Smart Tax Tips for Directors: Extracting Money from Your UK Company in 2025
Maximize your take-home pay with these legal tax-efficient remuneration strategies
Running your own company comes with many perks – one of which is having flexibility in how you pay yourself. But let's be honest: navigating the UK tax system can feel like walking through a minefield blindfolded.
After working with hundreds of company directors over the years, I've seen firsthand how the right extraction strategy can save thousands in unnecessary tax. Each pound saved is another pound you can reinvest in your business or put toward that holiday you've been postponing.
In this director-friendly guide, I'll walk you through the practical ways to take money out of your company while keeping HMRC's share to the legal minimum. No accounting jargon – just straightforward tax tips for directors who want to maximize their take-home pay.
1. Salary: The Baseline Approach
What's the deal?
Paying yourself a salary is the classic way to take money out of your company – it's straightforward and what most people expect when you say you "run a business."
The tax bite
Here's where it gets interesting (or painful, depending on your perspective):
- Your salary gets hit with Income Tax at 20%, 40%, or 45% as your earnings climb
- You'll pay Primary Class 1 NICs at 12% on anything between £12,570 and £50,270, then a smaller 2% above that
- Your company also pays Secondary Class 1 NICs at 13.8% on earnings above £9,100
- The silver lining? Your company can deduct the entire salary cost against its Corporation Tax bill
Director's insider move
Nearly every tax-savvy director I know takes a strategic small salary – typically just above the National Insurance Lower Earnings Limit (currently £6,240) but below the Primary Threshold (£12,570). This clever little sweet spot ensures you build up your state pension and benefits entitlement without triggering personal National Insurance contributions. It's the foundation of most tax-efficient extraction plans.
Final Thoughts: Creating Your Director's Tax Strategy
Let's be real – there's no one-size-fits-all approach to taking money out of your company. The perfect strategy for you combines several of these methods based on your personal circumstances, company performance, and long-term goals.
What works brilliantly for your networking buddy's consulting business might be completely wrong for your manufacturing company. And what made sense last tax year might need adjustment now as tax rules and your business evolve.
The directors I see saving the most in tax are those who view their extraction strategy as a living document – something reviewed regularly with their accountant, especially before year-end and when tax rules change.
Remember, while minimizing tax is smart business, aggressive tax schemes rarely end well. HMRC has sophisticated anti-avoidance rules that catch out those trying to be too clever. The strategies in this guide are all legitimate approaches used by thousands of UK directors every day.
This guide provides general information on tax tips for directors but should not be considered as personalized tax advice. Tax rules change frequently, and individual circumstances vary greatly. Always consult with a qualified tax professional regarding your specific situation.
Ready to optimize your director's remuneration strategy?
Book a consultation with our tax specialists to create a personalized extraction plan that could save you thousands in unnecessary tax.
Book Your Tax Review2. Dividends: The Director's Best Friend
What's the deal?
Think of dividends as your reward for being both the boss and an investor in your own company. When your business makes a profit, you can share in those profits through dividend payments – and the taxman treats these quite differently from your salary.
The tax bite
Here's why dividends make directors smile:
- Lower tax rates than salary – just 8.75% for basic rate taxpayers, 33.75% for higher rate, and 39.35% for additional rate
- No National Insurance contributions whatsoever – that's a big saving compared to salary
- The first £1,000 of dividend income comes completely tax-free thanks to the Dividend Allowance (though this is down from £2,000 in previous years)
- Remember though, dividends come from post-tax profits – your company will have already paid 19% Corporation Tax on these earnings
Director's insider move
The classic director strategy I recommend to my clients combines a small salary (as described above) with dividends making up the bulk of your income. For most directors running profitable small companies, this "salary + dividend" approach typically slashes their overall tax bill by thousands compared to taking everything as salary. Just remember – you can only take dividends from actual profits, so keep an eye on those management accounts!
3. Pension Contributions: The Tax-Savvy Director's Secret Weapon
What's the deal?
If you're thinking beyond just this month's income, company pension contributions are possibly the most powerful tax tool in your director's toolkit. This is essentially your company investing in your future retirement while slashing its tax bill today.
The tax bite (or rather, the lack of it)
This is where it gets exciting for tax-conscious directors:
- Your company makes the pension contributions directly, and you pay absolutely no Income Tax or NICs on this money
- Your business gets to deduct these contributions against its Corporation Tax bill
- Your pension pot grows completely tax-free – no tax on interest, dividends, or capital gains within the fund
- When you eventually access your pension (from age 55, rising to 57 by 2028), you can take 25% completely tax-free
Director's insider move
I've worked with many directors who've transformed their tax position by directing a significant portion of potential dividends into their pension instead. For higher earners especially, the tax savings are substantial.
