Taking Money out of a Limited Company:
Taking money out of a Limited Company?
If you own and run a limited company, there are several ways you may be able to take money from the business.
The most appropriate method depends on what the payment is for, your company’s profits, your personal tax position and your financial circumstances.
Common ways of taking money from a limited company include:
- Salary
- Business expenses
- Benefits
- Dividends
- Directors’ loans
Each method has different tax and reporting requirements.
01.
Salary, expenses and benefits:
If your limited company pays you a salary, you will generally need to operate PAYE payroll.
The company must:
- Register as an employer with HMRC
- Deduct Income Tax from salary payments where applicable
- Deduct employee National Insurance where applicable
- Pay employer National Insurance where applicable
- Report payroll information to HMRC through Real Time Information (RTI)
- Provide the appropriate payslips and payroll records
A director can be an employee of their own company and receive a salary through payroll.
Business Expenses
Your company can reimburse you for legitimate business expenses that you have personally paid for on behalf of the company.
Examples can include qualifying:
- Business travel
- Business mileage
- Office costs
- Professional subscriptions
- Business-related telephone costs
- Business insurance
- Other allowable business expenses
The expense must meet the relevant HMRC rules and should be supported by appropriate records and receipts.
You should not treat personal spending as a business expense simply because you own the company.
Benefits
If your company provides you or another employee with certain benefits, there may be tax and National Insurance implications.
For example, company cars, private medical insurance and certain other benefits may need to be reported to HMRC.
Your company may need to report taxable benefits and pay the relevant employer National Insurance.
02.
Dividends:
A dividend is a payment made by a company to its shareholders from profits available for distribution.
Dividends are one of the common ways company owners take money from a profitable limited company.
However, you cannot simply withdraw money from the company and call it a dividend.
Your company must have sufficient distributable profits from current and previous financial years.
To pay a dividend, you should:
- Check that the company has sufficient distributable profits
- Hold a directors’ meeting to declare the dividend where appropriate
- Record the dividend decision in company records
- Prepare a dividend voucher
- Give the dividend voucher to the shareholder
- Keep a copy with the company’s records
The dividend voucher should include:
- Company name
- Date of the dividend
- Name of the shareholder receiving the dividend
- Amount of the dividend
If there is more than one shareholder, dividends will generally need to be paid according to the rights attached to their shares unless the company’s share structure allows otherwise.
Tax on Dividends
The company does not pay Corporation Tax again on the dividend payment itself. However, the company’s profits from which the dividend is paid may already have been subject to Corporation Tax.
The shareholder may have to pay Dividend Tax on dividends above the £500 Dividend Allowance.
For the 2026/27 tax year, the Dividend Tax rates are:
Tax Band | Dividend Tax Rate |
Basic Rate | 10.75% |
Higher Rate | 35.75% |
Additional Rate | 39.35% |
The tax rate depends on the shareholder’s overall taxable income and tax band.
03.
Directors’ loans:
A director’s loan is money taken from a company by a director or other participator that is not:
- Salary
- Dividend
- Reimbursement of legitimate expenses
- Money the director has previously paid into or loaned to the company
If you take money from your company that does not fall into one of these categories, it may need to be recorded through a Director’s Loan Account (DLA).
Your company must keep accurate records of money borrowed from or paid into the company. The balance of the director’s loan account should also be reflected in the company’s accounts.
Is My Director's Loan or Account Overdrawn In Credit?
The position of your Director’s Loan Account is important.
Overdrawn
If the account is overdrawn, you owe money to the company.
For example, if you take £20,000 from the company and there is no corresponding salary, dividend or expense payment, the £20,000 may be recorded as money owed by you to the company.
In Credit
If the account is in credit, the company owes money to you.
This can happen if you have personally paid money into the company or loaned money to the company.
Money the company owes you can generally be withdrawn without it being treated as salary or dividend, provided the underlying transaction is genuine and properly recorded.
Please Note : If you’re a shareholder and director and you owe your company more than £10,000 (£5,000 in 2013 to 2014) at any time in the year, your company must:
- Can we Reclaim Corporation Tax?
Your company can reclaim the Corporation Tax it pays on a director’s loan that’s been repaid, written off or released. You cannot reclaim any interest paid on the Corporation Tax. Claim after the relief is due – this is 9 months and 1 day after the end of the Corporation Tax accounting period when the loan was repaid, written off or released. You will not be repaid before this.
Please note- You must claim within 4 years (or 6 years if the loan was repaid on or before 31 March 2010)
- Reclaiming within 2 years:
If you’re reclaiming within 2 years of the end of the accounting period when the loan was taken out, use form CT600A to claim when you prepare a Company Tax Return for that accounting period or amend it online. Use form L2P with your Company Tax Return instead if either:
- Your tax return is for a different accounting period than the one when the loan was taken out
- You’re amending your tax return in writing
- Tell HMRC how you want the repayment in your Company Tax Return.
- Reclaiming after 2 years:
If you’re reclaiming 2 years or more after the end of the accounting period when the loan was taken out, fill in form L2P and either include it with your latest Company Tax Return or post it separately. HMRC will repay your company by either:
- Using the details you gave in your latest Company Tax Return
- Sending a cheque to your company’s registered office address
- Keeping Company Records:
- Transactions when someone buys shares in the company
- Loans or mortgages secured against the company’s assets
You still need to keep a record if there are no people with significant control.
Seek Professional Advice
Choosing how to take money from your limited company is a crucial decision that impacts both personal and corporation tax liability.
At Tx Accountants Ltd, we specialize in providing the most cost-effective solutions for withdrawing funds from your business. Our experienced team will guide you through the most tax-efficient methods, ensuring that your approach not only minimizes costs but also aligns with your financial goals and HMRC regulations. For more information or to discuss how our cost-effective strategies can benefit your company, contact us at info@txaccountants.co.uk. Explore our full range of accounting services and request a free consultation today.
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Farhad Kabir
MSc AFA MIPA FCCA
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