Taking money out of Limited Company
A Limited Company is considered a distinct entity under the law, similar to an individual. Consequently, the company’s finances are legally its own, not yours personally. Therefore, you cannot withdraw money from a Limited Company as easily as if it were your personal bank account.
It might feel like your money’s stuck in a Limited Company but understanding the right withdrawal methods can help you access funds efficiently.
As a separate legal entity, your Limited Company provides many advantages, with you acting as both a director and an employee. However, this structure requires you to withdraw money in specific ways, such as through a salary or dividends. While withdrawing money can sometimes help reduce the corporation tax bill, other methods may not have this benefit.
Further, as a landlord, there are two significant advantages to using a property investment Limited Company. Firstly, the company can acquire buy-to-let properties. Secondly, it can offset mortgage interest and finance costs against its profits.
This is in contrast to the Section 24 mortgage interest relief cap, which preventsUK buy to let landlords from offsetting mortgage interest and finance costs against their rental income.
To learn more about how to take money from a Limited Company and how to get money out of a Limited company without paying tax, this article will guide you on how to withdraw money in a tax-efficient way.
It should also be noted that the methods covered are all typical everyday business practices and are not considered by HMRC in any way Limited Company tax loopholes, which is a completely separate subject.
How Optimise Accountants Can Help You
Our qualified tax specialists will help you navigate the complexities of Limited Company tax rules.
-Call us today 0115 939 4606 and learn how we can help you gain maximum profitability.
-Book a one-to-one consultation using the form below
-Visit our videos and free webinars on You Tube
Get money out of a Limited Property Company without paying tax
The key feature of using a property investment company is that you only pay tax on the money you take out. A Limited Company will pay corporation tax. At the time of writing it is 19%. If you do not take money out, you do not pay income tax.
This is the polar opposite of receiving income in your name which means you will have to pay income tax.
Worked example:
£8,840 tax and NI-free wages
£5,730 tax-free dividend payments
£14,570 personal allowance for 2024/25 tax year (less if your income is over £100K)
£1,000 interest allowance tax-free (if you charge your company interest for directors’ loans)
£300 tax-free gift vouchers
£15,870 taken from your Limited Company tax-free
Readers may have noticed that the HMRC tax-free personal allowance for 2024/2025 is actually £12,570, not £14,570 as previously stated. However, in addition to the personal allowance of £12,570, there is another £2,000 in tax-free dividends that can be withdrawn from a UK Limited Company, given that the company has generated profits.
Please note that wages are a business expense, and tax relief will help Limited Company owners to reduce their corporation tax bills. Taking dividends out of the legal entity may provide you with some tax efficiencies.
Understanding this information is crucial before withdrawing money from your company.
Avoid paying income tax and NI contributions (legally)
If you want to take a wage from a buy to let company structure as a landlord, for 2024/2025, and assuming you have no other income, you can take £12,570 (for the 2023/24 tax year) without paying income tax or National Insurance contributions.
You will retain your State Pension contribution record and complying with HMRC regulations. To do this, you need to set up a payroll system and inform HMRC that you are an employer.
If you earn less than £123 a week in the tax year 2024/25, you won’t have to pay any Class 1 National Insurance Contributions (NICs). This also means no NIC contributions are recorded on your NIC statement.
If you prefer not to run a payroll system and submit reports to HMRC, you can reduce your director’s salary to around £5,000.
However, if you have other employees or take a £5,000 director’s salary, you will still need to use a payroll system and submit RTI reports to HMRC.
Take dividend payments from a property investment Limited Company
You only pay dividend payments from post-tax profits or retained earnings from your property investment Limited Company. If your business has made a loss in a year and has no retained earnings, no dividends can be taken.
The first £2,000 dividend income is tax-free irrespective of how much you earn (for the tax year 2021/22 and beyond).
Any dividend income over £2,000 will be taxed as long as you remain a basic rate taxpayer (i.e. when you add together dividends and salary) at 7.5%. A basic rate taxpayer is an individual whose total income is greater than £50,270 in the 2021/22 tax year.
If you take dividends over £2,000 and are a high-rate taxpayer, you will pay a 32.5% dividend tax. 38.1% dividend tax will be paid as an additional rate for taxpayers. To be an additional rate taxpayer, you would need to earn more than £150,000. You need to consider HMRC payments when taking money from a legal entity.
