When your business has been successful and making profit, as the business owner you will want to enjoy some of the Profits you have worked hard to make.
As the Company is considered as a separate legal entity to yourself, you will need to report money extracted as a Salary Payment, Dividend Payment or repayment of a Directors Loan.
Salary Payment
The Salary payment will be deductible as a business expense and will reduce your Profit for Corporation Tax purposes. However, the payment will be subject to Income Tax (0%/20%/40%/45%) and Class 1 National Insurance (12%/2%). You will also have a PAYE reporting obligation.
You will want to ensure you maximise your Personal Allowance (£12,570) as paying yourself up to this amount will not attract a Personal Tax liability and will be allowable as a deduction for Corporation Tax purposes.
Dividend Payment
The Dividend payment can only be made if the Company is Profit making (The Dividend Rates are 8.75%, 33.75% and 39.35%). The Dividend payment does NOT reduce your Profit for Corporation Tax purposes. There is no National Insurance due on Dividend payments. There is an allowance of £1,000 for the 2023/24 Tax Year.
Directors Loan Repayment
Directors Loan repayment can be an efficient way to extract money from your Limited Company. If you have incurred a Business Expense on behalf of the Company, the Company will owe you this money as a Directors Loan. Or if you have transferred funds into the business to cover costs (e.g. startup costs) it is worthwhile tracking these amounts. This can be repaid without a corresponding Personal Tax charge.
If you have any questions or are unsure on any of the Tax implications of extracting funds from your Limited Company please book in a consultation with us at SC:
