Running a business means a lot of spinning plates – from managing your time to building client relationships and developing a recognisable brand. But let’s not kid ourselves…it’s also about making money. If you run a limited company, accessing the funds you make isn’t as straightforward as you might think. 

The legal separation between you and the business means funds belong to your limited company - not you. You can’t just take money out when you need to pay an unexpected bill – which can be incredibly frustrating at times. 

Don’t worry – here at Crunch, we’re experts in accounting for limited companies, and we’re no stranger to this problem. In this guide, we’ll explain the nature of ‘trapped’ money and how to extract it as efficiently as possible so that you don’t end up in hot water with HMRC, other shareholders, or any legal bodies…

Why does money seem ‘trapped’ in a limited company?

When you form a limited company, it becomes a separate entity. Money earned by the business, therefore, belongs to the business, not you. As such, any profit your business makes will remain with the company.

You can’t just ‘take’ that money – all business income and expenditure must be recorded and submitted to HMRC as part of your duties as a Director. When you extract money via salaries or dividends, you’ll aim to keep your tax liabilities low by paying yourself up to a certain amount (more on this later) – which means you may be taking out much less than the business earns, further adding to the feeling of money being ‘trapped’. 

How to take money out of a limited business

The only legal and tax-compliant ways to take money out of a limited business are as follows:

• Salaries
• Dividends
• Director’s loans
• Expenses

Paying a salary

Paying yourself a salary is the most obvious way to take money from your business. You’ll do this through PAYE as if you’re an employee and will, therefore, have to pay income tax and National Insurance Contributions.

These burdens are why most limited company owners keep their salaries below certain tax thresholds. Changes to the National Insurance employment allowance in 2025/26 have changed how you calculate your salary – but Crunch can take care of it for you. 

Taking dividends

Paying dividends out of your business is how most owners ‘top up’ their salaries. Dividends are taxed at a lower rate than salaries and you can only take them if your company is making enough profit to cover dividends taken. The more you earn, the more you may be taxed – so it’s important that you work with an accountant when planning salary and dividend payments for any given tax year. 

Learn more about dividends in our detailed guide. 

Director’s loans

You can take more money out of your business by borrowing it in the form of a director’s loan. If you do this, you must keep detailed records in a Director’s Loan Account, and any loan of more than £10,000 must be reported to HMRC. 

You can’t borrow the money and assume you don’t have to repay it because it’s from your own company. Though you might not have any plans to call in debts on yourself, HMRC will apply a 33.75% Section 455 tax on any loans not repaid within nine months of your company’s year-end. 

Director’s loans might help you get more money out of your business, but only temporarily. There are harsh consequences if you fail to repay and even closing the business won’t help you avoid them. In fact, closing a business whilst still owing the company money can lead to you being pursued by an insolvency practitioner.

Expenses

If you’ve paid for business expenses personally, you can reclaim these funds tax-free by paying yourself out of the business. 

Common reimbursable expenses include travel, office supplies, and certain home office costs. See our full guide to expenses to learn more.

Always make sure to keep accurate records – receipts and proof may be crucial since all claims can be investigated by HMRC.

Check out our help centre to learn more about what expenses you can claim. 

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Tax implications of withdrawing money

The tax efficiency of each withdrawal method varies depending on what you choose:

Proper planning is essential when deciding on the best method or combination of methods for accessing company funds – though, in the majority of cases, directors will extract money via a combination of salary and dividends. Speak to an accountant to get detailed tax planning advice that will help you make the most of your cash without sending your tax bills skyrocketing. 

Managing surplus cash

If your company is generating strong profit and you don’t want to incur a massive tax bill, you can’t just take it all out as dividends. Instead, you can use surplus cash to do the following:

Invest in growth

Reinvesting in your company can be one of the most effective uses of surplus funds, whether through purchasing new equipment, hiring employees, or even developing new products or services. 

The business can spend this money directly, and it won’t impact your personal tax requirements. In many cases, these purchases can also help reduce corporation tax – another reason you should work with an accounting partner like Crunch. 

Store funds 

In some businesses, certain periods can feel like feast or famine – so keeping cash in reserve can help you maintain cash flow during quieter months when you don’t make as much profit. However, large cash reserves may attract tax implications or lead to classification issues under certain tax relief schemes. Having a healthy bank balance is a good way to keep your business afloat – but you need to keep an eye on your cash flow and avoid overaccumulation. 

What happens when I close the company?

So you’ve got money left in your business, but you want to close it? Even though you’re dissolving the business, you STILL can’t just take the cash out. Instead, you need to follow a formal process that involves these key steps: 

1. Settle business debts: Any outstanding debts need to be cleared before assets can be distributed.
2. Seek tax advice: If you qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), you may pay a lower Capital Gains Tax rate on the distribution, making it a tax-efficient option. You should speak to your accountant before making any formal decisions. 
3. Distribute assets: After clearing debts, the remaining assets can be distributed to shareholders, but the process differs depending on whether it is treated as an income distribution or capital distribution.  

It’s extremely important that you speak to an accountant when closing a business – the difference between claiming Business Asset Disposal Relief versus paying tax on a dividend can be enormous – especially if you’re extracting a large chunk of cash.

Read our dedicated guide to closing your company to make sure you’ve considered all of your options.  

Take out cash without towering tax bills

As you can probably tell from this guide, the main takeaway is that you need dedicated advice from an accountant to make sure everything you take from your business is done as tax-efficiently as possible. 

We’re an online accountant that specialises in supporting limited companies. Click here to learn more about our services and see how we can help you unlock more value from your business. 

Frequently Asked Questions

Can I borrow money from my limited company? 

Yes, you can use a director’s loan. It must be recorded properly and repaid within 9 months of your year-end, otherwise, you may trigger a significant tax hike.  

Is there a minimum turnover for a limited company?

There is no legal minimum turnover requirement for a limited company. As long as it doesn’t fall into debt, you can operate a business even if it’s making very little money. Quiet periods are why it can often pay to keep surplus cash in your business. 

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