If you own and manage a limited company and you're not sure how to withdraw funds, don't worry – you're not alone. Here are some ways you can withdraw funds from your limited company, depending on your personal income circumstances:
It's important to make use of any allowances and using a low salary to do this is brilliant. We suggest a low salary of £12,570 per year for the 2023/24 tax year – or £1,047.50 per month. This matches your personal allowance exactly, so, as long as you don’t have other income like a separate employment or rental income, personal tax isn’t an issue. As well as that it provides a cost to the company which reduces its Corporation Tax bill.
Unless you have other employees and are able to claim Employers NI relief, this will incur some Employers National Insurance towards the end of the year. This is charged at 13.8% of the excess over the allowance, however, Corporation Tax relief will be at 19% so overall it's a good move. You’ll need to make sure the payroll is reported properly via a payroll scheme, so don’t try to do this if you’re running your own company’s books - unless you’ve got prior payroll experience. Give us a shout if you need a hand.
The second part of a Low Salary High Dividends strategy is the dividends. Dividends are taxed at a lower rate than income tax, but they don't generate tax deductions in the company. They need to be paid from profits generated (after corporation tax has been paid).
In 2023/24, you'll be entitled to £1,000 of tax-free dividends. After that, basic rate dividends will be taxed at 8.75%, higher rate dividends will be taxed at 33.75%, and additional rate dividends will be taxed at 39.35%. Standard UK tax rate bands apply to these - find those here.
As a director of a limited company, you're entitled to interact with the company in ways other people can't. You can lend your money, or borrow up to £10,000 from your company, without personal tax implications. This obviously isn’t a long-term solution but can help with temporary cash flow blips. Bear in mind that if any loan is outstanding to you at your year-end, your company is required to report it on your Corporation Tax return. If it’s not repaid within 9 months of the year-end, you’ll need to pay some tax on the balance. Give us a shout if you need a hand with this.
Quick tip: Keep on top of your bookkeeping to ensure you know exactly how much you owe your company, or your company owes you. If you need help keeping on top of your bookkeeping regularly, we can help - get in touch.
Selling Assets to the Company
When starting your limited company, it's quite normal to not want to fork out thousands of pounds on new IT equipment. A good way to get the company going is to use your existing equipment. To make this advantageous, look to sell your equipment to your limited company at market value (whatever you might look to sell it for to someone that you didn’t know). Just like selling it to a third party the company will need to pay you for this. That can either happen at the time of the purchase, or it can be put as a loan to be repaid to you in the future via the director's loan account. Additionally, this will generate some tax relief (Writing Down Allowances) as well as allow you the chance to get some cash out of the business for a legitimate cause.
Although this is putting money in future you's pot, it's still a good way to get money out of a company. Pension deductions can get tax relief just like expenses can, but the money is still yours. We suggest engaging a pensions expert to ensure this is done correctly.
Keep these options in mind when you're figuring out how to withdraw funds from your limited company. If you need further assistance, don't hesitate to book a call here.