Tax-Efficient Ways to Take Money Out of a Business in 2025

As a business owner, extracting profits from your company in a tax-efficient manner is crucial for optimising your financial planning. Understanding the different options available, such as dividends vs salaries, pension contributions, and director’s loans, can have a significant impact on your overall tax liability. 

In this guide, we delve into the tax-efficient ways to take money out of a business in 2025, so you can make informed decisions that help to maximise your financial benefits and minimise your tax liabilities.

Pay Yourself a Salary

Paying yourself a salary is the most straightforward method of withdrawing funds from your business. Salaries are deductible business expenses for your company, which reduces its corporation tax liability. However, it’s important to note that both employer and employee National Insurance Contributions (NICs) apply, which can increase the overall tax burden.

The personal allowance remains at £12,570 for the 2025/26 tax year, which means that any earnings up to this amount are tax-free. Salaries above this threshold have the following rates of income tax:

• Basic rate (£12,571 to £50,270) = 20%
• Higher rate (£50,271 to £125,140) = 40%
• Additional rate (£125,141+) = 45%

Make Dividend Payments

Dividends are payments made to company shareholders from the business’ profits. They are not subject to NCIs, making them an attractive option for many business owners. However, as dividends come from post-tax profits, your company must first pay corporation tax on its earnings before distributing them. 

The dividend allowance for 2025/26 is £500, meaning you can earn this amount in dividends tax-free. Any dividends above this threshold are taxed at the following rates:

• Dividend basic rate = 8.75%
• Dividend higher rate = 33.75%
• Dividend additional rate = 39.35%

Pension Contributions

Employer pension contributions are a tax-efficient way of taking money out of a business. They are deductible expenses and are not subject to NICs, which reduces your company’s corporation tax liability. 

A Small Self-Administered Scheme (SSAS) Pension scheme allows business owners to invest pension funds directly into their own companies. These funds can be given as loans back to the business, or can be used to purchase commercial property. However, these types of transactions are governed by strict HMRC regulations, which must be followed to avoid tax penalties.

Take Out a Director’s Loan

A director’s loan is when you borrow money from your company that is not a salary, dividend, or expense repayment. 

To avoid additional tax charges, the loan must be repaid within nine months and one day of the company’s year-end. If not repaid within this timeframe, your company will face a tax charge of 33.75% on the outstanding amount, or 32.5% if the loan was made before 6th April 2022. It’s essential that your business maintains accurate records of any director’s loans to ensure compliance with HMRC regulations and prevent additional tax liabilities. 

Implement a Share Incentive Plan

A Share Incentive Plan (SIP) is a tax-efficient way to reward your employees and company directors. It allows employees to acquire shares in the company that benefit from income tax and NIC reliefs, as long as certain SIP conditions are met. However, if your employees sell the shares, they may have to pay Capital Gains Tax. This approach helps to align your employees’ interests with company performance, which can aid overall engagement and retention.

Invest in a Venture Capital Trust

Venture Capital Trusts (VCTs) are businesses that invest in small, unlisted companies to help support business growth. By choosing to invest in Venture Capital Trusts, you will benefit from an income tax relief on investments of up to £200,000 per tax year, provided the shares are held in the trust for at least 5 years. However, it’s crucial to assess the risks associated with VCT investments, as they can be much higher compared to traditional asset investment.  

Optimise Your 2025 Business Financial Planning with Piercefield Oliver

Effectively extracting profits from your business requires a strategic approach to financial planning. By balancing salary and dividends, leveraging SSAS pension contributions, and exploring options like director’s loans, SIPs and VCTs, you can successfully optimise your business’ financial outcomes and reduce your tax liability. 

Need further guidance on taking money from your business in a tax-efficient manner? Contact our expert team of financial advisors today for personalised business financial planning advice.