Checking the health of your business Your Options: Drawing Cash from a Limited Company

If you are a Director of a Limited Company then it is important to be aware that the money in the business bank account is not yours to draw as you like. There are however a number of ways to draw cash from your business but there are restrictions which may apply.

The first way to release money from your business is by drawing a salary.

To be able to draw money this way the company has to register as an Employer with HMRC. Even if the only employee is you as a Director, you still have to register as an Employer.

You will be responsible for paying any Tax and National Insurance contributions to HMRC, and will need to ensure that a Full Payment submission is sent to HMRC after each pay-run (there are various accounting and payroll software which you can use for this). It is also important to check that National Minimum Wage is met for any employees, and that you understand your pension responsibilities for any eligible employees.

The second way to release money from the company is by drawing dividends, although it is important to note that a dividend can only be paid from profit.

To enable a dividend to be paid a director’s meeting must be held to declare the dividend, with the minutes of the meeting being kept for future reference. This is the case even if there is only one director, and is often overlooked by companies with a sole director and shareholder.

A dividend voucher must also be prepared for any dividends paid which should include the date, company name, name of the shareholder being paid the dividend and the amount. A copy of the voucher must be given to the shareholder receiving the dividend, with a copy being retained by the company.

It is important to note that tax may be due on dividend receipts in excess of the dividend allowance which is currently £2,000.

Dividends must also be declared by the individuals as part of their self-assessment tax returns.

The final way to draw money is by Director’s Loan and full records must be kept of these.

If you withdraw more money via this method than you have put into the company (so you owe the company money) then there may tax payable by both you and the company on this loan.

It is important to get advice on this way of drawing money before proceeding with it to ensure you are aware of the tax implications.

BR Accounting & Business Servicescan help you to decide how to draw cash from your limited company in a tax efficient way contact us nowfor your no obligation meeting.