How to pay yourself as a founder of a UK limited company

This guide covers the ways a founder can take money out of a UK limited company in 2026/27, including salary, dividends, company pension contributions and the director's loan account, with a worked example.
By Buzz Accounting · Updated 16 September 2026

How founders take money out of a company

A limited company is a separate legal person, so its money belongs to the company even if you own every share. You can take money out as salary through payroll, as dividends paid from profits after corporation tax, as contributions the company makes to your pension, or as a loan recorded in your director's loan account. Each route is taxed differently and has its own rules on how much you can take and when.

For a sole founder whose company makes a taxable profit, a salary of £12,570 with the rest taken as dividends usually leaves the most after tax. The salary is deductible for corporation tax, uses your personal allowance and counts towards your State Pension. Dividends carry no National Insurance, but the company can only pay them out of accumulated profits, and each one needs board minutes and a voucher. A startup that has built up losses cannot pay dividends until its accumulated profits turn positive, and taking money out without a plan leaves an overdrawn director's loan account that can cost the company a tax charge of 35.75%.

The right mix also depends on where you live, whether a co-founder is on payroll and whether you have raised investment, because investors who hold the same class of shares as you are paid the same dividend per share.

What this guide covers

Setting a salary against the 2026/27 thresholds
Paying dividends lawfully, with the right paperwork
Company pension contributions and director's loans
A worked example with the full arithmetic

Setting your salary

A salary goes through payroll, so the company must be registered as an employer even if you are the only person it pays. National Insurance for directors is worked out on pay for the whole tax year. The 2026/27 thresholds that matter are:

£5,000, above which the company pays employer National Insurance at 15%
£6,708, the lowest salary that gives you a State Pension qualifying year
£12,570, the personal allowance, below which you pay no income tax or employee National Insurance
£50,270, above which income tax rises to 40% outside Scotland and employee National Insurance falls from 8% to 2%
£100,000, above which the personal allowance shrinks by £1 for every £2 of income, disappearing at £125,140

For a sole founder whose company pays corporation tax, a salary of £12,570 usually leaves you better off than a lower one. Each £1 of salary above £5,000 costs the company £1.15 with employer National Insurance, but it is deductible for corporation tax, and up to £12,570 you pay no income tax or National Insurance on it. In the worked example below, a founder takes home £797.49 more on £12,570 than on £5,000, and £5,000 is also below the £6,708 needed for a State Pension qualifying year. If the company is making losses, salary saves no corporation tax that year, and a salary of £6,708 keeps your State Pension record for £256.20 of employer National Insurance.

The Employment Allowance for single-director companies

A company cannot claim the Employment Allowance, which takes up to £10,500 a year off employer National Insurance, if its sole director is the only employee paid above the secondary threshold, or if it has several directors and only one is paid above it. If two co-founders are both directors on £12,570, the company can claim, and the allowance covers the £2,271 of employer National Insurance on their salaries. Paying any other employee above the threshold also makes the company eligible for the whole tax year, as our guide to hiring your first employee explains.

Income tax for Scottish taxpayers

If you live in Scotland, your salary is taxed at Scottish income tax rates and your tax code starts with S. The 2026/27 bands, with the standard £12,570 personal allowance, are:

19% starter rate on £12,571 to £16,537
20% basic rate on £16,538 to £29,526
21% intermediate rate on £29,527 to £43,662
42% higher rate on £43,663 to £75,000
45% advanced rate on £75,001 to £125,140
48% top rate above £125,140

You pay the same tax on dividends as the rest of the UK, and National Insurance is UK-wide, so a Scottish founder on a £12,570 salary pays the same total tax as in the worked example below. On a larger salary the bands make a difference, and on £50,270 of salary a Scottish taxpayer pays £753.73 + £2,597.80 + £2,968.56 + £2,775.36 = £9,095.45 of income tax, against £7,540.00 elsewhere in the UK. Welsh rates for 2026/27 match those in England and Northern Ireland.

