2 min read
The building blocks
The core tools are a modest salary (deductible, protects your pension record), dividends from post-tax profit (lower rates, no NI), and employer pension contributions (deductible for the company, tax-efficient for you). Most efficient plans combine all three.
The salary-dividend balance
A common structure is a salary to a sensible threshold, then dividends for the rest — but the optimal split depends on profit, allowances and thresholds that change yearly. Model it annually rather than repeating last year's figures blindly.
Pension contributions
Employer pension contributions are one of the most efficient extractions: the company gets a deduction, there is no NI, and the money grows in a tax-advantaged wrapper. For directors with spare profit, they often beat taking extra dividends.
Do not strip the business
Extraction is not the same as the company having cash to spare. Draining reserves and working capital to pay yourself can starve the business and weaken it in a lender's eyes. Take what is prudent, and leave the business a buffer.
Fund growth with finance, not stripped cash
Keep working capital in the company and use external finance for growth, so extraction and expansion do not compete for the same pounds.
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Frequently asked questions
What is the most tax-efficient way to pay myself?
Usually a mix: a modest salary, dividends from post-tax profit, and employer pension contributions. The exact balance depends on your profit and thresholds, which change yearly, so model it rather than copying last year.
Are pension contributions tax-efficient for directors?
Very. Employer pension contributions are deductible for the company, carry no National Insurance, and grow in a tax-advantaged wrapper — often more efficient than taking the equivalent as extra dividends.
Can I take too much money out of my company?
Yes. Draining reserves and working capital to pay yourself can starve the business, breach distributable-reserves rules, and weaken your standing with lenders. Extract prudently and leave the company a buffer.
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Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.