You’ve just become the director of a new limited company but now that your company is a separate legal entity how do you go about taking money out of the company it belongs to?
How you take money out of a limited company depends on a couple of things: what it is for and how much you are taking out.
You can take the money out as salary, expenses and benefits payments but you need to make sure the company is registered with HMRC as an employer first.
The company must take Income Tax and National Insurance contributions from your salary payments and pay these to HM Revenue and Customs (HMRC), along with employers’ National Insurance contributions.
If you or one of your employees make personal use of something that belongs to the business, you must also report it as a benefit and pay any tax due.
You can also take money out of the company in the form of Dividendswhich is a payment a company can make to shareholders if it has made a profit.
However, you cannot count dividends as business costs when you work out your Corporation Tax and your company does not need to pay tax on dividend payments, but shareholders may have to pay Income Tax if they’re over £2,000.
It is also very important that your company does not pay out more in dividends than its available profits from current and previous financial years.
To pay a dividend, you must hold a directors’ meeting to ‘declare’ the dividend and keep minutes of the meeting, even if you’re the only director, and write up a dividend voucher which shows the date, company name, names of shareholders being paid a dividend and the amount of the dividend.
You must give a copy of the voucher to recipients of the dividend and keep a copy for your company’s records.
If you are taking money out of the company (or paying in) and it is not a salary or dividend then it can be treated as a Directors Loan.
If your company makes directors’ loans then you must keep records of them (or ask your bookkeeper to) as at the end of your company’s financial year any money you owe or is owed to you by the business is included on the balance sheet. There are also some detailed tax rules about how directors’ loans are handled so you may have to pay tax on any money you owe the company.
For the most tax efficient and compliant ways to take money out of your limited company it is highly advisable to seek advice and guidance from your bookkeeper and accountant who can help you keep on track. Contact Smarties Bookkeeping and we can assist you on your financial journey by calling us on 0117 9000 895 or send an email to Info@smartiesbookkeeping.co.uk.