LAST REVIEWED
25 September 2026
Limited company dividends are a common way for directors who own shares to take money from their business, often alongside salary.
However, moving money from the company bank account into your personal account does not automatically make it a valid dividend.
There are rules around available profits, Corporation Tax, personal tax, paperwork and who is actually entitled to receive payments.
The rules have also changed for the 2026/27 tax year, with higher tax rates applying to dividend income from 6 April 2026.
At Smart Accountants Sussex & Surrey, we are based in Dorking and work with company directors throughout Surrey and Sussex, including Reigate, Redhill, Epsom, Tadworth and the surrounding areas.
This guide explains 10 important things company directors should consider before taking profits from their limited company.
The Short Answer
A company director who is also a shareholder can normally receive dividends provided the company has sufficient profits available for distribution.
The amount you can safely take is not determined by the company’s bank balance alone.
You also need to consider Corporation Tax, previous profits and losses, amounts already withdrawn and your own personal tax position.
For 2026/27, the Dividend Allowance remains £500. Dividend income above the allowance may be taxed at 10.75%, 35.75% or 39.35%, depending on your overall income.
If you would like help working out how much you can take, get in touch.
Key Takeaways
- Dividends can only be paid to shareholders.
- The company must have sufficient distributable profits.
- Cash in the bank does not automatically mean profits are available.
- Corporation Tax should be considered before profits are distributed.
- Dividends do not reduce the company’s Corporation Tax bill.
- The Dividend Allowance for 2026/27 is £500.
- The basic dividend tax rate increased to 10.75% from 6 April 2026.
- Regular monthly payments are possible, but the company’s profits still need to support them.
- Incorrect withdrawals can result in an overdrawn Director’s Loan Account.
- The most appropriate combination of salary and shareholder payments depends on both the company and the individual director.
Table of Contents
Tax Rates on Limited Company Dividends for 2026/27
For the tax year from 6 April 2026 to 5 April 2027:
| 2026/27 | |
|---|---|
| Dividend Allowance | £500 |
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
The basic and higher dividend tax rates increased from 6 April 2026.
The additional rate remains at 39.35%.
1. Being a Director Does Not Automatically Mean You Can Receive a Dividend
Dividends are paid to shareholders, not directors.
In many small limited companies the same person is both a director and shareholder, which is why the two are often treated as interchangeable.
However, it is ownership of shares that gives someone the right to receive a distribution of company profits.
A director who does not own shares would not normally be entitled to receive one, while someone can be a shareholder without being a director.
Before making payments, check who owns the shares and what rights are attached to each share class.
This becomes particularly important where a company has more than one shareholder or different classes of shares.
If shareholders hold the same class of shares, dividends will normally be paid in proportion to the number of shares each holds.
2. The Company Must Have Sufficient Profits Available
Having £50,000 sitting in the company bank account does not necessarily mean you can withdraw £50,000 as profit.
A limited company can only make distributions from profits legally available for that purpose. This requirement is set out in section 830 of the Companies Act 2006
This can include retained profits from previous years as well as profits generated during the current accounting period.
Losses reduce the amount available.
For example:
| Amount | |
| Profit in Year 1 | £30,000 |
| Loss in Year 2 | (£20,000) |
| Potential accumulated profit remaining | £10,000 |
This simple example ignores other adjustments and payments already made, but demonstrates why the bank balance and the amount legally available to shareholders can be very different.
Keeping your bookkeeping reasonably up to date is therefore particularly important if you regularly take money from the business.
3. Corporation Tax Needs to Be Considered Before Profits Are Distributed
Corporation Tax normally needs to be allowed for before deciding what can safely be withdrawn.
For the financial year beginning 1 April 2026, the Corporation Tax rates remain:
- 19% for companies with profits up to £50,000
- 25% for companies with profits above £250,000
- Marginal Relief may apply between these limits
These thresholds can also be reduced where a company has associated companies.
Therefore, if a business has made £50,000 of taxable profit, this does not necessarily mean the full £50,000 is available to shareholders.
The expected Corporation Tax liability should be taken into account first.
You can read more about this in our guide to Corporation Tax Rates for Limited Companies.
4. Payments to Shareholders Do Not Reduce Corporation Tax
This is one of the key differences between salary and dividends.
Salary and certain related employment costs will generally reduce a company’s taxable profit.