How dividends are taxed in 2026/27

Dividends are paid out of profits left after corporation tax. They do not reduce the company's corporation tax, and there is no National Insurance on them. Your dividend tax depends on where dividends sit on top of your other income:

any personal allowance your salary has not used covers dividends first
the next £500 is covered by the dividend allowance
dividends up to total income of £50,270 are taxed at 10.75%
dividends from £50,271 to £125,140 are taxed at 35.75%
dividends above £125,140 are taxed at 39.35%

The basic and higher rates rose from 8.75% and 33.75% on 6 April 2026. The company deducts no tax from dividends, so set aside what you will owe. If you have tax to pay on dividend income of £10,000 or less and you do not file a tax return, tell HMRC by 5 October after the tax year so it can collect the tax through your tax code. Above £10,000 you must file a Self Assessment return, registering by 5 October if it is your first. HMRC's guide to tax on dividends covers both routes. The tax is due by 31 January after the tax year, and if the bill is £1,000 or more you will usually also make two payments on account towards the next year, each half of this year's bill, on 31 January and 31 July.

Corporation tax before dividends

Dividends can only come out of profits left after corporation tax, so work out the tax first. For accounting periods from 1 April 2026, taxable profits of £50,000 or less are taxed at 19% and profits over £250,000 at 25%. In between, the company pays 25% less marginal relief of 3/200 × (£250,000 − profits), so each extra pound between £50,000 and £250,000 is taxed at 26.5%. Both limits are divided by the number of associated companies plus one, meaning trading companies under the same person's control, so a founder with two trading companies has limits of £25,000 and £125,000 in each. They are also reduced for periods shorter than 12 months. The tax is due nine months and one day after the end of the accounting period for companies with taxable profits up to £1.5 million, so keep it aside before declaring dividends. Our guide to corporation tax for startups covers the calculation.

Distributable reserves

Company law only allows a dividend out of distributable reserves, which are the company's accumulated realised profits not already paid out, less its accumulated realised losses. The test covers the company's whole history. A startup with £200,000 of losses from its first two years that makes £80,000 of profit after tax in its third year still has £120,000 of accumulated losses and cannot pay a dividend.

The directors check the figure against the last annual accounts or, if those do not show enough, against interim accounts, such as up-to-date management accounts, that allow a reasonable judgement of profits, losses, assets and liabilities. A dividend paid without enough reserves is unlawful, and a shareholder who knew or had reasonable grounds to believe that must repay it.

Under the standard articles of association, a dividend is paid in proportion to each shareholder's holding. After a funding round, investors holding the same class of shares as you receive the same amount per share, so a dividend to yourself is also a payment to them. Check your articles and shareholders' agreement first, because investment agreements can require investor consent.

Dividend paperwork

Every dividend needs a paper trail, even in a company with one director who owns all the shares:

Check distributable reserves, then hold a directors' meeting to declare the dividend and keep minutes, even if you are the only director.
Write a dividend voucher for each payment showing the date, the company name, the names of the shareholders paid and the amount.
Give each shareholder a copy of the voucher and keep a copy with the company's records.
Pay the dividend into each shareholder's bank account or credit it to their director's loan account.

Under the standard articles, directors can decide to pay interim dividends during the year, and shareholders declare final dividends on the directors' recommendation. HMRC treats an interim dividend as paid when the money is paid or placed at the shareholder's disposal, such as by a credit to their loan account, and a final dividend as due on the date of the resolution unless it sets a later date. The difference can move a dividend into another tax year.

Pension contributions from the company

The company can pay into a registered pension scheme for you as your employer. A company contribution is deductible for corporation tax if your total pay package is in line with the value of your work, with the deduction given in the accounting period when the company actually pays. It carries no National Insurance and is not taxed as your income unless your pension savings for the year exceed your annual allowance.

The annual allowance for 2026/27 is £60,000, and you may be able to carry forward allowance unused in the previous three tax years. The allowance is lower if your threshold income is over £200,000 and your adjusted income is over £260,000, or if you have already taken money flexibly from a pension. Contributions you pay personally only get tax relief up to the higher of £3,600 or your earnings from employment, so a £12,570 salary limits that relief to £12,570 a year.

