How do I take my money out of my limited company?
One question that seems to pop up a lot is why can’t I just take what money I want out of my limited company? It is important to remember that a limited company isn’t your personal bank account. A limited company is a separate legal entity and so any money you draw from the company must be properly documented.
There are three main ways to take money out of your limited company
You can pay yourself a salary. It is usually recommended for directors who don’t have any employees that they pay a minimum salary up to the secondary threshold for national insurance (£8,424 in 2018/19). This means that assuming there is no other income, no tax and NI are payable though the director will still be entitled to basic benefits.
When a director has employees, they can take advantage of the employee allowance and take a higher salary of the full personal allowance (£11,850 in 2018/19).
Dividends are a distribution of profits so it is important to ensure that the business has enough distributable reserves to meet the payment. Dividends are not a business cost and can only be deducted from profit after corporation tax. A dividend payment must be agreed by the directors at a board meeting and a minute kept of the meeting (even if there is only one director).
Changes to the way dividends are taxed were introduced from April 2016. Previously, there was a tax credit of 10% on dividends so where a dividend paid was £90, the dividend income to be declared would be £100. Since April 2016, the tax credit has been abolished and dividends are taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate). There is a dividend allowance of £2k in 2018/19 (£5k in 2016/17 and 2017/18). It is important to note that the dividend allowance counts towards the taxable income.
There is no national insurance payable on dividends.
Director’s loan account
When you pay your own money to the company this becomes known as a director’s loan account. You can take money from this at any time without any tax liability. However, if you take more money out than is available you could be liable for national insurance and corporation tax.
The most tax efficient way to take money out of your company depends on your personal circumstances so it is always best to talk to an accountant. If you would like to know more about the best way to take money out of your limited company, you can email us or call 01604 330220 for further advice.
Please note, the above advice does not take into account personal circumstances and other income. The advice does not apply to Scotland.