Can all Companies pay dividends?
Not all companies pay dividends and you cannot pay out more in dividends than its available profits from current and previous financial years.To pay a dividend you will need to hold a meeting to declare it and keep a written record of the details of the meeting even if you are the only director. For each dividend you will need to prepare a voucher (see below).
Interim dividend payments from your property company
Suppose you wish to release “interim” dividends to the shareholders to take full advantage of the dividend income allowance. In a particular tax year, you will need to make the money transaction (i.e. move money from the LTD to Director’s bank accounts). You will then prepare an “interim” dividend certificate per Director. This shows the value of the dividend income that shareholders receive. It will also show the date and sign it as an LTD director.
Please remember that you can only pay a dividend at an interim date; if your accounts showed your business to be in profit at that date. In addition, the dividend value is no more than 81% of the profit.
What documents are required for dividend distributions?
The Director of the company must write up a dividend voucher when taking money out of the legal entity and must show:
– Date
– Company name
– Names of the shareholders being paid a dividend
– Amount of the dividend
You must give a copy of the voucher to recipients of the dividend and keep a copy for your records when withdrawing money from the company account. Your company does not need to pay tax on dividend payments. But shareholders may have to pay Income Tax if they’re over £2,000.
Top up your director’s salary with dividends
It’s common practice for company directors to pay themselves an amount within the personal tax allowance, then extract dividends which is at a lower rate of tax than you would pay if you gave yourself a higher salary instead of a dividend.
Charge tax-free interest on company director loan accounts
A shareholder or a director of a UK property investment company can be owed money from their Ltd Company. Let us take a look at how this might happen when trying to take money out of a buy-to-let property company.
– £100,000 purchase of a buy-to-let residential property
– £75,000 is financed by a buy-to-let mortgage
– £25,000 is financed by the director/shareholder
At the year-end, it is possible and commercially viable for the said director/shareholder of the UK Limited Company to charge interest on the outstanding loan. Imagine that 6% interest is charged on the exceptional director loan account. 6% on £25,000 would equate to £1,500.
The £1,500 interest charged on the outstanding director loan account would become a business expense and reduce the corporation tax bill.
In addition, it is possible that some of the interest, if not all, is tax-free and not subject to income tax. This is because two main tax reliefs may be applied to UK directors. Taking interest from a legal entity is a great way to save tax.
Use a Limited Company to build a retirement nest-egg
A Limited Company can also act as a tax-efficient shelter until you need the money. Some see Limited Companies as a way to save for retirement when their income decreases.
This means keeping profits in the company to grow over time. Later on, you can withdraw them when your personal income is lower, possibly resulting in lower taxes.
Take money out of a Limited Company as expenses
There may be occasions when you have to cover business expenses using your own money. Too many busy owners take on daily expenses without reclaiming them from the company.
If these expenses are solely for business purposes, you can reclaim the money. To do this, you’ll need to keep receipts and fill out claim forms.
Examples of expenses that qualify for tax deductions include:
– Travel, meals, accommodation, mileage and parking
– Phone charges, computers and office equipment
– Training and development fees
Your company can repay these expenses together with your monthly pay or at another suitable time tax-free. The company must retain all receipts for a minimum of six years and document them. Failure to include these expenses in your tax return will result in them being taxed.
When your company pays back expenses to directors (or other employees), it needs to include these payments in the part of its annual Company Tax Return. HMRC sees these repayments as costs the company can subtract from its taxable income, which lowers the amount of tax it has to pay.
Some expenses might not need to be reported on the Company Tax Return or the P11D form if they qualify for special permission (dispensation). Getting dispensation can save you time in the future, but it’s a good idea to have an accountant check your expenses first.
Can a director withdraw money from a company account?
To summarise, yes, but it needs to be managed carefully in regards to the method, the consideration of any potential tax benefits and may also require reporting.
How we can help
Our qualified tax specialists will help you navigate the complexities of Limited Company tax rules.
-Call us today 0115 939 4606 and learn how we can help you gain maximum profitability.
-Book a one-to-one consultation
-Visit our videos and free webinars on You Tube
Extra resources:
– £5,000 tax-free savers allowance
– £1,000 tax-free allowance on interest
– Setting up a property investment limited company
–
– UK Capital gains tax calculator
Taking money out of Limited Company
A Limited Company is considered a distinct entity under the law, similar to an individual. Consequently, the company’s finances are legally its own, not yours personally. Therefore, you cannot withdraw money from a Limited Company as easily as if it were your personal bank account.
