Start-up owners’ salaries – how much to pay yourself

With costs associated with starting a new business, it’s understandable to question whether you can afford to pay yourself a salary and how much.

It isn’t unusual to question how much an acceptable salary is, when you should start paying yourself a wage, or how to calculate a suitable amount.

However, taking a salary – even early on in a new venture – is important as it demonstrates your commitment to the longevity and growth of the business.

There are no right or wrong answers, but it’s a good idea to calculate how much you need and how much your new venture can afford.

However, working out how much salary to pay yourself each month can be tricky when starting, especially if it’s your first time running a business.

Read our guide on how to calculate start-up costs.

Why paying yourself a salary is important

Investing all funds into your new business and foregoing a salary for yourself may seem to show dedication to your venture on the surface, but this is a common misconception.

As the key person in your start-up, potentially leaving yourself financially vulnerable may prove detrimental to your business plan and harm your new venture’s prospects in the long run.

Not taking a regular salary early may also raise questions over your commitment to the business; if you’re not earning anything from the company, investors may question its commercial viability if it cannot support its founder.

If you’re not earning from your business, you may need to make money through other means, such as a second job; this could take a significant portion of your time and energy away from growing your business and risk burnout.

Without a regular salary, everyday financial pressures, such as paying bills, can mount – it could even tempt you to take on an unsuitable, high-interest personal loan or overuse credit cards.

As important as taking a regular salary for yourself, getting the balance right and considering not taking too much out of the business in its early days is important.

Taking too high a salary early on may threaten the cash flow of your start-up.

It’s important to have a cushion of money – known as reserves – in your start-up for unexpected or increased costs as your business grows.

Read our guide on 10 ways to strengthen your cash flow.

How to work out how much to pay yourself

When deciding on the salary to pay yourself, there are several things to consider.

Essential outgoings

As dedicated as you are to getting your new business off the ground, your bills still need paying, such as your mortgage or rent, food, and household bills.

Add up the total costs of all your essential monthly outgoings to help realistically work out a starting salary you’ll need to take out of the business to meet these needs.

Include essentials such as food, utilities, travel, clothing, and bills such as council tax, home insurance, and TV licence.

Be honest with yourself and include expenses that may not be essential but are monthly costs you are not willing to forego, such as a subscription to streaming TV services.

Tax consideration

Tax is a crucial consideration to help you reach a figure on your salary.

Generally, the more you earn, the more tax you’ll pay.

Examine the different income tax thresholds and consider setting your salary below a specific threshold.

It’s always worth seeking out professional advice and guidance from an independent tax specialist.

Rainy day savings

Having a cushion of money for unexpected expenses is an important factor in how much you should pay yourself when starting a new business.

Whether personal or business, having a little extra to allow for the unexpected is a good idea when working out how much salary you can take from your business in the early days.

This might mean you pay yourself a greater salary to build up some personal savings or a lower wage to retain more cash reserves in your business.

Remember, you don’t have to pay yourself a consistent amount.

You can vary your salary over time, increasing it when required and reducing it when your personal circumstances allow.

Be aware though that this can have tax implications so always be sure to seek independent specialist advice.

What can your business afford?

Balancing what you need to take from the business while being realistic about what your business can afford to pay you in the early days is an important consideration.

There needs to be enough funds left in the business pot to meet the business’s running costs and allow for unexpected expenses.

Starting with a modest salary can be advisable early on; you can always increase your compensation once the business is turning a profit.

Read our guide on profit margins for small businesses.

Pay what you are worth

Another way to calculate your salary is to ascertain your worth regarding current market conditions and your pay scale bracket.

Looking at similar businesses and job specifications on recruitment websites can give you a general idea of what your salary should be.

You can also work out your worth by looking at the following formula:

  • decide on the minimum annual salary you want to make
  • divide the yearly salary by 12 to get your monthly wage
  • multiply the rate of inflation by 4, which will give you the percentage needed to add to your income
  • add this percentage to your monthly income to provide you with an indication of how much to pay yourself.

It’s important to be pragmatic when calculating your salary.

If the number is too high, you may need to re-think your expenses and adjust calculations until you settle on an appropriate figure.

Read our guide on what rising interest rates mean for start-ups.

Best ways to take a salary

When deciding on the salary, it’s important to factor in your National Insurance contribution to the salary amount.

Your National Insurance contribution will depend on whether you are a sole trader or director of a limited company.

Sole trader

If you’re a sole trader, you need to pay two types of National Insurance.

You’ll pay Class 2 National Insurance if your profits are more than £11,908 a year and Class 4 if your profits are £11,909 a year.

As a sole trader, you are personally liable for the business and all profits belong to you.

You can withdraw money from your company, but your earnings are liable for tax as sole traders are responsible for paying their own taxes, and the more money you make, the more tax you pay.

If you try to avoid paying any owed tax, HMRC can claim your assets, including personal property such as your home.

Having an accountant to ensure you pay the correct tax is advisable.


For directors of a limited company, you will pay National Insurance on your annual income from your salary and any bonuses over £11,908.

As a limited company director, you could pay yourself a modest salary supplemented with dividends from the company’s profit but you should seek independent tax advice from a specialise before doing so.

Directors can pay themselves through dividends, of which a certain amount is tax-free.

It is important to note that for the 2023/24 tax year, your tax-free dividend allowance is reduced to £1,000 from the previous tax year, which was £2,000.

Find out more about how the dividend allowance will affect you on the government website.

Want to learn how to manage your start-up’s finances? Check out our free online courses in partnership with the Open University on being an entrepreneur.

Our free Learn with Start Up Loans courses include:

Plus free courses on finance and accounting, project management, and leadership.

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

Your previously read articles