Limited company dividends do not reduce the company’s taxable profit for Corporation Tax.
They are paid from profits after Corporation Tax and cannot simply be entered as another business expense to reduce the company’s tax bill.
This is why the most tax efficient way of taking money from a limited company usually requires looking at the overall picture.
For many directors, this will involve considering salary, shareholder distributions and potentially employer pension contributions together.
Our Company Director Salary Guide explains this area in considerably more detail.
5. The Dividend Allowance Is Only £500 for 2026/27
The Dividend Allowance remains £500 for the 2026/27 tax year.
This means that £500 of qualifying dividend income can fall within a 0% tax rate.
However, the allowance does not mean that £500 simply disappears from your overall income.
It still forms part of your income when determining which tax bands apply.
Once the allowance has been used, the tax rates for 2026/27 are:
| Tax band | Dividend tax rate |
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
For directors taking significant amounts from their businesses, a £500 allowance is relatively small.
It is therefore important to consider the potential personal tax bill before drawing larger amounts from the company.
6. Your Personal Tax Rate Depends on Your Other Income
The tax due cannot be calculated by looking at company distributions in isolation.
Your other taxable income needs to be considered as well.
This could include:
- Salary
- Rental income
- Pension income
- Self employed profits
- Savings interest
- Income from other investments
For 2026/27, the standard Personal Allowance remains £12,570.
For taxpayers in England, Wales and Northern Ireland, the higher rate threshold remains £50,270 where the full Personal Allowance is available.
For example, assume a director receives:
| Income | Amount |
| Salary | £12,570 |
| Dividends | £20,000 |
| Other taxable income | £0 |
The salary would normally be covered by the Personal Allowance.
Of the £20,000 dividends, £500 would fall within the Dividend Allowance and the remaining £19,500 would be taxed at 10.75%.
This gives a personal tax bill of approximately £2,096.
The cost can rise considerably once total income starts entering the higher rate band.
Directors should also be particularly careful where total income approaches £100,000, as the Personal Allowance begins to be withdrawn above this level.
Not Sure How Much You Can Safely Take From Your Company?
The right answer depends on your company’s profits, Corporation Tax position, salary and other personal income.
We help limited company directors in Dorking and across Surrey and Sussex review their position before money is withdrawn.
If you are unsure how much you should take from your company, book a free, no obligation discovery call to discuss your circumstances.
7. Dividends Do Not Attract National Insurance
Payments made to shareholders as genuine dividends are not subject to employee or employer National Insurance.
This is one reason why a combination of salary and profit distributions has traditionally been popular with owner managed limited companies.
However, this does not automatically mean that taking the lowest possible salary and everything else as a distribution is always the best answer.
Other factors can include:
- Corporation Tax relief on salary
- National Insurance contribution records
- Employment Allowance
- Pension contributions
- Other personal income
- Benefits and other remuneration
The appropriate mix therefore depends on both the company’s circumstances and the individual director’s wider tax position.
8. The Correct Paperwork Still Needs to Be Completed
Simply transferring money from the company bank account and writing “dividend” in the payment reference is not enough on its own.
The company should properly record the decision to distribute profits.
This would normally include:
- A record of the directors’ decision
- A dividend voucher
- The date
- The company name
- The shareholder receiving the payment
- The amount paid
Even a company with only one director should maintain appropriate records.
The paperwork helps demonstrate that the payment was intended to be a distribution to a shareholder rather than salary, expenses or an amount taken through the Director’s Loan Account.
Good records can become particularly important if the company’s treatment of payments is later questioned.
You can also see the government’s guidance on taking money out of a limited company
9. Regular Payments Are Possible, but the Company’s Position Still Needs Checking
Many owner managed companies make payments to shareholders monthly or quarterly.
There is nothing inherently wrong with this.
The issue arises when the same amount is transferred every month without checking whether the company still has sufficient available profits.
A business can change quickly.
It may lose a major customer, incur unexpected costs or enter a quieter trading period.
If profitability falls, the amount available to shareholders can also fall.
Many of the owner managed businesses we work with in Dorking and across Surrey take money from their companies regularly throughout the year, which makes keeping the bookkeeping reasonably up to date particularly important.
Last year’s accounts may show significant retained profits, but that does not automatically mean the same position exists today.
