Your company made £40,000 profit. So can you take £40,000 out?
Not necessarily. A limited company is a separate legal person from you, and the profit belongs to the company first.
Start with tax
Assume the company makes £40,000 profit before Corporation Tax and qualifies for the 19% small profits rate.
£40,000 × 19% = £7,600, leaving £32,400 after tax
If nothing is brought forward from earlier years, that £32,400 broadly represents the current-year profit available to support dividends.
Dividends come from reserves, not this year’s profit
This is the distinction that causes most of the trouble.
Dividends depend on available distributable reserves, not simply on what the company earned this year. Retained profits from earlier years may increase what is available. Past losses may reduce it. A profitable year does not automatically create distributable reserves if earlier losses are still carried forward.
What happens if you take more
Now suppose a director has already taken £40,000 during the year, but only £32,400 can properly be supported as a dividend.
The remaining £7,600 may sit on the Director’s Loan Account as money owed back to the company.
For loans made on or after 6 April 2026, if that amount is still outstanding nine months after the end of the accounting period, the company may face a Section 455 charge at 35.75%.
£7,600 × 35.75% = £2,717
That tax can generally be reclaimed after the loan is permanently repaid, but the company has to fund it in the meantime — and the timing of the repayment matters.
There is a second threshold. If a shareholder-director owes the company more than £10,000 at any point in the year, an interest-free or low-interest loan may also create benefit-in-kind consequences.
Then there is your own tax
For 2026/27, dividends above the £500 dividend allowance are taxed according to your Income Tax band — currently 10.75% at the basic dividend rate and 35.75% at the higher rate.
So the company pays Corporation Tax on the profit, and you pay Income Tax on the dividend. Both need to be planned for.
Three different numbers
- Company profit
- Profit available for distribution
- Cash you can actually take personally
They are not automatically the same, and confusing them is one of the most common reasons a director ends up with an unexpected tax charge.
Cash is a separate question again
A company can have profits and distributable reserves while the money is still tied up in unpaid invoices, or needed for VAT, PAYE and Corporation Tax.
Profit on paper does not mean cash in the bank. If your customers pay slowly, the reserves may exist while the cash does not — which is really a question about debtor days.
Before taking money out, ask
- What is the post-tax profit?
- What distributable reserves are actually available?
- How much has already been taken out this year?
- How has each payment been treated?
And remember that dividends should be properly declared and recorded, with the relevant board minutes and dividend vouchers. Treating them as paperwork to tidy up at year end is where problems start.
If you would like help working out what you can take out of your company and how, book a consultation.
This article sets out general information and is not advice for your circumstances. Rates and thresholds change.
