The Smart Way to Take Money Out of Your Business

Are you giving HMRC more than you need to?

Most construction and trades business owners I speak to don’t have a plan for how they take money out of the business.

They draw a bit of salary. Some dividends. Maybe nothing at all if the cash is tight.

But here’s the problem:

When you don’t think it through, you either take too little (and shortchange yourself) or too much (and trigger tax you didn’t need to pay).

Let’s fix that.

It’s not salary or dividends. It’s a mix.

Smart directors don’t just ask how much they can take.

They ask:

What’s the most tax-efficient way to pay myself based on what I actually need?

Because there’s no one-size-fits-all.

A good pay plan usually includes a tailored mix of:

• PAYE salary
• Dividends
• Interest on loans
• Rent (if you own the premises)
• Pension contributions
• And a few extras like mileage or trivial benefits

Each option is taxed differently. The smart move is using the right mix based on your goals - not what your mate down the road is doing.

Start with what you need

Before you think about tax, get clear on your personal needs.

Here are three things that often catch directors out:

Living expenses – What does it cost to run your household each month? Include food, bills, kids, petrol, subscriptions, plus anything else you spend regularly. Be honest. Don’t forget to include occasional or seasonal spending like birthdays, insurance renewals and holidays. Your personal outgoings should set the baseline for what you need to extract from the business.

Mortgage – Lenders prefer regular income that can be verified through payslips or tax returns. If you’re trying to buy a property or remortgage an existing one, the amount of income you take from your company will be critical and will need to support any affordability tests the lender undertakes.

State pension – Your future retirement income from the state depends on how many qualifying years you build up. To get one, you need to earn at least £6,396 (2024/25) and pay a bit of National Insurance. If you take no salary or keep it too low, you could miss out. That adds up over time.

ISA or pension contributions – If you’re putting money into a private pension, your personal contributions usually need to come from relevant earnings like PAYE salary. Dividends don’t count. That means if you take zero salary, you could limit your ability to build your pension and claim tax relief. Same goes for Lifetime ISAs if you’re under 40.

Once that’s clear, you can start to build around it.

How the main options compare

Once you know how much you need to take out, the next step is choosing the right mix. Here’s how each option works and what to look out for.

1. Salary

A small salary is usually the starting point.

• Taxed through PAYE
• National Insurance kicks in above £12,570 (2025/26)
• The company gets corporation tax relief on the full amount
• Helps with mortgage applications, pension contributions and building state pension years
• Go too high and employers’ NI starts to bite, so you need to find the sweet spot

2. Dividends

Dividends are what most directors rely on. They’re tax-efficient, but not a free ride.

• Taxed at 8.75%, 33.75% or 39.35% depending on your income
• First £500 is tax-free
• No National Insurance, which makes them attractive
• Must be paid from retained profits after tax
• You can’t pay dividends if the company’s in the red

3. Interest on loans

If you’ve lent money to your company, it can pay you interest in return.

• You pay income tax, but can use your personal savings allowance
• The company gets tax relief on the interest
• It must deduct 20% tax at source and submit a CT61 form
• A tidy way to get money back if you’ve helped fund the business

4. Rent

If your company uses a property or land you personally own, you can charge rent.

• You pay income tax on it, but no National Insurance
• The company gets full tax relief
• You’ll need a formal agreement and a realistic valuation
• Useful for long-term planning, especially if you’re keeping the property

5. Pension contributions

If you don’t need all the cash now, this is one of the most efficient options.

• Paid directly by the company into your pension
• No personal tax, and the business gets full corporation tax relief
• Nothing to pay until you draw it later
• Often ideal for directors over 40 building long-term wealth

6. Extras

A few tax-free benefits you can claim that add up over the year:

• Mileage – 45p per mile for the first 10,000 miles using your own vehicle and 25p per mile thereafter
• Trivial benefits – £50 per gift, up to £300 a year for directors
• Home working – £6 per week with no receipts needed

These aren’t massive on their own, but together they can save you hundreds with no extra tax.

What to do next

Step 1: Work out how much you actually need to take

Step 2: Build a mix that gives you that cash in the most tax-efficient way

Step 3: Review it every year before 5 April

This isn’t just about saving tax. It’s about being in control. Taking what you need. Protecting the rest.

Final thoughts

This isn’t about chasing every tax saving just for the sake of it.

It’s about paying yourself properly, staying on the right side of HMRC, and making sure the business supports your life not the other way round.

Sort your pay strategy once a year and you’ll never need to panic about it again.