10. Taking Too Much Money Can Create a Director’s Loan Account Problem
If a director takes money from the company and it cannot properly be treated as salary, expenses, repayment of money already owed to them or a valid distribution, the amount may instead be recorded through the Director’s Loan Account.
Depending on the circumstances, the director may owe that money back to the company.
If a loan to a director who is also a shareholder remains outstanding nine months and one day after the end of the company’s accounting period, a Section 455 Corporation Tax charge may arise.
For relevant loans made on or after 6 April 2026, the Section 455 rate is 35.75%.
The government’s technical note on the 2026 dividend rate changes
The company may later be able to reclaim this tax once the loan is genuinely repaid, subject to the relevant rules and timing.
However, an overdrawn loan account can create unnecessary tax, cash flow and administration problems.
In practice, one of the common problems we see is directors withdrawing regular amounts throughout the year and only considering whether sufficient profits were available when the annual accounts are prepared.
This is why taking money first and deciding to “call it a dividend later” is not a good approach.
Limited company dividends need to be supported by sufficient distributable profits when they are declared.
How Much Should a Company Director Take From Their Limited Company?
There is no single figure that works for every company director.
Before deciding how much to withdraw, it is sensible to consider:
- The company’s available profits
- Expected Corporation Tax
- Your salary
- Amounts already taken during the tax year
- Any other personal income
- Your Income Tax band
- Whether your total income is approaching £100,000
- Pension contributions
- Future business costs
- The company’s cash requirements
Two directors running businesses with exactly the same profit could therefore have very different optimal strategies.
The important point is to consider both the company’s financial position and the personal tax consequences together.
Frequently Asked Questions About Limited Company Dividends
1. How Much Can I Take From My Limited Company as a Dividend?
You can generally take up to the amount of profits legally available for distribution.
You cannot determine this simply by looking at the company’s bank balance. Corporation Tax, previous losses and amounts already paid to shareholders all need to be considered.
2. Can I Take Dividends Every Month?
Yes.
A company can make interim distributions regularly, including monthly, provided sufficient profits are available each time.
The company should also maintain the appropriate records and supporting paperwork.
3. Do I Pay Tax on Dividends From My Limited Company?
Potentially.
For 2026/27, the Dividend Allowance is £500.
Income above this allowance may be taxed at 10.75%, 35.75% or 39.35%, depending on your overall taxable income.
4. Are Dividends Better Than Salary?
Not always.
They do not attract National Insurance, but they also do not reduce the company’s Corporation Tax bill.
For many owner managed companies, the most appropriate solution is a combination of salary and shareholder distributions rather than relying entirely on one method.
5. Can I Take Money From the Company if It Made a Loss?
Potentially, provided the company has sufficient retained profits from previous years.
However, if accumulated losses mean there are no distributable reserves available, the company cannot make a valid dividend simply because cash is sitting in the bank.
6. Are Dividends a Business Expense?
No.
Dividends are distributions of company profits and do not reduce the company’s taxable profit for Corporation Tax purposes.
They are paid after Corporation Tax has been taken into account.
7. What Happens if I Take More Than the Company Can Legally Pay?
The payment may not be a valid dividend.
Depending on the circumstances, it could need to be repaid or may instead be treated as an amount owed to the company through the Director’s Loan Account.
This can result in additional tax consequences.
8. Do I Need to Report Dividends to HMRC?
It depends on the amount received and your wider tax circumstances.
People already completing a Self Assessment tax return would normally include their dividend income on the return.
In some other circumstances, HMRC may be able to collect tax without requiring a full tax return.
If you are unsure whether your income needs to be reported, check the position with HMRC or your accountant.
Need Help Deciding How to Take Money From Your Company?
The most appropriate way to take money from a limited company will depend on the company’s profits, your salary, Corporation Tax, other personal income and your wider plans.
Smart Accountants Sussex & Surrey is based in Dorking and works with limited company directors in Reigate, Redhill, Epsom, Tadworth and throughout Surrey, Sussex and the surrounding areas.
We help business owners understand their company finances, Corporation Tax and the different options available when taking money from their business.
Rather than simply recommending a standard salary and dividend figure, we look at both the company’s financial position and your personal circumstances.
If you would like us to review your position, book a free, no obligation discovery call.
Tax rules depend on individual circumstances and can change. This article provides general information based on the rules applying for the 2026/27 tax year at the time of writing and should not be treated as individual tax advice.