How do you get money out of the company without giving a huge chunk to HMRC?

With the right planning, it’s still possible to extract over £19,000 completely tax-free, even with rising National Insurance costs and tighter tax rules.

Here’s how one of our service-based clients is doing exactly that in the 2025/26 tax year.

The Client’s Position

• Owner-managed service-based limited company
• One additional employee on payroll (typical admin or support role)
• Director’s Loan Account balance of £150,000 owed to them by the company
• Employment Allowance available and claimed
• Planning income extraction before 5 April 2026

Step 1: Salary of £12,570

The foundation of the strategy is a modest salary.

The client takes a salary of £12,570, which:

• Uses their full personal allowance
• Creates a qualifying National Insurance year
• Suffers no income tax

Since April 2025, employers’ National Insurance has become more expensive. However, because this service-based business employs at least one other staff member, it qualifies for the Employment Allowance (£10,500).

?? Result: No employers’ NI actually payable on the director’s salary.

This is a common and very effective setup for service businesses with even a single support employee.

Step 2: Charging Interest on the Director’s Loan Account

Service-based businesses often build up large Director’s Loan Accounts, particularly where:

• Profits have been left in the company, or
• The director has personally funded the business in earlier years

In this case, the company owes the director £150,000.

The company pays interest at 4%, which is commercially reasonable.

Interest calculation:

• £150,000 × 4% = £6,000 interest

Why this works especially well for service businesses:

• There’s no stock or asset complexity
• The interest is fully deductible for corporation tax
• The director can receive the interest tax-free

Why the £6,000 Interest Is Tax-Free

Interest is treated as savings income, and two tax-free bands apply:

Starting Rate for Savings

• Up to £5,000 taxed at 0%
• Available because salary is capped at £12,570

Personal Savings Allowance

• £1,000 tax-free for basic-rate taxpayers

Together, these cover:

• £6,000 of interest
• £0 personal tax payable

(The company withholds basic-rate tax initially, but this is reclaimed or offset via the director’s personal tax return.)

Step 3: £500 Dividend

To complete the strategy, the client takes a £500 dividend.

This is fully covered by the dividend allowance, meaning:

• No dividend tax
• No impact on the savings allowances used above

The Result: Over £19,000 Tax-Free

Here’s the full picture:

Why This Strategy Suits Service-Based Businesses

This approach works particularly well for service businesses because they typically:

• Have clean, predictable profits
• Accumulate large director’s loan balances
• Employ at least one support team member
• Don’t need to reinvest heavily in stock or plant

It also avoids aggressive planning — it’s simply using the tax rules properly.

The Kings Oak Takeaway

Many service-based business owners default to taking profits purely as dividends or salary and end up paying far more tax than necessary.

With the right mix of:

• Salary
• Director’s loan interest
• Dividends

it’s still possible to extract meaningful income at little or no personal tax, even in today’s higher-tax environment.