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Can I take money from my company when I need it?

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The subject of extracting profits from Limited Companies is massively complex and is always changing, so you should definitely take professional advice, but in short you should not just take money from your company. Even if you own all the shares in your company, the company is still a separate legal entity that earns its own money and pays tax on its own profits. The money the company earns belongs solely to the company and can only be extracted through recognized channels.


There are two main ways to extract money from your company. Both of these methods  have guidelines that must be followed, and they should be correctly documented as they happen:


Wages

You can receive a wage from the company each week, month or year. Depending on your circumstances you may be able to receive a wage of up to the level of your Personal Allowance  (£11500 2017-18) each tax year without having to pay any tax, although there may be some National Insurance to pay, and the company will have to run payroll and report to HMRC. If the wage is paid at a rate of less than £490 per month (2017-18) then the company will usually only have to keep a record of the payments made each month without having to run payroll. The company may of course have other employees that earn more than £490 per month meaning the company will have to run payroll anyway. With all it entails payroll is a complex matter which is best handled by your accountant or payroll service.


Dividends

Assuming you own at least some of the shares in your company, and that your company has made a profit, you will be entitled to a share of the profits through a dividend paid on your shares. To declare a dividend the Companies Act 2006 directs:

  1. The profits of the company should be calculated after accounting for Corporation Tax (maybe by means of management accounts)
  2. A meeting should be held to propose the dividend
  3. The dividend resolution should be written up
  4. Dividend certificates are supplied to the shareholders.
  5. File the board minutes and accounts at the registered office.

As long as these steps are followed the dividends should withstand HMRC scrutiny.


All shareholders must be paid the same dividend per share according to the number of shares they hold. Each shareholder can receive an amount up to the Dividend Allowance (£5000 2017-18, £2000 2018-19) each year without paying additional personal tax.


Wages versus Divdends?

A common question for which there is no easy answer because everybody’s circumstances differ. Definitely take professional advice on this! Call us if you’d like further information.