2. Taking money out of a limited company
As a director of a limited company, you can take money from the company in 3 ways.
Salary, expenses and benefits
If you want the company to pay you a salary, expenses or benefits, you must register the company as an employer with HM Revenue and Customs (HMRC).
The company must take Income Tax and National Insurance contributions from your salary payments and pay these to 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 enough profit.
You can’t count dividends as business costs when you work out your Corporation Tax.
Your company mustn’t 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
- the amount of the ‘dividend tax credit’
Dividend tax credits
The tax credit means your company and shareholders don’t need to pay tax when the dividend is paid. But shareholders may still have to pay tax on it.
Working out the dividend tax credit
To work out the dividend tax credit, divide the dividend amount by 9.
You want to pay a dividend of £900. Divide £900 by 9, which gives you a dividend tax credit of £100. Pay £900 to the shareholder – but add the £100 tax credit and record a total of £1,000 on the dividend voucher.
You must give a copy of the voucher to recipients of the dividend and keep a copy for your company’s records.
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.