To get money out of a limited company, you must follow the correct legal and tax rules. Because the company is a separate legal entity, you cannot simply withdraw funds without using an approved method.
This guide explains how to take money out of a limited company, the tax implications of each option, and when formal processes such as a Members’ Voluntary Liquidation (MVL) or strike-off may be the most efficient solution.
Important: This page provides general information only and is not accountancy or tax advice. If your company is still trading and you want advice on salary, dividends, expenses, or tax planning, you should speak to your accountant. Clarke Bell advises Directors on company closure, including solvent liquidation options such as MVLs.
Ways to get money out of a limited company
There are several legal ways to withdraw money from a limited company. The right method depends on whether the company is still trading, how much you want to take out, and whether you intend to keep the company open or close it.
Common ways to take money out of a limited company include:
- Paying yourself a salary through PAYE
- Taking dividends from company profits
- Taking a Director’s loan from the company
- Claiming legitimate business expenses or benefits
- Making pension contributions from the company
- Closing the company through a Members’ Voluntary Liquidation (MVL)
- Closing the company through strike-off / dissolution.
Each option has different legal and tax implications. In many cases, Directors speak to their accountant about the most appropriate approach while the company is still trading. Where the company is no longer needed and has retained profits, formal closure may be the more relevant option.
Paying yourself a salary
One of the most common ways to take money out of a limited company is to pay yourself a salary as a Director. For tax purposes, Directors are treated as employees, so any salary must be processed through PAYE and reported to HMRC.
Salary payments are subject to:
- Income Tax
- National Insurance contributions
- Employer National Insurance (paid by the company).
The advantage of paying a salary is that it counts as a business expense, which reduces the company’s Corporation Tax bill. Paying a salary can also help you qualify for state pension and National Insurance credits, depending on the amount taken.
Many Directors choose to take a salary up to the personal allowance threshold and then take additional income through dividends or other methods to improve overall tax efficiency.
Taking dividends from company profits
Dividends are usually the most tax-efficient way for Directors to take money out of a limited company, provided the company is profitable. Dividends can only be paid from distributable profits after Corporation Tax has been paid.
If dividends are paid when the company does not have sufficient profits, they may be treated as unlawful dividends and could need to be repaid, and there may also be tax consequences. Companies must keep proper records, and dividend payments should be supported by dividend vouchers and board minutes.
Dividend payments are:
- Not subject to National Insurance
- Taxed at dividend tax rates rather than Income Tax rates
- Paid to shareholders in proportion to their shareholding.
Each individual also has a dividend allowance, after which dividend income is taxed at the applicable dividend tax rates.
Most Directors take a combination of a small salary and dividends to reduce overall tax liability, as this can be more efficient than taking all income through PAYE.
Taking money as a Director’s loan
A Director’s loan allows you to borrow money from the company or withdraw funds temporarily. All such transactions must be recorded in the Director’s loan account, which tracks money owed to or from the Director.
If you withdraw more than you have put into the company, the account becomes overdrawn, which can trigger tax consequences for both the Director and the company.
Key rules include:
- Loans over £10,000 may create a personal tax liability and may be treated as a benefit-in-kind.
- If the loan is not repaid within 9 months and 1 day after the end of the accounting period, the company may have to pay a Section 455 tax charge to HMRC.
- Interest may need to be charged on the loan, or additional tax rules may apply.
- The loan must be properly recorded in the company accounts and reported where required.
Director’s loans are usually best for short-term withdrawals rather than long-term income, as using loans instead of salary or dividends can lead to unexpected tax charges if not managed correctly.
Claiming expenses and benefits
You can also take money out of a limited company by reclaiming legitimate business expenses that you have paid personally. These must be for business use only and must meet HMRC’s “wholly and exclusively” rule to be tax-deductible.
Common examples include:
- Travel and accommodation for business trips
- Office equipment and software
- Professional fees, such as accountancy or legal costs
- Mobile phone and internet use for business
- Home office expenses for working from home.
Reimbursed expenses are normally tax-free, provided they are properly recorded in the company accounts and supported by receipts or invoices.
Making pension contributions from the company
Another way to withdraw money from a limited company is through employer pension contributions. Instead of paying money to yourself as salary or dividends, the company can pay directly into your pension, which can be a tax-efficient way to extract value.
Company pension contributions are normally treated as a business expense, meaning they can reduce the company’s Corporation Tax bill. Unlike salary, pension contributions are not subject to Income Tax or National Insurance when they are paid, which can make them attractive for long-term planning.
