There are three main methods for taking money out of a limited company from your business:
- Salary, expenses and benefits
- Directors loans
Sometimes we see four methods cited when salary is separated from expenses and benefits. We’ll keep this simple and follow the Government guidelines.
Salary, expenses and benefits
When your company is registered with HMRC as an employer, you can take out a salary, as an employee (the director) of his own company. Your salary will be subject to tax an NIC deductions every quarter.
Typically, directors used to pay themselves a personal tax free allowance salary up to £10,600 yearly to avoid income tax. Since the Chancellor’s recent budget in June, the tax-free Personal Allowance has increased to £11,000.
There are different rules for what you have to report and pay depending on the type of expense or benefit that you provide and you should be aware that you may be subject to pay tax and National Insurance on them.
Typical example of expenses are
- company cars
- health insurance
- travel and entertainment expenses
There are many ways to claim expenses and benefits and for reference we recommend the Government article here.
After taking salary, expenses and benefits from your company, as a shareholder you can leave any remaining income for further investment or to support your business. You can also take money in the form of a dividend.
A dividend is a payment your company can make to shareholders if it has made enough profit. Dividends may be subject to tax credits; have a read of our article about new rules for dividend taxation.
You can take more money out of a company than you’ve put in. If it is not taken as salary, expenses or dividend – it’s called a ‘directors’ loan.’ Loans can be given to shareholders, or close family members. You are also not permitted to take out money that you have previously paid into or loaned to the company. All loans must be recorded as a director loan account and be available as part of your records. You can read more information here.