Pay yourself from limited company: your options

How can a director take money out of a limited company?

A director can take money out of a limited company as salary, expenses or benefits, as dividends paid to shareholders from profit, or as a directors’ loan. ^[1]

A director can hire an accountant, for example through business accounting services, to manage some of these tasks day to day, but remains legally responsible for the company’s records, accounts and performance.

Each route leaves a different paper trail: payslips and payroll reports for salary, minutes and vouchers for dividends, and a record of the loan for directors’ loans. The sections below take them in turn, and the records behind them feed into preparing and filing company accounts.

Can I have a PAYE job and a limited company?

A limited company is legally separate from the people who own it. A company can have one shareholder who owns the whole company and acts as its only director. ^[3]

The company registers for PAYE to tell HMRC it is employing staff, including the director where the director is the company's only director. Having had another job is one of the situations in which an employer must register for PAYE for an employee in the current tax year. ^[4]

Tax is usually deducted automatically from wages and pensions, while other income, such as untaxed income including dividends, may mean a Self Assessment tax return is needed, so check your own circumstances. ^[2]

Before taking advice, it may help to gather details of your other employment income, the payments you propose to take from the company, and the company’s available profits.

Salary, expenses and benefits

If you want the company to pay you or anyone else a salary, expenses or benefits, you must register the company as an employer.

The company must take Income Tax and National Insurance contributions from your salary payments and pay these to HM Revenue and Customs (HMRC), along with employers’ National Insurance contributions.

Company cars, health insurance, travel expenses and childcare are examples of expenses or benefits an employer may pay. If you or one of your employees make personal use of something that belongs to the business, you must report it as a benefit and pay any tax due.

Payroll records, including taxable expenses or benefits, need to be kept for 3 years from the end of the tax year they relate to.

Dividends: profit, paperwork and tax

A dividend is a payment a company can make to shareholders if it has made a profit. Your company must not pay out more in dividends than its available profits from current and previous financial years.

You must usually pay dividends to all shareholders. You cannot count dividends as business costs when you work out your Corporation Tax.

To pay a dividend, you must hold a directors’ meeting to ‘declare’ the dividend and keep minutes of the meeting, even if you’re the only director.

For each dividend payment the company makes, you must write up a dividend voucher showing the date, company name, names of the shareholders being paid a dividend and the amount of the dividend. You must give a copy of the voucher to recipients of the dividend and keep a copy for your company’s records.

Your company does not need to pay tax on dividend payments. But shareholders may have to pay Income Tax if their dividend payments are over £500.

Directors’ loans and keeping company money separate

If you take more money out of a company than you’ve put in, and it’s not salary or dividend, it’s called a ‘directors’ loan’. If your company makes directors’ loans, you must keep records of them. There are also some detailed tax rules about how directors’ loans are handled.

Your company’s banking must be separate from your personal banking.