For owners, knowing how to take money the right way can feel like a conundrum. And this is partly because there’s no one-size-fits-all solution to tax. The best approach for you will depend on your personal circumstances, business performance, and long-term goals. It may even change over time, or from year to year.

Here, I’ll consider the main options available to you, and how they typically work.

Taking a salary

Paying yourself a salary is a common starting point, allowing you to make use of your tax-free personal allowance. This way, you can also maintain your National Insurance record, and minimise your Income Tax and National Insurance liabilities.

The pros:

• Counts as a tax-deductible expense for Corporation Tax.
• Provides a stable, regular income.

The cons:

• Subject to PAYE and potentially National Insurance.
• Less tax-efficient than dividends at higher levels.

Paying yourself dividends

Dividends can be one of the most tax-efficient ways to extract profits from a limited company. However, they can only be paid from post-Corporation Tax profits, and you must ensure there are sufficient retained earnings.

The pros:

• You’ll pay at lower tax rates than you would for a salary.
• You won’t have to pay National Insurance.

The cons:

• Dividends aren’t deductible for Corporation Tax.
• Box-ticking is important here: they must be properly declared and documented. Backdating any legal paperwork is a potentially criminal offence.

Most limited company owners use a combination of salary payments and dividends to optimise their tax efficiency.

Pension contributions

Instead of extracting cash personally, you can choose to invest in your future through pension contributions. Your company can make employer pension contributions directly.

The pros:

• Contributions are eligible for Corporation Tax relief.
• You won’t pay Income Tax or National Insurance.
• They’re a step towards long-term wealth building.

The cons:

• Your funds are locked in until you reach pension age.

Director’s loan account

You can withdraw money from your company through a director’s loan – but this needs careful management. Mishandled loans can ultimately cost you more in tax, so they need to be repaid promptly.

The pros:

• Director’s loans provide flexible access to your funds.

The cons:

• Before taking any money, you need to consider how you’ll settle the loan in the future.
• Detailed rules and tax charges apply to a director’s loan, so you’ll need expert advice if you choose this route.

Paying family members

If your family members work in your business, you can pay them a salary. This can be particularly effective if you have a spouse or children involved in your administration, bookkeeping, or social media, and they’re earning amounts within the personal allowance.

The pros:

• By doing this, you can make the most of unused personal allowances.
• Salaries reduce your overall family tax burden.

The cons:

• The payments must be commercially justifiable.
• Genuine work must be performed.

Keeping profits in the company

Sometimes, the most strategic decision is not to extract your cash at all. Instead, you might choose to reinvest it in the practice, fund future acquisitions, or make other company investments.

The pros:

• This delays and potentially mitigates punitive personal tax liabilities.
• Retaining money strengthens the business financially.

The cons:

Your funds won’t be immediately available on a personal level.

Other options to consider

This list isn’t exhaustive, so depending on your circumstances, other strategies may include:

• Company-funded benefits (e.g. electric vehicles).
• Share restructuring for income splitting.
• Timing dividends across tax years.

Each of these moves has the potential to feed your overall tax efficiency, but they require expert, tailored advice. Extracting cash from your dental practice isn’t just about minimising the tax you pay – it’s about aligning your strategy with your immediate personal requirements and longer-term plans. The most effective approach is usually a combination of methods, reviewed regularly as your circumstances change.

This is where working with a company like Hive makes all the difference. We can help by teasing out the many strands of your situation, and drawing them all together in a bespoke, structured plan. With this, you’ll know exactly where you stand as you go forward.

Every owner’s situation is different, so if you’d like a personalised extraction strategy that balances tax efficiency with your wider goals, do get in touch.