How can you pay yourself from your business?

Starting a business can feel exciting. You’re betting on yourself, meeting new people and learning new skills. But income can also feel uncertain, especially in the early days.

Plus, managing money can also feel like a minefield. You’re setting prices, tracking costs and working out how to pay yourself. As an accountant, I often meet business owners who aren't aware of all the ways they could be paid from their businesses. This can mean taking home less pay.

In the early stages of running a business, paying for financial advice might feel like a stretch, which can leave you trying to figure it out on your own. To help, below are some practical ways to pay yourself beyond just taking a salary.

Rethinking how you pay yourself

If you're reviewing your income, or thinking about how to reward yourself more effectively this year, it can help to think in layers rather than just salary.

Many people stop at 'how much can I earn?', but longer-term wealth often builds when you're thoughtful about how you're paid. That means considering the different ways money can support you today and in the future.

The suggestions below are split into two sections. This can help you decide what to prioritise based on where you are in your business and what needs the most attention right now.

Rewards for the future

These options focus on building money for later, not just increasing income today.

Pensions contributions

If you run a limited company, you can pay into your pension as a business expense via employer contributions. These contributions are tax-deductible for Corporation Tax and aren't treated as a taxable benefit to you personally.

You can also set up regular payments, so part of your profit goes straight into your pension each month. This helps build future security without you having to make a fresh decision every time.

There are limits on how much can go into a pension each year - this is known as the annual allowance. The annual allowance is the limit on the gross amount that can be saved into a pension each tax year without incurring tax charges. The current standard annual allowance for pension contributions is £60,000 (2025/26) - this includes personal, employer and any third party contributions.

Because of this, employer pension contributions usually work best when they’re planned carefully, rather than treated as an unlimited pot.
‍
 {{main-cta}}

Dividends

Dividends are payments you take from company profits as a shareholder. They’re usually taxed at a lower rate than salary. The first £500 (in 2025/26) of dividend income is tax-free. Dividends also aren’t subject to National Insurance (NI), which can make them a tax-efficient way to pay yourself.

Many business owners take a modest salary and then top up their income with dividends. This can help balance the higher tax and NI on salary with the lower tax rates on dividends.

Dividends can also give you some control over when you take income. However, they must be paid from available profits and properly declared and recorded in your company’s accounts.

Company investments

You don’t always have to take profits out straight away to benefit from them. Leaving surplus profit in the company and investing it could increase what’s available to you later. This might mean larger dividends in the future, more value if you sell the business, or an additional long-term income stream.

Used carefully, your company can grow in value over time, not just provide income today.

Rewards for today

These options may help increase the amount of money available to you in the short term.

Director’s bonus

A director’s bonus is a discretionary payment that’s treated like salary. Some business owners use it towards the end of the financial year to help reduce Corporation Tax (tax on profits) or to reward performance.

It can also give you flexibility around when you’re paid, which may support tax planning.

To use this approach effectively, you’ll need a clear view of your company’s expected profits, decide when paying a bonus makes sense, and understand how it could affect your personal tax position.

Company funded insurance and wellbeing support

Some insurance, wellbeing and professional development costs can be paid through your company rather than from your personal income. In many cases, the company can deduct the cost as a business expense.

Whether it's tax-efficient for you personally depends on how HMRC treats it. Employer pension contributions, relevant life insurance and job-related training are usually efficient options, with no personal tax to pay.

Other benefits, such as private medical insurance, therapy or broader wellbeing services, can still be funded by the company. But they're often treated differently for tax, usually as a benefit in kind.

If something is treated by HMRC as a benefit in kind, the company pays the bill, but you still pay personal tax on the value of what you receive. For example, if your company pays for your private medical insurance, you may still be taxed on its cost as if it were part of your salary.

These costs can be paid directly by the company or reimbursed to you, as long as they're recorded properly and, where required, reported to HMRC.

Eligible business expenses

Unlike the benefits listed above, eligible business expenses are costs that are 'wholly and exclusively' for your business. They reduce your taxable profit without creating a personal tax charge.

Commonly missed expenses include business travel and home-related costs such as internet bills, home office expenses or mobile phone usage.

If you reimburse yourself correctly, it can improve your take-home pay. Keep clear records in case you're ever asked to show evidence.

If this all feels overwhelming, you're not alone. Many business owners I work with tell me they didn't realise how much they could legitimately claim, or that they've been overpaying tax for years because they didn't know the rules.

Business expenses aren't about loopholes. They're about not being taxed on the real cost of earning your income.

Taking the next step

There’s no single ‘right’ way to pay yourself. The best approach is one that supports your lifestyle today while protecting your long-term plans. Keep it simple, review it often, and build from there.

Krystle McGilvery is a Behavioural Finance Specialist and Chartered Management Accountant who helps people build money confidence and make better financial decisions. Her work explores how psychology shapes our relationship with money, and how we can design habits and systems that actually work. Krystle has featured on ITV Tonight and BBC Radio 4, and has written for Behavioural Economics, FM Magazine, and Habit Weekly, among others. She believes that financial confidence is as much about mindset and systems as it is about numbers.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Tax rules can change and benefits depend on individual circumstances. This information shouldn't be regarded as financial advice.