For example, a £40,000 company pension contribution costs your company just £32,400 after Corporation Tax relief (at 19%), but would only be worth about £22,000 in your pocket if taken as dividends due to Income Tax. That's nearly a £10,000 difference! Plus, this approach can help keep your personal income below key tax thresholds like the £100,000 mark where personal allowance begins to be withdrawn.
4. Interest on Director Loans: Getting Paid for Backing Your Business
What's the deal?
Many directors don't realize this one: if you've personally loaned money to your company (perhaps to help with cash flow or fund expansion), you can charge your company interest on that loan. It's perfectly legitimate and can be a smart part of your overall extraction strategy.
The tax bite
Here's what makes this approach interesting:
- You'll pay Income Tax on the interest you receive, but crucially, no National Insurance contributions
- Your company can deduct these interest payments when calculating its Corporation Tax bill
- You need to charge a "commercial" interest rate – not too high to raise HMRC eyebrows, but enough to make it worthwhile (typically 3-5% depending on current market rates)
- You may be able to use your Personal Savings Allowance (£1,000 for basic rate taxpayers, £500 for higher rate) to receive some interest tax-free
Director's insider move
This approach works brilliantly if you have personal savings earning pitiful interest in a bank account. By lending to your company instead, you can often earn a better interest rate while creating tax efficiencies.
One client I advised was keeping £100,000 in a bank account earning 1.5% interest, while her company was using an expensive overdraft. By lending to her company at 4%, she increased her personal return while saving her company money – a win-win that reduced the overall tax burden.
5. Rent for Business Premises: Your Property, Your Company's Workspace
What's the deal?
Do you own a property that your business uses? Maybe it's an office, workshop, or even part of your home? This setup creates another legitimate way to extract funds from your company – by charging your business rent for using your property.
The tax bite
There's some interesting tax planning potential here:
- You'll pay Income Tax on the rental income, but importantly, no National Insurance contributions
- Your company gets to deduct the rent against its Corporation Tax bill
- If you're using part of your home, you can potentially claim a proportion of your household bills
- Unlike salary or dividends, rental income counts as "earned income" for mortgage applications
- The first £1,000 may be tax-free under the Property Allowance (if you don't claim expenses against the income)
Director's insider move
I've helped numerous directors purchase commercial property through Self-Invested Personal Pensions (SIPPs) or small self-administered schemes (SSAS), with their company as the tenant. This creates multiple tax efficiencies – the rent goes into a tax-efficient pension wrapper, the company gets Corporation Tax relief on the rent, and there's potential for tax-free capital growth in the property value.
Even without pension involvement, personally owning your business premises and charging rent can be more tax-efficient than taking the equivalent amount as dividend, especially for higher-rate taxpayers. Just ensure you charge a genuine market rent and formalize the arrangement with a proper lease agreement.
6. Benefits in Kind: Perks That Pay
What's the deal?
Rather than just taking cash from your company, you can receive various non-cash benefits that enhance your lifestyle while potentially saving tax. Think company cars, health insurance, gym memberships – items your company pays for that you enjoy personally.
The tax bite
Here's where it gets interesting:
- Most benefits attract Income Tax (via a P11D form) and some have National Insurance implications
- Your company generally gets Corporation Tax relief on the cost
- The key is focusing on benefits with special tax treatment
- Some benefits create a much lower tax bill than taking equivalent salary or dividends to buy the same items yourself
Director's insider move
The tax-savvy directors I work with focus on these particularly tax-advantaged benefits:
- Electric cars – The Benefit in Kind rate can be as low as 2% compared to 20-40% for petrol/diesel vehicles
- One mobile phone per director – completely tax-free
- Annual staff parties – up to £150 per person tax-free (including guests)
- Workplace charging for electric vehicles – no taxable benefit
- Health screenings and eye tests – no taxable benefit
- Work-related training – no taxable benefit
- Professional subscriptions relevant to your work
One director I advised switched from a diesel SUV to an electric company car, cutting his annual tax bill by over £4,000 while the company still received full tax relief on the lease costs. Small changes in how you extract value can make big differences to your overall tax position.
7. Director's Loan Account: Borrowing From Your Own Company
What's the deal?