However, contributions are subject to the annual pension allowance limits set by HMRC. Exceeding these limits may result in additional tax charges.
Pension contributions are often used alongside salary and dividends as part of an overall tax-efficient strategy, particularly for Directors who want to withdraw profits while saving for retirement.
Which is the most tax-efficient way to take money out of a company?
The most tax-efficient way to take money out of a limited company depends on whether the company is still trading or whether you plan to close it.
If the company is still trading, Directors often take advice from their accountant on the most appropriate mix of salary, dividends, and other payments based on the company’s profits and their personal circumstances.
If the company is no longer needed or you plan to stop trading, formal closure may be more relevant. In some cases, a Members’ Voluntary Liquidation can be a more tax-efficient way to extract retained profits than drawing money out through other methods.
Because the tax treatment can vary depending on your circumstances, you should always seek professional advice before deciding how to take money out of a limited company.
Taking money out when closing a limited company
Many Directors look for ways to withdraw funds when they have money stuck in a limited company that has stopped trading. In these situations, formal closure procedures may allow funds to be taken out in a more favourable way.
The two main options are:
- Members’ Voluntary Liquidation (MVL)
- Company strike-off (dissolution).
Related: Closing a Company with Retained Profits: The Smart Way to Take Your Money Out
Members’ Voluntary Liquidation
A Members’ Voluntary Liquidation is often the most tax-efficient way to extract funds from a limited company on closure. It is a formal liquidation process used when the company can pay all of its debts in full.
An MVL is usually suitable when the company:
- Is solvent and able to pay all liabilities
- Has significant retained profits or cash in the company, typically over £25,000
- Has no outstanding debts or legal disputes.
Before an MVL can begin, the Directors must sign a statutory declaration of solvency confirming that the company can repay all debts within 12 months. An Insolvency Practitioner is then appointed to liquidate the company, sell any assets, and distribute the remaining funds to shareholders.
The main advantage of an MVL is that distributions are normally taxed as Capital Gains Tax rather than Income Tax, which can result in significant tax savings. In some cases, shareholders may also qualify for Business Asset Disposal Relief (BADR), reducing the tax rate further.
Related: How to Pay the Least Tax When Closing a Limited Company
Company strike-off (dissolution)
If the company has smaller reserves, it may be more appropriate to close it by way of a voluntary strike-off. This involves submitting a DS01 form to Companies House to remove the company from the register.
Strike-off may be suitable where:
- The company has stopped trading
- All debts are settled
- Assets are low in value
- No formal liquidation is required.
However, funds taken during a strike-off may be taxed as income rather than capital, which can make this less tax-efficient than an MVL when larger sums are involved.
It is also important to remove all assets before dissolution, as anything left in the company may become Bona Vacantia and pass to the Crown.
Related: Members’ Voluntary Liquidation or Dissolution: Which is Best When Closing a Solvent Company?
Clarke Bell can help
If you plan to withdraw money from your limited company, it is important to choose the right method.
Clarke Bell specialises in company closure and Members’ Voluntary Liquidations. Our licensed Insolvency Practitioners can guide you through the process, ensure the company is closed correctly, and distribute funds to shareholders in a compliant and tax-efficient way.
We have helped thousands of Directors close solvent companies and recover funds through MVLs.
Contact Clarke Bell today for free, confidential advice about closing your company.
Frequently asked questions
What if I have money stuck in my limited company?
If you have money stuck in a limited company, you normally need to withdraw it using dividends, salary, or a formal closure process such as a Members’ Voluntary Liquidation. The best option depends on the amount of retained profits and the tax treatment of the distribution.
How do I withdraw funds from a limited company when closing it?
If you want to withdraw all the funds and close the company, you normally need to use a formal closure process. The two main options are a Members’ Voluntary Liquidation or a company strike-off. The best choice depends on the amount of retained profits, the company’s financial position, and the tax treatment of the distribution.
What is the most tax-efficient way to close a limited company with retained profits?
In many cases, a Members’ Voluntary Liquidation is the most tax-efficient way to close a solvent company. Funds distributed during an MVL are usually taxed as Capital Gains rather than Income, and some shareholders may qualify for Business Asset Disposal Relief, reducing the tax rate further.
Do I need an Insolvency Practitioner to close a solvent company?
You do not need an Insolvency Practitioner for a simple strike-off, but an Insolvency Practitioner must be appointed for a Members’ Voluntary Liquidation. If the company has substantial retained profits, using an MVL can ensure the funds are distributed correctly and in the most tax-efficient way.
