How to Extract Profit from Your Company Tax-Efficiently

The hierarchy of tax-efficient profit extraction

Not all methods of getting money out of your company are equal. Here is the rough order of efficiency for most directors:

1. Allowable expenses reimbursement — not taxable at all. The company deducts costs, you receive reimbursement tax-free.
2. Employer pension contributions — no income tax, no NI, full corporation tax deduction.
3. Director salary up to personal allowance — no income tax, some employer NI, but CT-deductible.
4. Dividends (basic rate band) — 8.75% dividend tax on amounts above the £500 allowance.
5. Dividends (higher rate band) — 33.75%. Less efficient; pension is usually better at this level.

Expenses: the most efficient route

Genuine business expenses claimed through the company reduce taxable profit with no personal tax consequence. Home office, mileage, equipment, training, professional subscriptions, travel — all potentially allowable. Document everything and keep receipts.

Director's loan — use with caution

You can borrow money from your company via a director's loan account. If repaid within 9 months of the company year-end, there is no tax charge. However, if the loan balance exceeds £10,000 at any point during the year, a notional interest benefit-in-kind arises. And if the loan is not repaid within 9 months, the company faces a Section 455 tax charge of 33.75% of the outstanding balance (repayable when the loan is cleared). Director's loans are a cash-flow tool, not a tax-saving one.

The complete planning checklist

• ✓ Set salary at £12,570 for 2026-27
• ✓ Claim all legitimate expenses through the company
• ✓ Make employer pension contributions before year-end
• ✓ Pay dividends to fill the basic rate band (total income up to £50,270)
• ✓ Review in March each year — top up pension if approaching £100k income