A Professional’s Guide to Taking Money From a Limited Company (2026/27)

When advising clients on taking money from a limited company during the 2026/27 tax year, practitioners must navigate a heavily reformed legislative landscape. The optimal extraction strategy generally involves a combination of salary (subject to PAYE) and dividends (paid out of post-tax profits), while cautiously managing Director’s Loan Accounts to avoid punitive corporate tax charges.

Method 1: Director’s Salary (PAYE)

Remunerating a director via a salary is a deductible expense for Corporation Tax purposes. For 2026/27, the standard Personal Allowance remains at £12,570.

Section 2 of the Finance Act 2026 sets the main rates of income tax for the 2026/27 tax year:

• Basic rate: 20%
• Higher rate: 40%
• Additional rate: 45%

When structuring a salary, advisors must consider National Insurance Contributions (NICs). For 2026/27, the Primary Threshold (employee NICs at 8%) sits at £12,570, mirroring the Personal Allowance.  However, the Secondary Threshold (employer NICs at 15%) is substantially lower, set at £5,000.

If the company does not qualify for the £10,500 Employment Allowance (for instance, if it is a single-director company with no other employees), salaries drawn above £5,000 will trigger a 15% employer NIC liability.

Directors must accurately process these payments via PAYE. Under section 223 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), if an employer fails to deduct the correct PAYE and accounts for it later, that deductible tax is treated as further earnings for the director.  Furthermore, HMRC distinguishes genuine loans from advances on earnings; true in-year drawings repaid by later voted fees or dividends do not automatically trigger PAYE at the time of drawing, provided clear evidence exists.

Method 2: Dividends (s 383 ITTOIA 2005)

Section 383 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) establishes that income tax is charged on dividends and other distributions of a UK resident company.  Dividends must be paid out of retained, post-tax profits.

“Income tax is charged on dividends and other distributions of a UK resident company.”

For the 2026/27 tax year, the government has legislated significant increases to dividend tax rates under section 4 of the Finance Act 2026. The new rates apply to distributions made on or after 6 April 2026.  The tax-free Dividend Allowance remains strictly capped at £500.

Table: 2026/27 Dividend Tax Rates

These rate increases naturally narrow the historic tax gap between taking money from a limited company via dividends versus salary.

Method 3: Director’s Loan Accounts (s 455 CTA 2010)

If a director borrows money from their close company, section 455 of the Corporation Tax Act 2010 (CTA 2010) imposes a distinct tax charge on the company.

When a close company makes a loan or advance to a relevant person who is a participator (or an associate of one), the company must pay a temporary corporation tax charge.  Crucially, the rate of this section 455 charge directly aligns with the dividend upper rate.  Consequently, for any loans made in the 2026/27 tax year, the section 455 tax rate is 35.75%.

This tax is due and payable 9 months and one day after the end of the accounting period in which the loan was made.

Relief and Write-Offs

If the director repays the loan, or the company formally releases or writes off the debt, the company can claim relief from the section 455 tax under section 458 CTA 2010.  However, section 458(5) mandates that relief cannot be given before the end of the period of 9 months from the end of the accounting period in which the repayment or write-off occurred.

If the company chooses to write off or release the loan rather than demand repayment, the director faces an immediate personal tax consequence. Section 415 of ITTOIA 2005 charges income tax on the participator when a loan that was subject to section 455 is released.  This written-off amount is treated similarly to dividend income and is taxed at the applicable dividend rates.

Consider researching how the 2026/27 dividend rate increases specifically interact with the small profits rate of Corporation Tax (19%) to model the absolute marginal tax cost of profit extraction.