How do you take money out of your own Limited Company?

A limited company is a separate legal entity from the individuals that own the shares.

Any trading receipts belong to the company and directors should not just “help themselves” to the funds, in the same way as is possible if trading as a sole proprietor or partnership. There are various methods of extracting the funds, in both a legitimate and tax advantageous manner.

These generally revolve around the use of salary, dividends, interest on loans by the directors to the company, pension contributions etc. But get it wrong and you could end up paying thousands of pounds in extra tax and National Insurance.

Unfortunately, we quite often see inefficiencies. These include:

• Excessive salaries being drawn when dividends would be more beneficial
• No salaries at all being paid to directors so no entitlement to state pension benefits is being recorded
• Dividends being paid when there are no profits to justify these
• Large pension contributions being paid when the company has losses so no immediate prospect of tax relief on these
• Paying dividends in the wrong periods
• Backdating dividends into a previous year (not legal!)

Please do seek advice on the best way to structure the withdrawal of funds from your company. Don’t wait until after the company year end!