It’s one of the most common questions business owners ask—and for good reason. Choosing the wrong method can lead to unexpected tax bills, compliance issues, or cash flow problems. The best approach depends on your business structure: sole trader, company, or trust. Here’s what you need to know to stay compliant and get paid the smart way.
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Sole Trader or Partnership
If you're a sole trader or in a partnership, there's no legal separation between you and your business. That means:
· You don’t “pay” yourself a salary as an employee.
· Instead, you draw money from the business bank account for personal use.
· This is called a drawing — not a wage or salary.
· You’re taxed on the net profit of the business, not how much you take out.
Tax tip: You still need to keep track of your drawings, but they don’t reduce your taxable income.
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Company
A company is a separate legal entity, which means the way you pay yourself is different from being a sole trader. There are several options you can use, either individually or in combination:
Salary or Wages (PAYE)
· You become an employee of your company.
· The company pays you a regular wage and deducts PAYE tax.
· You must register as an employer with Inland Revenue.
· Common if you want a consistent income or are applying for loans or mortgages.
Shareholder Salary
· Paid after the end of the financial year, based on company profit.
· Subject to personal income tax.
· No PAYE deducted at the time — but provisional tax may apply later.
Dividends
· You can choose to take dividends as a shareholder.
· Dividends are paid from after-tax profits, and imputation credits may apply.
· Residual tax may be payable depending on your total income.
Or, a Combination
Many company owners use a mix of the above. For example, a regular PAYE salary for cash flow and loan applications, combined with end-of-year shareholder salary or dividends for tax flexibility.
Important: You can’t simply transfer money from the company account to your personal account and call it income. Withdrawing too much can lead to tax complications or shareholder loan issues.
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Trust
A trust is a legal structure often used to protect assets or manage income for a family or business.
· The trust can allocate income to you as a beneficiary.
· This income is taxed at your personal income tax rate.
· Distributions are not treated as wages or salaries.
· The trust must file an IR6 return, and you must declare the income in your IR3.
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Which Option Should I Use?
The best way to pay yourself depends on your business structure, financial goals, and how your business is performing. For example:
· Want a stable income? A PAYE wage might make sense.
· Looking to manage tax efficiently? Shareholder salary or dividends could be better.
· Planning to reinvest profits? You might keep drawings or distributions low.
It’s also worth revisiting the purpose of your business. Are your goals still aligned with your current setup? If your circumstances have changed — for example, shifting from part-time to full-time or expanding your team — your payment method might need to change too.
Understanding your options helps you stay compliant and financially efficient. If you’re unsure what fits best, it’s worth getting advice tailored to your situation.
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Get Advice Early
Paying yourself from your business isn’t just about moving money between accounts. It affects your tax, your legal obligations, and your long-term financial health.
Whether you're starting out or reevaluating your approach, we can help you choose a strategy that fits your goals and keeps things running smoothly. Get in touch — the right structure can save you time, tax, and stress down the track.
