2. Taking money out of a limited company
How you take money out of the company depends on what it’s for and how much you take out.
Salary, expenses and benefits
If you want the company to pay you or anyone else a salary, expenses or benefits, you must register the company as an employer.
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 report it as a benefit and pay any tax due.
A dividend is a payment a company can make to shareholders if it has made a profit.
You can’t count dividends as business costs when you work out your Corporation Tax.
Your company must not pay out more in dividends than its available profits from current and previous financial years.
You must usually pay dividends to all shareholders.
To pay a dividend, you must:
- hold a directors’ meeting to ‘declare’ the dividend
- keep minutes of the meeting, even if you’re the only director
For each dividend payment the company makes, you must write up a dividend voucher showing the:
- company name
- names of the shareholders being paid a dividend
- 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.
Tax on dividends
Your company doesn’t need to pay tax on dividend payments. But shareholders may have to pay Income Tax if they’re over £5,000.
If you take more money out of a company than you’ve put in - and it isn’t salary or dividend - it’s called a ‘directors’ loan’.
If your company makes directors’ loans, you must keep records of them. There are also some detailed tax rules about how directors’ loans are handled.