As an illustration, £10,000 paid in by the company saves £1,900 of corporation tax at 19%, and all £10,000 reaches the pension. The same £10,000 paid as a dividend would lose £1,900 to corporation tax, leaving £8,100, and then £870.75 of dividend tax at 10.75% or £2,895.75 at 35.75%. You cannot normally take money out of a pension before age 55, rising to 57 from 6 April 2028. Speak to an authorised financial adviser about which pension to use.

The director's loan account

Your director's loan account records money moving between you and the company other than salary, dividends and expense repayments. Money you lend the company can be repaid to you tax-free. Any interest you charge is taxable income for you, and the company must deduct 20% income tax from it and report it quarterly on form CT61. If you take out more than you have put in, the account is overdrawn and you owe the company.

The section 455 charge

If you still owe the company money nine months and one day after the end of its accounting period, the company pays a tax charge under section 455 of the Corporation Tax Act 2010. The rate is 35.75% for loans made on or after 6 April 2026 and 33.75% for loans made from 6 April 2022 to 5 April 2026. No charge arises on amounts repaid, released or written off before that date. If you repay later, the company can reclaim the charge, without interest, from nine months and one day after the end of the accounting period in which you repay.

For example, if the company's year ends on 31 March 2027 and you owe it £20,000 from drawings that year, the company pays 35.75% × £20,000 = £7,150 on 1 January 2028 unless you clear the loan first. If you repay it in June 2028, the company can reclaim the £7,150 from 1 January 2030.

A repayment followed by new borrowing is matched to the new loans. This applies where you repay £5,000 or more and, within 30 days, take new loans of £5,000 or more in the next accounting period, and where £15,000 or more was outstanding and new loans of £5,000 or more were already arranged when you repaid. Clearing the balance with a bonus through payroll or a properly declared dividend can count as repayment, taxed as salary or dividend in the normal way.

Loans over £10,000 and loans written off

If you owe more than £10,000 at any time in the tax year and pay less interest than HMRC's official rate, 3.75% from 6 April 2026, the difference is a taxable benefit. On an interest-free £20,000 loan outstanding all year, the benefit is 3.75% × £20,000 = £750, the company pays £112.50 of National Insurance on it at 15%, and a basic rate taxpayer pays £150 of income tax. If the company writes a loan off, you pay income tax on the amount as dividend income, the company accounts for National Insurance on it through payroll, and the company can reclaim any section 455 charge it paid.

A worked example for 2026/27

The figures in this example are illustrative. A founder owns all the shares in a software company, is its only director and is the only person on payroll. The company makes £60,000 of profit before paying the founder. Its financial year matches the tax year, it has enough distributable reserves for each dividend, and the founder lives in England with no other income.

A £12,570 salary with the rest as dividends

The £12,570 salary is within the personal allowance and the employee National Insurance threshold, so the founder pays no income tax or National Insurance on it.
Employer National Insurance is 15% × (£12,570 − £5,000) = £1,135.50, with no Employment Allowance because the only employee is the sole director.
Taxable profit is £60,000 − £12,570 − £1,135.50 = £46,294.50.
Corporation tax is 19% × £46,294.50 = £8,795.96.
Dividends of £46,294.50 − £8,795.96 = £37,498.54 take total income to £50,068.54, inside the basic rate band.
Dividend tax is (£37,498.54 − £500) × 10.75% = £36,998.54 × 10.75% = £3,977.34.
Take-home is £12,570 + £37,498.54 − £3,977.34 = £46,091.20.

Tax and National Insurance total £1,135.50 + £8,795.96 + £3,977.34 = £13,908.80. The dividends are over £10,000, so the founder files a Self Assessment return and pays £3,977.34 by 31 January 2028, plus a first payment on account of £1,988.67 on the same day, making £5,966.01, with another £1,988.67 due on 31 July 2028.

