As a small business owner, your company’s success is your success. But when it comes to reaping the rewards, many directors assume that the only way to get paid is through a heavily taxed salary.
At Mann Accounting Services Ltd, we specialize in “Cloud-Powered Clarity.” We believe you should keep more of what you earn by using the legal allowances available to you. Because our firm is 100% paperless and cloud-based, we love strategies that are easy to track digitally and don’t require mountain of paperwork.
Here is your simple, applicable guide to drawing cash out of your business without paying a penny more in tax than you have to.
1. The “Big Three”: Salary, Dividends, and the DLA
Most directors use a combination of these three methods to form their base income.
- The Tax-Free Salary (£12,570): For the 2025/26 tax year, you can typically pay yourself a salary up to the Personal Allowance threshold. This is processed via PAYE, but if this is your only income, no Income Tax is due.
- The Dividend Allowance (£500): On top of your salary, the first £500 of dividends are tax-free. This is a small but useful “bonus.”
- Repaying Your Director’s Loan Account (DLA): Did you spend your own money to start the business? Or perhaps you paid for a company laptop on your personal card? You can take that exact amount back out of the business tax-free at any time. You are simply being repaid for money you’ve already taxed.
2. The “Paperless Perks” (Trivial Benefits)
HMRC allows you to give yourself “Trivial Benefits.” These are small gifts that don’t count as salary.
- The Rule: The gift must cost £50 or less, it cannot be cash (or a cash-convertible voucher), and it cannot be a reward for work performance.
- The Director’s Cap: As a director of a close company, you can do this up to a total of £300 per tax year.
- How to apply it: Use the company card to buy a £50 non-cash gift card (e.g., for a restaurant or shop) for your birthday or a seasonal celebration.
- Cloud Tip: Just snap a photo of the receipt and tag it as “Trivial Benefit” in your accounting software.
3. The Annual Party Allowance (£150 per head)
Even if you are a one-person business, you are allowed an annual social function.
- The Rule: The business can spend up to £150 per person (including VAT) per year on an annual event, such as a Christmas party or a summer celebration.
- The Catch: This is an exemption, not an allowance. If you spend £150.01, the whole amount becomes taxable.
- Director Benefit: You can invite a partner or guest. That’s £300 for a nice dinner and an evening out, fully deductible for the business and tax-free for you.
4. Working from Home & Travel
Since we are a cloud-based community, many of our clients work from home. Don’t let those utility bills come out of your pocket.
- Use of Home Office (£6/week): HMRC allows a flat rate of £26 per month to cover the extra cost of heat and light without needing to provide any receipts. It’s a simple digital entry each month.
- Mileage (45p per mile): If you use your personal car for business trips (visiting clients or a co-working space), the company can pay you 45p per mile for the first 10,000 miles. This covers fuel, wear, and tear—tax-free.
5. Borrowing from the Company (The £10,000 Rule)
Need a short-term cash injection for a personal matter? You can “borrow” up to £10,000 from your company interest-free.
- The Rule: As long as the balance stays under £10,000, there is no “Benefit in Kind” tax.
- The Deadline: You must repay the loan within 9 months and 1 day of your company’s year-end to avoid a specific tax charge (S455).
Making it Work: The MASLTD Compliance Checklist
Taking money out is the easy part; staying compliant is where the “Clarity” comes in. To keep HMRC happy in a paperless world, follow these three steps:
- Digital Board Minutes: When you declare a dividend or a trivial benefit, create a simple digital memo.
- Reconcile Monthly: Don’t wait until the end of the year. Use your cloud software to categorize these payments as they happen.
- The “Wholly and Exclusively” Test: Always ask: Is this payment for the business, or is it a specific legal allowance?
Ready to Maximize Your Take-Home?
At Mann Accounting Services Ltd, we don’t just handle compliance; we provide the KPI insights and reporting packages that help you plan ahead with confidence.
Ready to maximize your tax-free take-home? Schedule a call with us today and let’s review your specific numbers to ensure you’re extracting value from your business in the most tax-efficient way possible.
Disclaimer: Tax laws can change. This guide is based on 2025/26 rules. Always consult with your accountant—hopefully us!—before making significant financial decisions.
This guide was produced by the team at Mann Accounting Services Ltd (MAS). MAS is a modern, cloud-first accounting firm dedicated to helping small business owners achieve financial clarity without the paperwork. We specialise in tax-efficient profit extraction, digital bookkeeping, and proactive business growth strategies.