Your Director's Loan Account (DLA) is essentially a running tally between you and your company. When you need funds but don't want to trigger an immediate tax bill through salary or dividends, borrowing from your company can be a flexible short-term solution.
The tax bite
Here's what makes this approach interesting for cash flow management:
- If you repay the loan within 9 months and 1 day of your company's year-end, there are no tax implications at all
- If you don't repay in time, your company (not you) will face a temporary 33.75% tax charge (called a Section 455 charge)
- The good news? This tax is fully refundable when you eventually repay the loan
- If your loan exceeds £10,000, you'll face a small taxable benefit based on the official interest rate (currently 2.25%)
Director's insider move
I've seen directors effectively use their DLA for:
- Bridging personal cash flow gaps
- Managing the timing of dividend extractions around tax years
- Temporarily accessing funds when company profits haven't yet been formally confirmed
- Funding personal expenses during business growth phases when all profits are being reinvested
One client needed £20,000 for a home renovation but was approaching the higher rate tax threshold. Rather than taking additional dividends at 33.75% tax, he borrowed from his company in February, then repaid it using his new tax year's basic rate dividend allowance in April – saving over £5,000 in personal tax.
Just remember – this isn't a way to permanently extract funds tax-free. HMRC watches DLAs closely, and repeated patterns of borrowing and writing off loans will attract unwanted attention.
8. Capital Extraction Methods: The Big Exit Strategies
What's the deal?
Sometimes you're looking to take out substantial sums – perhaps you're stepping back from the business, restructuring ownership, or planning your exit. In these cases, capital extraction methods can be dramatically more tax-efficient than regular income strategies.
Key approaches include:
- Company purchase of own shares (your company buys back your shares)
- Members' Voluntary Liquidation (formal winding up of a solvent company)
- Selling your shares to a third party
The tax bite
Here's where proper planning can save you tens or even hundreds of thousands:
- Instead of Income Tax, these transactions are typically subject to Capital Gains Tax
- With Business Asset Disposal Relief (formerly Entrepreneurs' Relief), you might pay just 10% tax on gains up to £1 million
- No National Insurance contributions apply to capital gains
- Your annual CGT exemption (currently £6,000) can reduce the taxable amount
Director's insider move
I worked with a director last year who was planning to take £300,000 out of his company. Taking this as dividends would have resulted in a tax bill exceeding £100,000. By structuring a proper company purchase of own shares that qualified for capital treatment, his tax bill was reduced to just over £29,000 – saving more than £70,000!
This area is complex and heavily policed by HMRC with specific conditions and anti-avoidance rules. You'll absolutely need specialist tax advice, but the potential savings make this well worth exploring for significant extractions.
9. Electric Vehicles: The Green Tax Break
What's the deal?
Here's a tax tip for directors that's good for both your wallet and the planet: electric company cars offer some of the most generous tax advantages available right now. The government is heavily incentivizing electric vehicle adoption, creating a golden opportunity for tax-efficient extraction.
The tax bite
Electric vehicles provide a perfect tax storm (in a good way!):
- Benefit in Kind (BIK) rates for fully electric cars are just 2% (compared to 20-40% for petrol/diesel)
- No taxable benefit for charging your car at work – essentially free fuel
- Your company gets 100% first-year allowances on the full purchase cost
- The company can claim the entire cost of installing charging points against its tax bill
- You can even use salary sacrifice arrangements for ultra-low tax extraction
Director's insider move
One of my clients switched from taking an additional £15,000 in dividends to buy a personal car to having his company lease a Tesla Model 3. The math was eye-opening:
- The £15,000 dividend would have cost him over £5,000 in personal tax
- The company car arrangement created a taxable benefit of just £700 per year
- The company got full tax relief on the lease payments
- He now effectively drives a premium vehicle while saving thousands in tax
For directors who need a vehicle anyway, this is currently one of the most tax-efficient extraction methods available. Just be aware that BIK rates for electric vehicles are set to increase gradually from 2025, so the sooner you make the switch, the better.
10. Trivial Benefits: Small Perks, Big Tax Savings
What's the deal?
Sometimes it's the little things that count! HMRC allows companies to provide small "trivial benefits" to directors and employees completely free of tax and National Insurance. This creates a neat little opportunity to extract value from your company.
The tax bite
Here's the beauty of trivial benefits – there isn't one! No tax or NICs whatsoever, if you follow these rules:
- Each benefit must cost £50 or less (not £50.01!)