The same profit taken as salary only

A salary of £52,826.09 uses the whole £60,000, because £52,826.09 + 15% × (£52,826.09 − £5,000) = £60,000, leaving employer National Insurance of £7,173.91. Income tax is 20% × £37,700 + 40% × £2,556.09 = £7,540.00 + £1,022.44 = £8,562.44. Employee National Insurance is 8% × £37,700 + 2% × £2,556.09 = £3,016.00 + £51.12 = £3,067.12. Take-home is £52,826.09 − £8,562.44 − £3,067.12 = £41,196.53, which is £4,894.67 less than with the salary and dividend mix.

A £5,000 salary with the rest as dividends

No employer National Insurance is due. Taxable profit is £55,000, so corporation tax is 25% × £55,000 − 3/200 × (£250,000 − £55,000) = £13,750 − £2,925 = £10,825, leaving dividends of £44,175. The unused £7,570 of personal allowance and the £500 dividend allowance cover £8,070, so dividend tax is (£44,175 − £8,070) × 10.75% = £3,881.29. Take-home is £5,000 + £44,175 − £3,881.29 = £45,293.71, which is £797.49 less than with a £12,570 salary. Part of the gap is the corporation tax the larger salary saves, and part is the extra profit above £50,000 being taxed at 26.5%. The £5,000 salary also misses a State Pension qualifying year. Try your own figures in our salary and dividend calculator.

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Common questions

What salary should a founder director take in 2026/27?

For a sole founder whose company pays corporation tax, a salary of £12,570 usually gives the best result. You pay no income tax or employee National Insurance on it, it gives you a State Pension qualifying year and it is deductible for corporation tax. The company pays £1,135.50 of employer National Insurance because a sole director cannot claim the Employment Allowance, but the corporation tax saved is larger. If the company is making losses, a salary of £6,708 keeps the State Pension year for £256.20 of employer National Insurance.

How are dividends taxed in 2026/27?

Dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% above £125,140, after the £500 dividend allowance and any personal allowance your salary has not used. The basic and higher rates each rose by two percentage points on 6 April 2026. There is no National Insurance on dividends, and Scottish taxpayers pay the same dividend tax as the rest of the UK. If your dividend income is over £10,000, you must file a Self Assessment tax return.

Can my company pay a dividend if it has made losses?

Your company can only pay a dividend if its accumulated realised profits after tax are greater than its accumulated realised losses. The test covers the company's whole history, so a startup still carrying losses from earlier years cannot pay a dividend even after a profitable year. The directors check the figure against the last annual accounts or, where needed, interim accounts. A dividend paid without enough distributable reserves is unlawful, and a shareholder who knew or had reasonable grounds to believe that must repay it.

What paperwork do I need to pay myself a dividend?

You need minutes of a directors' meeting and a dividend voucher for each payment. Hold the meeting to declare the dividend and keep minutes even if you are the only director. The voucher shows the date, the company name, the names of the shareholders being paid and the amount, and each shareholder gets a copy while the company keeps one. Check distributable reserves before the meeting, and pay every shareholder of the same class the same amount per share.

What is the section 455 charge on a director's loan?

The section 455 charge is tax the company pays when a shareholder still owes it money nine months and one day after the end of its accounting period. The rate is 35.75% for loans made on or after 6 April 2026 and 33.75% for loans made from 6 April 2022 to 5 April 2026. The charge is not due on any amount repaid before that date. If the loan is repaid later, the company can reclaim the charge, without interest, from nine months and one day after the end of the accounting period of repayment.

Can the company pay into my pension instead of paying me a dividend?

Yes, the company can make an employer contribution to a registered pension scheme for you. The contribution is usually deductible for corporation tax in the period the company pays it, carries no National Insurance and is not taxed as your income unless your pension savings go over your annual allowance, which is £60,000 for 2026/27. On £10,000 paid in, the company saves £1,900 of corporation tax at 19%. You cannot normally take the money out before age 55, rising to 57 from 6 April 2028.