly. If not, you risk extra tax, penalties or a messy director loan balance that grows without you realising.
The goal is simple. Take the right mix of salary and dividends so you pay yourself in a smart and efficient way.
Step one: Pay yourself a small salary
Most directors pay themselves a low salary each month. The idea is to stay within the level where you qualify for state pension credits without paying unnecessary tax or national insurance.
A low salary gives you:
A record for state pension purposes
A deductible business expense which reduces corporation tax
No unnecessary employee national insurance
Very little employer national insurance, sometimes none at all depending on your allowances
This creates a solid base before you take anything else.
Step two: Top up your income with dividends
Dividends are payments that come from the company profits after corporation tax has been paid. These are usually the most tax efficient way to take extra money out of your company.
The reason is simple. Dividends are taxed at lower rates than salary. They also do not attract national insurance.
Before paying a dividend, the company must have enough retained profit. This is the most important rule. If you pay a dividend when the company has no profit, it becomes an illegal dividend and creates problems for the director.
When done correctly, dividends are one of the easiest ways to pay yourself more while keeping tax low.
How most directors structure their pay in 2025
Every person’s situation is different, but a very common approach looks like this:
A small monthly salary paid through PAYE
Dividends taken every quarter or once per year
Enough money left in the company to cover tax, running costs and future plans
This keeps things simple and efficient. It also avoids the panic of discovering you cannot pay your tax bill later in the year.
What to avoid when paying yourself
Here are the most common mistakes directors make:
Using the company card for personal spending
This creates a director loan that must be repaid. If the loan is not cleared, you face extra tax charges. It feels easy at the time but leads to trouble later.
Paying dividends without checking profit
If your company has not made enough profit, the dividend is not allowed and HMRC can challenge it.
Taking irregular or random amounts
This can make your bookkeeping messy and can lead to overpaying tax without realising. A simple structure works best.
When you should take advice
If you are unsure how much to pay yourself or you expect your income to change during the year, it is worth speaking to an accountant. A small change in salary or timing can make a big difference to your tax bill.
A good accountant will:
Plan your salary and dividends
Check your retained profits
Make sure your company does not build up a large director loan
Help you avoid surprise tax bills at year end
Paying yourself correctly is one of the easiest ways to keep more of what you earn.
Final thoughts
Running your own company gives you freedom and control. Paying yourself the right way is part of that. A sensible salary and well planned dividends will keep your tax bill low and your finances under control.
If you want a personalised plan that matches your goals, feel free to reach out. Getting this right now will save you stress and money later.
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