Profit extraction for company directors.

There are four main ways to take profit out of a company you own and run: salary through payroll, dividends as a shareholder, employer pension contributions, and loans through your director's loan account. Each is taxed differently.

Dividends can only be paid out of accumulated profits, after deducting accumulated losses, so a company with losses brought forward may have no room to pay them. Money taken out that is neither salary nor dividend is treated as a loan from the company.

For 2026/27 the personal allowance and the employee National Insurance primary threshold are both £12,570. A salary at that level carries no income tax or employee National Insurance if no other income uses the allowance. Employer National Insurance is 15% above the secondary threshold of £5,000.

The £10,500 employment allowance reduces the employer bill, but a company cannot claim it if its only employee paid above £5,000 is a sole director. Without it, salary above £5,000 costs 15%, but salary and employer National Insurance are deductible for corporation tax, so £12,570 often still beats taking the same amount as dividends. We run the figures each year.

Earnings between the lower earnings limit of £6,708 and £12,570 attract no employee National Insurance, but contributions are treated as paid, protecting your State Pension record.

Dividends are paid from profit after corporation tax. For the year from 1 April 2026, corporation tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between (limits shared between associated companies). Dividends are not deductible for the company.

In your hands, the first £500 of dividends is covered by the dividend allowance. Above that, from 6 April 2026, dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% at the additional rate. Dividends do not attract National Insurance. For most owner-managers a modest salary followed by dividends remains the usual pattern, but the gap has narrowed. Our article on salary or dividends in 2026/27 works through the numbers.

Employer pension contributions are often the most tax efficient form of profit extraction. A contribution by the company to a registered pension scheme is generally deductible for corporation tax, as long as it forms part of a pay package that is justified wholly and exclusively by the needs of the business. No income tax is charged on you when the company pays in.

Employer contributions count towards your £60,000 annual allowance, and unused allowance can usually be carried forward from the previous 3 tax years. The money stays in the pension until you can access it.

This matters most near £100,000. Your personal allowance falls by £1 for every £2 of adjusted net income above £100,000 and is gone at £125,140. Salary and dividends count towards adjusted net income. Employer pension contributions do not. Our high earners page covers the wider position.

Your director's loan account records money you take from the company that is not salary, dividends or expense repayments, and money you lend to it. If the account is overdrawn at the company's year end and not repaid within 9 months, the company pays s455 tax at 35.75% of the outstanding amount for loans made from 6 April 2026 (33.75% before). The company can reclaim the tax once the loan is repaid or written off, after a further wait, but a write-off is taxed on you as income.

If you owe the company more than £10,000 at any time in the year and pay little or no interest, the company must treat the loan as a benefit in kind. Repaying £5,000 or more and taking new loans of £5,000 or more within a 30-day period can stop the repayment counting, and so can planned re-borrowing where the balance is £15,000 or more. We track the balance so year-end decisions are made in time.

Gifts of shares between spouses and civil partners can be effective, but the settlements rules are a real risk. HMRC can treat dividends as the income of the person who gave the shares if the gift is wholly or substantially a right to income, such as shares that carry only dividend rights. Genuine ordinary shares, outright gifts and a spouse who understands what they own are the starting points. We review the share classes and the paperwork before dividends are paid.

Timing across tax years also matters. A final dividend is generally treated as paid when it becomes due and payable, and an interim dividend when it is actually paid. Planning when dividends fall, either side of 5 April, can use two years of allowances and basic rate band. See our corporate tax service for how this fits with your accounts.