One of the big questions new company directors face is: “How do I pay myself?” Unlike a traditional employee, directors often have more than one option. The right choice depends on your company’s structure, your income level, and your long-term financial goals. In this post, we’ll walk through the common methods directors use to take money from their company, along with some pros, cons, and considerations.

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1. Salary Through PAYE (Pay As You Earn)

The most straightforward method is to pay yourself a salary as if you were an employee. This involves setting up a PAYE scheme with your country’s tax authority (e.g., HMRC in the UK).

✅ Pros:

• Provides a regular income stream.
• Counts toward state pension and other statutory benefits.
• Makes mortgage applications and loans easier.

⚠️ Cons:

• Subject to income tax and employee/employer national insurance contributions (or social security, depending on your country).
• Can be less tax-efficient compared to dividends.

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2. Dividends

If your company is profitable after paying corporation tax, you may distribute part of those profits to yourself as dividends. This is only possible if your business is a limited company with profits after expenses and taxes.

✅ Pros:

• Often taxed at a lower rate than salary.
• No national insurance contributions.

⚠️ Cons:

• Only payable from profit (not from turnover).
• Income can fluctuate depending on company performance.
• Dividend allowances and tax bands change frequently—stay updated.

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3. A Combination of Salary and Dividends

Many directors use a blend of a small salary and dividends:

• A small salary up to the tax-free personal allowance (in the UK, £12,570 in 2025) or the NIC threshold.
• The remainder of income taken as dividends for tax efficiency.

This approach balances regular income with reduced tax liability, while still building entitlement to the state pension. It’s one of the most common strategies for directors of small companies.

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4. Directors’ Loans

Another method is through a director’s loan account. This occurs when you take money out of the company that isn’t salary, dividend, or reimbursement of expenses.

• If the company owes you money (you’ve put in personal funds), you can withdraw it tax-free.
• If you owe the company money (you’ve taken out more than you’ve put in), you may have to repay it or face additional tax charges.

Director’s loans can be useful short-term, but they need careful tracking to stay compliant.

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5. Business Expenses

You can reimburse yourself for legitimate business expenses, such as:

• Travel for business purposes.
• Office equipment or software.
• Professional fees (accounting, legal, etc.).

Always keep receipts and records in case of an audit.

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6. Key Considerations

• Stay compliant: Always keep accurate records and file taxes on time.
• Plan for tax efficiency: The best mix of salary and dividends depends on your income level, allowances, and personal circumstances.
• Separate finances: Maintain a dedicated business bank account; don’t mix personal and company money.
• Seek professional advice: Tax rules vary by country, and mistakes can be costly. Consult an accountant or tax advisor for tailored guidance.

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Final Thoughts

Paying yourself as a director isn’t one-size-fits-all. The balance of salary, dividends, and other methods should reflect both your personal needs and your company’s financial health. With careful planning—and professional advice when needed—you can ensure you’re rewarding yourself fairly while keeping your business compliant and sustainable.

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