- It can't be cash or a cash voucher (though retail vouchers are fine)
- It mustn't be a reward for work performance
- It can't be contractual or expected
- Directors have a special annual cap of £300 total
Director's insider move
I encourage all my director clients to make the most of this £300 annual allowance. Think Amazon, Marks & Spencer or restaurant vouchers, hampers, wine, flowers, or experience days – all completely tax-free for both you and the company.
One creative director I work with schedules these benefits around birthdays, Christmas, company anniversaries, and other special occasions to make them clearly non-contractual. With proper planning, that's £300 of value you can extract from your company each year without a penny going to HMRC!
11. Research and Development (R&D) Remuneration: Innovation That Pays
What's the deal?
If your company is developing new products, processes, or services – even improving existing ones – you might be eligible for valuable R&D tax incentives. This creates a unique opportunity to structure your remuneration in a tax-advantageous way.
The tax bite
Here's what makes this particularly interesting for innovative companies:
- Your company might qualify for enhanced tax deductions (up to 230% of qualifying R&D costs for SMEs)
- Or you could claim R&D tax credits – actual cash back from HMRC if you're loss-making
- Director time devoted to R&D activities can form part of the qualifying costs
- Proper documentation of your involvement can maximize the claim value
Director's insider move
I've seen directors of tech companies strategically allocate their time and document their involvement in R&D projects, effectively turning a portion of their regular remuneration into R&D-qualifying expenditure. This gives their company enhanced tax relief while still extracting the value personally.
One software company director I advised increased their company's R&D claim by £45,000 by properly documenting their technical problem-solving time – generating an additional £8,550 in tax savings that could be passed back through dividends. For innovation-focused businesses, this can be a significant piece of your extraction puzzle.
Director's Quick-Reference: Tax Strategy Comparison Table
| Strategy | Timeframe | Taxes Applicable | Tax Efficiency | Best For |
|---|---|---|---|---|
| Salary (optimal) | Short-term | Income Tax + NICs | Medium | Building state pension entitlement, predictable monthly income |
| Dividends | Short-term | Dividend Tax (no NICs) | High | Regular income above optimal salary level |
| Pension Contributions | Long-term | None initially (tax on 75% of withdrawals in retirement) | Very High | Long-term wealth building, reducing corporation tax |
| Director Loan Interest | Medium-term | Income Tax only | Medium-High | Directors with personal savings to lend to company |
| Property Rent | Long-term | Income Tax, potential CGT | High | Directors who own suitable business premises |
| Benefits in Kind | Short-term | Income Tax + NICs (with exceptions) | Medium | Specific benefits (electric cars, mobile phones, etc.) |
| Director's Loan Account | Short-term | Potential S455 charge | Low-Medium | Temporary cash flow needs |
| Capital Extraction | One-off | Capital Gains Tax (potentially at 10%) | Very High | Business exit or restructuring |
| Electric Vehicles | Medium-term | Reduced BIK rates | High | Directors needing a vehicle |
| Trivial Benefits | Short-term | None (up to limits) | High | Small regular perks (up to £300 annually) |
| R&D Remuneration | Medium-term | Various | Medium-High | Companies conducting qualifying R&D |
| EMI Share Options | Long-term | Capital Gains Tax (potentially at 10%) | Very High | Growing companies planning future exit |
12. Enterprise Management Incentives (EMI): The Growth Company's Secret Weapon
What's the deal?
If you're running a growing business with plans for eventual sale or significant expansion, EMI share options offer one of the most tax-efficient long-term extraction strategies available in the UK. They're particularly valuable if your company's value is likely to increase substantially.
The tax bite
Here's why EMI schemes make tax advisors excited:
- No Income Tax or NICs when the options are granted
- No Income Tax or NICs when the options are exercised (if granted at market value)
- When you eventually sell the shares, you'll only pay Capital Gains Tax – potentially at just 10% with Business Asset Disposal Relief
- Your company gets a Corporation Tax deduction equal to the employee's gain
- The first £6,000 of gains may be covered by your annual CGT exemption
Director's insider move
I've helped several growing technology companies implement EMI schemes where the founders took lower current remuneration in exchange for tax-efficient share options. In one case, a director's EMI options resulted in a £400,000 gain when the company was sold three years later – taxed at just 10% instead of the 47% combined Income Tax and NIC rate that would have applied to equivalent salary.
The company needs to meet certain trading conditions and get HMRC approval, but for qualifying businesses planning for growth, EMI can be transformative to the director's personal tax position. It's also excellent for attracting and retaining key talent beyond just the directors.