How to (legally) take money out of a limited company!

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.

What’s the difference between a bookkeeper and an accountant?

A very common question the Smarties team is often asked is what’s the role of the bookkeeper and the accountant in business finances? Many people get confused about the role that each performs. And others think that they need an accountant when what they need is a bookkeeper, and vice versa. This blog will hopefully clarify the difference for you.

What does a bookkeeper do?

A bookkeeper’s main role is to process the financial transactions of a business into an accounting software system such as Xero, Quickbooks or Sage. All businesses will generate a lot of paper, such as purchase invoices, receipts and expense claims and the bookkeeper will transform a bundle of paper into something orderly and accurate. 

Instrumental in the day-to-day running of your business, a bookkeeper can:

  • Process invoices, receipts, payments and other financial transactions
  • Provide credit control – in other words, they can keep an eye on clients who have paid and chase those that haven’t
  • Process and maintain the business payroll system
  • Prepare initial financial statements
  • Reconcile accounts and prepare what is known as ‘reconciliation reports’
  • Pay the invoices owed by the business

Some bookkeepers will also prepare VAT returns, prepare and file self-assessment tax returns and complete monthly management accounts.

Bookkeepers are the people who keep the finances of the business up to date and in order. The information they maintain is the financial information that your accountant will use to provide more detailed financial advice and support for a business.

What does an accountant do?

An accountant’s main roles are to deal with higher level compliance such as filing accounts and to advise the business owner on the strategic management of their business. A good accountant will also conduct regular tax planning to minimise business and personal tax liabilities as they have an in-depth understanding of the taxation system and requirements. Changes in tax rules that can make understanding tax difficult and it’s often a major concern of business, especially as your company grows and your tax liability increases. 

Advisory and analytical in nature, the professional services provided by an accountant may also include:

  • Other financial services such as raising funds, investment and so on
  • Auditing is also something you may require from an accountant
  • Corporate planning and compliance
  • Pension advice and planning
  • General financial management advice

This is not an exhaustive list with different businesses needing different accountancy services.

Does a business need a bookkeeper and an accountant?

It depends on your own personal preference, as well as the size and complexity of the financial status of your business.

A bookkeeper will work on your books weekly, fortnightly or monthly. The frequency depends on the size and complexity of your business as well as how up-to-date you need/want your financial records to be.

A bookkeeper can make a huge difference in how well organised a business is. The simple but important tasks such as getting invoices out on time, tracking payments and paying of bills are essential for maintaining the cash flow of a business, effectively its lifeblood.

An accountant can be the professional who ‘saves’ money on your tax bill, ensuring that you meet tax obligations and responsibilities, but that you also maintain a healthy profit. An accountant will generally work at less frequent intervals, for example to work on quarterly VAT returns or annual accounts. They could be involved on more specialist projects at certain times, for example to work on a business plan or cash flow forecast.

They are the people who have a deeper, analytical understanding of the financial nature of your business and can be instrumental in understanding the value of your business and driving it forward.

Both a bookkeeper and an accountant have their place in any business, which is why so many businesses across the UK rely on one, either or both.

What about qualifications?

Essentially, a bookkeeper and an accountant will hold different qualifications.

A bookkeeper can hold a basic qualification which essentially ensures that they can keep the books in the order that is laid down in the business financial rulebook. Higher levels of bookkeeping qualifications mean that they can competently perform more tasks, producing more complex reports and so on.

An accountancy course can work in a similar way with some accountants choosing to build their expertise with courses and professional practice. As well as generic accountancy qualifications, an accountant will often specialise too. A chartered accountant is one who has followed the academic path to becoming an accountant.

Do a bookkeeper and accountant work together?

Yes, because the services of both bookkeeper and accountant dovetail neatly within a business with the accountant relying on the information produced by the bookkeeper to provide their services. In return, the bookkeeper will rely on the accountant for providing guidance on what financial information needs to be collected.

Neither is mandatory for a business, but most business owners would agree, they would be in a much poorer position if it wasn’t for the bookkeeper and the accountant.

Here at Smarties Bookkeeping we offer bespoke bookkeeping incorporating the following services: 

  • Full bookkeeping services
  • VAT returns
  • Budget planning
  • Payroll services
  • Self-assessment tax returns
  • Forecasting variance analysis and cash flow
  • Monthly/quarterly management accounting 

You can contact us via email: info@smartiesbookkeeping.co.ukor you can call us on 0117 9000 895 (Bristol office) / 01823 729 254 (Taunton office) for an informal chat about how we can help you and your business. 

Why you should hire a Bookkeeper – it could change your business!

Running your own business is hard work and can be extremely time consuming, with you often needing to spend hours trying to keep track of your financials and keep all your paperwork in order.  Wouldn’t you rather use this time to do something you enjoy? Using your skills to build the business you love rather than worrying about the upkeep of your books?  

Hiring a Bookkeeper ensures that your accounts are accurate, and you can feel confident should the HMRC come knocking at the door, not to mention that you can put all those pesky deadlines to the back of your mind!  Your business can be more profitable, more efficient and more competitive.  The real time information collected can offer new insight into your business and help you to make decisions for the future.  Also, when considering the future, it is important to have a full set of accounts reports should you decide to expand or even retire / sell your business.   

The top 5 benefits of hiring a Bookkeeper:

  1. Understanding those numbers:  as a business owner, you will already have a good grasp of your P&L (Profit and Loss), but a Bookkeeper can help to clarify anything that you may need a little help with and also to identify the cause of any irregularities in your financials.
  • Someone else gets to liaise with the HMRC: not only will a Bookkeeper provide the numbers required, they will also fill out the forms, file with the HMRC andensure that the payments are made on time.
  • Time to focus on the important things:  you will gain so much more time; time that can be spent planning for the business’ future, taking on more work or just putting your feet up at the end of a long day!  
  • Keeping on top of your invoicing: whether your Bookkeeper completes the invoicing for you or just frees up your plate enough for you to get to it sooner, you will be able to invoice quicker and get paid faster.
  • Providing handy advise:  sometimes it just really helps to have a fresh perspective on things. Can you afford to expand the business? Is that new supplier contract really cost effective?  How do you best manage your cash flow?    These are all things that a Bookkeeper can help with.

As, I am sure you will agree, the benefits of hiring a Bookkeeper can significantly outweigh the negative of any cost implications of paying for one!