How to pay yourself as a UK company director

One of the most common questions we hear from new limited company directors is simple: how do I actually get paid? Unlike sole traders, who can draw from the business as and when they like, limited company directors need to think about salary, dividends, and the often-misunderstood director's loan account. Get it wrong and you could face unexpected tax bills or awkward conversations with HMRC. This guide is for UK limited company directors who want to pay themselves in a tax-efficient, compliant way.

We will cover the main methods of extracting money from your company, how the director's loan account works, and what to record so your year-end stays straightforward. If you are a founder or small business owner running a limited company, this article is for you.

Salary, dividends, and the basics of paying yourself

As a limited company director in the UK, you typically take money out in three ways: salary (through payroll), dividends (from profits after tax), and sometimes money that is neither, which sits in your director's loan account. Each has different tax and reporting implications.

Salary

A salary is paid through your company's payroll. It is subject to income tax and National Insurance (both employee and employer). Many directors take a small salary up to the National Insurance primary threshold (around £12,570 for 2024/25 and 2025/26) so they qualify for the state pension and use of the personal allowance, without incurring much NI. The rest of their income often comes as dividends, which are taxed more lightly than salary above that level.

Dividends

Dividends are paid from profits after corporation tax. They do not attract National Insurance. There is a dividend allowance (currently £500 for 2025/26), and above that dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate). Your company must have enough retained profits to justify the dividend; otherwise you risk it being reclassified.

Director's loan account

Any money you take from the company that is not salary, dividend, or a legitimate business expense goes through your director's loan account (DLA). If you put your own money into the company (for example to cover a cash shortfall), that also goes in. The DLA can be in credit (the company owes you) or in debit (you owe the company). Keeping it clear and documented is essential. For more on tax-efficient structures, see our Statutory Accounts & Tax service.

The director's loan account in practice

The director's loan account is a running balance between you and the company. Every time you take money that is not salary or dividend, the balance changes. Every time you put money in (or leave profit in the company instead of drawing it), the balance moves the other way.

What counts as a director's loan?

• Cash you take from the company that is not salary or dividend (e.g. a temporary draw to be decided later).
• Personal expenses paid by the company that are not reimbursable.
• Money you lend to the company (your side of the DLA is in credit).

What does not count

• Salary or dividends (they are recorded separately).
• Repayment of expenses you paid personally on behalf of the company.
• Dividends or salary that you have formally declared and recorded.

Example

Sarah runs a small limited company. She takes a monthly salary of £1,000 and a quarterly dividend of £5,000. In March she needs £2,000 for a one-off personal cost and takes it from the company bank account without declaring a dividend. That £2,000 is a director's loan (debit balance). She must record it, and either repay it or clear it with a dividend or salary before the company's year end, or face possible tax charges (see below). HMRC provides guidance on director's loans (GOV.UK).

Tax and reporting: when the company lends you money

If your director's loan account is in debit (you owe the company) at the end of the company's accounting period, and you have not repaid it within nine months of the year end, the company may have to pay Section 455 tax (currently 33.75% for 2024/25 and 2025/26) on the outstanding amount. This is not a permanent cost: when you repay the loan, the company can reclaim the Section 455 tax. But it creates a cash flow and reporting burden.

Key points:

• The nine-month deadline is from the end of the company's accounting period, not the tax year.
• If the loan is written off or released, it is treated as dividend income for you and may be taxable.
• Loans between you and the company must be recorded in the company's accounts and on your personal tax return if relevant.

Keeping the DLA at zero or in credit (company owes you) by the year end, or repaying within nine months, avoids Section 455. For full details on deadlines and reporting, see HMRC guidance on company loans.

How to keep records and stay compliant

Good record-keeping is the best way to avoid problems. Your accountant needs to see:

1. A clear record of every payment from the company to you (and whether it is salary, dividend, expense repayment, or loan).
2. Every payment from you to the company (capital, loan repayment, or expense).
3. Minutes or paperwork supporting dividends (board minutes, dividend vouchers).

Use your accounting software (e.g. Xero) to maintain a dedicated director's loan account. Reconcile it regularly so you always know the balance. If you are unsure whether a payment is salary, dividend, or loan, decide and document it at the time. Do not leave it for the year end. For support with bookkeeping and Xero, we keep DLAs tidy so year-end is straightforward.

UK tax and legal accuracy

The rules described in this article reflect the position for the UK tax years 2024/25 and 2025/26. Thresholds and rates may change. Section 455 and director's loan rules are set out in the Corporation Tax Act 2010. HMRC and Companies House both have a role in how director's loans are reported and taxed.

This article is for informational purposes only and does not constitute professional tax or financial advice. Please speak to a qualified accountant before taking action.

Frequently asked questions

Do I have to take a salary as a director?

No, but many directors take a small salary up to the NI threshold to protect their state pension entitlement and use their personal allowance. Taking no salary at all is possible but you may miss out on those benefits.

What is the difference between a director's loan and a dividend?

A dividend is a formal distribution of profit, decided by the directors, documented with minutes and a voucher, and taxable as dividend income. A director's loan is money you take from (or put into) the company that is not salary or dividend. If you take cash without declaring a dividend, it is a loan until you formalise it.

Can I repay my director's loan with a dividend?

Yes. You can declare a dividend that is used to clear the loan (the company pays you the dividend and you use it to repay the loan, or the company simply offsets the two). The dividend must be properly declared and supported by available profits.

What happens if I do not repay the loan within nine months?

The company may have to pay Section 455 tax (33.75% of the outstanding loan) to HMRC. The tax can be reclaimed when the loan is repaid. If the loan is written off, it is typically treated as dividend income for you.

Do I need to charge interest on a director's loan?

There is no legal requirement to charge interest. If you do charge interest, it must be at a commercial rate; otherwise HMRC may treat the arrangement differently. If no interest is charged and you owe the company, there can be benefit-in-kind implications. Your accountant can advise.

How does this differ from being a sole trader?

As a sole trader, you and the business are the same for tax purposes. You can draw money whenever you like; it is not salary or dividend. As a limited company director, the company is separate. Money you take must be classified as salary, dividend, expense, or loan, and each has different tax and reporting rules.

Summary and next steps

Paying yourself as a limited company director in the UK comes down to three things: choosing the right mix of salary and dividends, keeping your director's loan account clear and documented, and repaying any loan (or clearing it with a dividend) before the nine-month deadline to avoid Section 455 tax.

If you would like to discuss how you pay yourself from your company, or you need help with director's loan accounts and year-end compliance, we would be glad to help. At Figures we work with UK founders and small businesses to keep their accounts and tax in order. You can book a discovery call or explore our Statutory Accounts & Tax service to see how we can support you.