Paying yourself from a hospitality company

Three ways to take money out

A director-shareholder of a limited company can take money out as salary, as dividends, or as a loan from the company. GOV.UK sets out the rules for each.

• Salary goes through payroll. The company deducts income tax and employee National Insurance and pays employer National Insurance. Salary is a cost for corporation tax.
• Dividends are paid to shareholders out of profits after corporation tax. They are not a cost for corporation tax.
• A director's loan is money taken from the company that is not salary, a dividend, an expense repayment, or money the director has put in. It is recorded in the director's loan account.

Money taken from the till or the company bank account with no decision behind it ends up in the director's loan account until it is sorted into salary, dividend or loan at the year end.

Salary in 2026/27

For 2026/27 the personal allowance is £12,570. Employee National Insurance is 0% up to the primary threshold of £12,570, 8% up to the upper earnings limit of £50,270 and 2% above it. Employer National Insurance is 15% on pay above the secondary threshold of £5,000 a year. The lower earnings limit is £6,708 a year.

A salary of £12,570 carries no income tax and no employee National Insurance for a director with no other income. It costs the company £1,135.50 in employer National Insurance unless the Employment Allowance covers it.

The Employment Allowance is £10,500 for 2026/27. A company whose only employee paid above the secondary threshold is its sole director cannot claim it. A café, pub or restaurant with staff can, and in a group of connected companies only one company claims. Where staff National Insurance already uses the whole allowance, the director's employer National Insurance is a real cost.

Above £100,000 of total income, the personal allowance falls by £1 for every £2 of income over the limit, and it is nil at £125,140. A director with £110,000 of total income loses £5,000 of allowance, so another £5,000 of income is taxed. Keep total income for the year in view before declaring a final dividend.

Dividends in 2026/27

The first £500 of dividends each year is tax-free under the dividend allowance. Above that, dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. Dividends sit on top of salary and other income, so a director whose salary uses the personal allowance pays 10.75% on dividends up to the £50,270 basic rate limit.

The company must follow GOV.UK's rules for each dividend:

• it must not pay out more than its available profits from this and earlier years;
• it must usually pay dividends to all shareholders;
• the directors hold a meeting to declare the dividend and keep minutes, even with one director;
• each payment has a dividend voucher showing the date, the company name, the shareholders paid and the amount.

Available profits are a figure in the accounts. In a hospitality business they can fall fast in a bad quarter, so check up-to-date management accounts before declaring an interim dividend.

A worked year

A director taking £50,270 from a café company

• Company profit before the director's pay£62,000.00
• Salary−£12,570.00
• Employer National Insurance on the salary, 15% above £5,000−£1,135.50
• Corporation tax at 19% on £48,294.50−£9,175.96
• Profit after tax£39,118.54
• Dividend paid£37,700.00
• Dividend tax: £500 at 0% and £37,200 at 10.75%£3,999.00
• Left in the company£1,418.54
• The director's income after tax£46,271.00

The salary uses the personal allowance. The dividend of £37,700 fills the rest of the basic rate band, so none of it is taxed at 35.75%. Total tax and National Insurance in the example is £14,310.46: £1,135.50 employer National Insurance, £9,175.96 corporation tax and £3,999.00 dividend tax.

A company with profits above £50,000 pays more than 19% on the part above it, under marginal relief, and the main rate of 25% applies above £250,000.

A further £10,000 of dividend for the director in the example would fall in the higher rate band and carry £3,575 of dividend tax at 35.75%. Profit left in the company has paid corporation tax only, and can be paid out in a later year when the director's other income is lower.

The next £7,570 for a director already paid £5,000

Paid as more salary

£7,570 salary and £1,135.50 employer National Insurance, both deducted for corporation tax at 19%. Profit used:

£8,705.50

Paid as a dividend

£7,570 of dividend, inside the personal allowance, paid from profit after 19% corporation tax. Profit used:

£9,345.68

In that example the salary of £12,570 comes out ahead even when the company pays employer National Insurance on it, because salary and employer National Insurance both reduce corporation tax and the salary falls within the director's personal allowance.

The director's loan account

A director's loan account overdrawn at the year end has a deadline. If the loan is not repaid within 9 months of the end of the accounting period, the company pays corporation tax on the amount outstanding. The rate is the dividend upper rate for the year the loan was made: 35.75% for loans made from 6 April 2026, 33.75% for loans made from 6 April 2022 to 5 April 2026.

An overdrawn director's loan account of £18,000

1. 31 March 2027The company's year ends with £18,000 owed by the director, drawn after 6 April 2026.
2. 31 December 2027Last day to repay it and avoid the charge, 9 months after the year end.
3. 1 January 2028If unpaid, corporation tax of 35.75%, £6,435, is due with the company's corporation tax.
4. After repaymentThe £6,435 can be reclaimed 9 months and 1 day after the end of the accounting period in which the loan is repaid.

The charge also applies where a loan is repaid and borrowed again. Where more than £5,000 is repaid and another £5,000 or more is borrowed within 30 days either side, or more than £15,000 is repaid with arrangements to borrow again, corporation tax is due on the original loan.

Where a director-shareholder owes the company more than £10,000 at any time in the year, the company treats the loan as a benefit in kind and deducts Class 1 National Insurance. The director reports the loan on Self Assessment and may pay tax on it at HMRC's official rate of interest. A loan the company writes off is taxed as income: National Insurance through payroll and income tax through the director's Self Assessment.

The account can run the other way. A director who lends the company money, for example to pay for a refit, pays no tax on the loan and the company pays no corporation tax on it. If the director charges interest, the interest is a business expense for the company and income for the director. The company pays it after deducting income tax at the basic rate of 20%, and reports and pays that tax every quarter on form CT61.

Points particular to hospitality

• Tips and tronc. HMRC guidance E24 says that where a director acts as troncmaster, "they are considered to be making payments as if they were the employer". The tips then go through the company payroll with National Insurance.
• Cash takings. Takings banked late or used to pay bills in cash need recording in full. Cash a director keeps is a loan or pay, and has to go through the loan account or payroll.
• Seasonal profits. Profits earned in summer can be gone by February. Declare dividends from the management accounts at the time, with VAT, PAYE and corporation tax set aside first.

Looking ahead to 2027/28

Budget 2026, published on 28 October 2026, kept the personal allowance at £12,570, the dividend allowance at £500 and the dividend rates at 10.75%, 35.75% and 39.35% for 2027/28. The National Insurance primary threshold, secondary threshold, upper earnings limit and the £10,500 Employment Allowance stay the same. The lower earnings limit rises to £6,916 a year.

Records and deadlines

• A Full Payment Submission to HMRC each time salary is paid, and PAYE paid by the 22nd of the next tax month.
• Board minutes and a dividend voucher for every dividend.
• The director's loan account, with every amount taken out and paid in.
• Form CT600A with the company tax return where a loan is outstanding at the year end.
• The director's Self Assessment return and payment by 31 January, with payments on account on 31 January and 31 July.

Common mistakes

• Paying dividends without minutes, vouchers or enough available profit.
• Taking regular drawings with no salary or dividend decision behind them.
• Missing the 9-month repayment deadline on an overdrawn loan account.
• Assuming the Employment Allowance covers a company with only a director on the payroll.
• Paying a dividend in a quiet month from profits that the VAT and PAYE bills have already used.

How we help

We set the salary and dividends for each director at the start of the year, run the payroll, prepare the minutes and vouchers, and keep the loan account clear by the deadline. Accounts, tax, bookkeeping and VAT returns start from £149 + VAT a month, set by your turnover. See accounts and VAT.