Great question — the two routes have very different cost profiles, so let's compare them for an extra £10,000 in your pocket this year.
Route 1: dividends
Dividends are paid from after-tax profits, so the company first pays corporation tax — 19% on profits of £50,000 or less (the small profits rate), 25% above £250,000, with marginal relief between. You then pay personal tax: a £500 dividend allowance, then 10.75% for basic-rate taxpayers in 2026/27 (35.75% higher-rate, 39.35% additional-rate). For a basic-rate taxpayer, £10,000 of dividends costs roughly £1,021 in dividend tax after the allowance — plus the corporation tax already paid on the underlying profit. No National Insurance, and the paperwork is a board minute plus dividend voucher, so you can declare dividends as profits allow — the flexibility you need in quieter months.
Route 2: director's loan
The loan itself isn't taxed when you take it — but two things can bite. First, if it's still outstanding 9 months after the end of the accounting period, the company pays section 455 tax at 33.75% of the outstanding balance (refundable when repaid, but HMRC holds it for at least 9 months and a day). Second, if the balance exceeds £10,000 at any point, there's a benefit-in-kind charge: you pay Income Tax on the official rate of interest (3.75% for 2025/26) applied to the average balance, and the company pays employer's National Insurance on it. A £10,000 interest-free loan over a full year gives a benefit of about £375 — taxable at your marginal rate.
Which would I choose for £10,000?
Dividends, in most cases. The loan looks cheaper upfront but the 33.75% s455 charge bites if you can't repay within 9 months of the year end — and you're only deferring the tax anyway. Dividends declared as profits allow are simpler and cleaner; keep loans for genuine short-term bridging you can clear quickly.
One caveat: dividends can only be paid out of distributable profits, so your accounts need to support them. If cash is tight because profits are thin, a loan followed by swift repayment can work — but don't let it linger past the 9-month point.
