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Taking money out of a limited company:
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.
01.
Salary, expenses and benefits:
The company must take Income Tax and National Insurance contributions from salary payments and pay these to HM Revenue and Customs (HMRC), along with employers’ National Insurance contributions.
02.
Dividends:
Dividend is a part of the profit that is paid to its shareholders as their share of the profits.
Your company must 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.
- Record every detail of the meeting, even if you’re the only director
- You must give a copy of the voucher to recipients of the dividend and keep a copy for your company’s records.
Your company does not need to pay tax on dividend payments. But shareholders may have to pay Income Tax if they’re over £500 (2024-25)
03.
Directors’ loans:
If you take more money out of a company than you’ve put in – and it’s not salary or dividend – it’s called a ‘directors’ loan’. If your company gives out directors’ loans, you must keep records of them
HM Revenue and Customs (HMRC) may check your records with a compliance check to make sure you’re paying the right amount of tax.
Tax on Director’s loans:
You may have to pay tax on director’s loans. Your company may also have to pay tax if you’re a shareholder (sometimes called a ‘participator’) as well as a director.
Your personal and company tax responsibilities depend on whether the director’s loan account is:
- OVERDRAWN - you owe the company
- IN CREDIT - the company owes you
If you owe your company money, you or your company may have to pay tax if you take a director’s loan. Your personal and company tax responsibilities depend on how the loan is settled. You also need to check if you have extra tax responsibilities if:
- The loan was more than £10,000 (£5,000 in 2013 to 14)
- You paid your company interest on the loan using the official rate
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:
- Treat the loan as a ‘benefit in kind’
- Deduct Class 1 National Insurance
You must report the loan on a personal Self Assessment tax return. You may have to pay tax on the loan at the official rate of interest.
If you paid interest below the official rate then your company must record interest you pay below the official rate as company income and treat the discounted interest as a ‘benefit in kind’ You must report the interest on a personal Self Assessment tax return. You may have to pay tax on the difference between the official rate and the rate you paid.
- 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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