It might feel like your money’s stuck in a Limited Company but understanding the right withdrawal methods can help you access funds efficiently.
As a separate legal entity, your Limited Company provides many advantages, with you acting as both a director and an employee. However, this structure requires you to withdraw money in specific ways, such as through a salary or dividends. While withdrawing money can sometimes help reduce the corporation tax bill, other methods may not have this benefit.
Further, as a landlord, there are two significant advantages to using a property investment Limited Company. Firstly, the company can acquire buy-to-let properties. Secondly, it can offset mortgage interest and finance costs against its profits.
This is in contrast to the Section 24 mortgage interest relief cap, which preventsUK buy to let landlords from offsetting mortgage interest and finance costs against their rental income.
To learn more about how to take money from a Limited Company and how to get money out of a Limited company without paying tax, this article will guide you on how to withdraw money in a tax-efficient way.
It should also be noted that the methods covered are all typical everyday business practices and are not considered by HMRC in any way Limited Company tax loopholes, which is a completely separate subject.
How Optimise Accountants Can Help You
Our qualified tax specialists will help you navigate the complexities of Limited Company tax rules.
-Call us today 0115 939 4606 and learn how we can help you gain maximum profitability.
-Book a one-to-one consultation using the form below
-Visit our videos and free webinars on You Tube
Get money out of a Limited Property Company without paying tax
The key feature of using a property investment company is that you only pay tax on the money you take out. A Limited Company will pay corporation tax. At the time of writing it is 19%. If you do not take money out, you do not pay income tax.
This is the polar opposite of receiving income in your name which means you will have to pay income tax.
Worked example:
£8,840 tax and NI-free wages
£5,730 tax-free dividend payments
£14,570 personal allowance for 2024/25 tax year (less if your income is over £100K)
£1,000 interest allowance tax-free (if you charge your company interest for directors’ loans)
£300 tax-free gift vouchers
£15,870 taken from your Limited Company tax-free
Readers may have noticed that the HMRC tax-free personal allowance for 2024/2025 is actually £12,570, not £14,570 as previously stated. However, in addition to the personal allowance of £12,570, there is another £2,000 in tax-free dividends that can be withdrawn from a UK Limited Company, given that the company has generated profits.
Please note that wages are a business expense, and tax relief will help Limited Company owners to reduce their corporation tax bills. Taking dividends out of the legal entity may provide you with some tax efficiencies.
Understanding this information is crucial before withdrawing money from your company.
Avoid paying income tax and NI contributions (legally)
If you want to take a wage from a buy to let company structure as a landlord, for 2024/2025, and assuming you have no other income, you can take £12,570 (for the 2023/24 tax year) without paying income tax or National Insurance contributions.
You will retain your State Pension contribution record and complying with HMRC regulations. To do this, you need to set up a payroll system and inform HMRC that you are an employer.
If you earn less than £123 a week in the tax year 2024/25, you won’t have to pay any Class 1 National Insurance Contributions (NICs). This also means no NIC contributions are recorded on your NIC statement.
If you prefer not to run a payroll system and submit reports to HMRC, you can reduce your director’s salary to around £5,000.
However, if you have other employees or take a £5,000 director’s salary, you will still need to use a payroll system and submit RTI reports to HMRC.
Take dividend payments from a property investment Limited Company
You only pay dividend payments from post-tax profits or retained earnings from your property investment Limited Company. If your business has made a loss in a year and has no retained earnings, no dividends can be taken.
The first £2,000 dividend income is tax-free irrespective of how much you earn (for the tax year 2021/22 and beyond).
Any dividend income over £2,000 will be taxed as long as you remain a basic rate taxpayer (i.e. when you add together dividends and salary) at 7.5%. A basic rate taxpayer is an individual whose total income is greater than £50,270 in the 2021/22 tax year.
If you take dividends over £2,000 and are a high-rate taxpayer, you will pay a 32.5% dividend tax. 38.1% dividend tax will be paid as an additional rate for taxpayers. To be an additional rate taxpayer, you would need to earn more than £150,000. You need to consider HMRC payments when taking money from a legal entity.
