You can take money from your LTD company by taking a salary, taking money as dividends payments, or taking money as a director’s loan. The majority of Limited Companies use a combination of taking a salary and dividends.
To take a salary you must register at HMRC for PAYE (pay as you earn). You will need to take advice about the right amounts to pay yourself as there may be tax advantages to taking a basic salary and topping up with dividends.
Salary
The advantages of receiving a salary from your limited company are:
- The money can be paid if your business isn’t making a profit.
- You can make bigger contributions to your pension.
- It’s pretty easy to pay yourself a salary.
The disadvantages of taking a LTD company salary are:
- Your income tax will be higher than paying yourself in dividends.
- Both you and your Limited Company will need to pay National Insurance.
Dividends
If you are a shareholder of a LTD company you can take a share of the company profits (dividends) instead of a salary.
The advantages of being paid in dividends are:
- Your income tax is lower.
- You do not pay NIC (national insurance contributions) on dividends.
The disadvantages of receiving dividends are:
- You can only take dividends when the company is making a profit.
Director’s Loan
You can also take money from your limited company using a director’s loan. This allows you to take back any money that you have loaned to the business. You can also take more money out than you have loaned to the company but be careful as there are tax implications. It’s important to keep clear records and record the directors loan in your balance sheet and this can be time consuming.
Care should be taken when withdrawing money from a company as a director’s loan, as there can be tax implications that are not obvious. We suggest speaking to a qualified accountant before doing so.