Can all Companies pay dividends?
Not all companies pay dividends and you cannot pay out more in dividends than its available profits from current and previous financial years.To pay a dividend you will need to hold a meeting to declare it and keep a written record of the details of the meeting even if you are the only director. For each dividend you will need to prepare a voucher (see below).
Interim dividend payments from your property company
Suppose you wish to release “interim” dividends to the shareholders to take full advantage of the dividend income allowance. In a particular tax year, you will need to make the money transaction (i.e. move money from the LTD to Director’s bank accounts). You will then prepare an “interim” dividend certificate per Director. This shows the value of the dividend income that shareholders receive. It will also show the date and sign it as an LTD director.
Please remember that you can only pay a dividend at an interim date; if your accounts showed your business to be in profit at that date. In addition, the dividend value is no more than 81% of the profit.
What documents are required for dividend distributions?
The Director of the company must write up a dividend voucher when taking money out of the legal entity and must show:
– Date
– Company name
– Names of the shareholders being paid a dividend
– Amount of the dividend
You must give a copy of the voucher to recipients of the dividend and keep a copy for your records when withdrawing money from the company account. Your company does not need to pay tax on dividend payments. But shareholders may have to pay Income Tax if they’re over £2,000.
Top up your director’s salary with dividends
It’s common practice for company directors to pay themselves an amount within the personal tax allowance, then extract dividends which is at a lower rate of tax than you would pay if you gave yourself a higher salary instead of a dividend.
Charge tax-free interest on company director loan accounts
A shareholder or a director of a UK property investment company can be owed money from their Ltd Company. Let us take a look at how this might happen when trying to take money out of a buy-to-let property company.
– £100,000 purchase of a buy-to-let residential property
– £75,000 is financed by a buy-to-let mortgage
– £25,000 is financed by the director/shareholder
At the year-end, it is possible and commercially viable for the said director/shareholder of the UK Limited Company to charge interest on the outstanding loan. Imagine that 6% interest is charged on the exceptional director loan account. 6% on £25,000 would equate to £1,500.
The £1,500 interest charged on the outstanding director loan account would become a business expense and reduce the corporation tax bill.
In addition, it is possible that some of the interest, if not all, is tax-free and not subject to income tax. This is because two main tax reliefs may be applied to UK directors. Taking interest from a legal entity is a great way to save tax.
Use a Limited Company to build a retirement nest-egg
A Limited Company can also act as a tax-efficient shelter until you need the money. Some see Limited Companies as a way to save for retirement when their income decreases.
This means keeping profits in the company to grow over time. Later on, you can withdraw them when your personal income is lower, possibly resulting in lower taxes.
Take money out of a Limited Company as expenses
There may be occasions when you have to cover business expenses using your own money. Too many busy owners take on daily expenses without reclaiming them from the company.
If these expenses are solely for business purposes, you can reclaim the money. To do this, you’ll need to keep receipts and fill out claim forms.
Examples of expenses that qualify for tax deductions include:
– Travel, meals, accommodation, mileage and parking
– Phone charges, computers and office equipment
– Training and development fees
Your company can repay these expenses together with your monthly pay or at another suitable time tax-free. The company must retain all receipts for a minimum of six years and document them. Failure to include these expenses in your tax return will result in them being taxed.
When your company pays back expenses to directors (or other employees), it needs to include these payments in the part of its annual Company Tax Return. HMRC sees these repayments as costs the company can subtract from its taxable income, which lowers the amount of tax it has to pay.
Some expenses might not need to be reported on the Company Tax Return or the P11D form if they qualify for special permission (dispensation). Getting dispensation can save you time in the future, but it’s a good idea to have an accountant check your expenses first.
Can a director withdraw money from a company account?
To summarise, yes, but it needs to be managed carefully in regards to the method, the consideration of any potential tax benefits and may also require reporting.
How we can help
Our qualified tax specialists will help you navigate the complexities of Limited Company tax rules.
-Call us today 0115 939 4606 and learn how we can help you gain maximum profitability.
-Book a one-to-one consultation
-Visit our videos and free webinars on You Tube
Extra resources:
– £5,000 tax-free savers allowance
– £1,000 tax-free allowance on interest
– Setting up a property investment limited company
–
– UK Capital gains tax calculator
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