This is one of the questions I get asked most often, and for good reason. Getting money out of limited company structure efficiently is close to every business owner’s heart.
As a director and shareholder, you’ve got several options: salary, dividends, benefits in kind, interest payments, or loan repayments. Each has different tax implications. So which is best?
Director’s loan repayments
If you’ve lent money to your company, you can take partial repayments whenever you like. There’s no tax on loan repayments, so this is the cheapest option from a tax perspective.
The catch? It reduces the amount you’ve got loaned to the company. And once it’s gone, it’s gone.
Dividends
If your company is profitable, it can pay you a dividend. Dividends are paid from after-tax profits and taxed on you personally at dividend tax rates, currently 10.75% (basic rate), 35.75% (higher rate), or 39.35% (additional rate).
A few things to bear in mind with dividends:
- You’ll need to check who owns shares and what type they are, as dividends might need to go to all shareholders, not just you.
- Dividends require a board minute and a dividend voucher (which we can prepare on demand!). And because they’re paid gross, you’ll need to set aside money for the eventual tax bill.
Benefits in kind
Benefits aren’t cash, but if the company pays for something instead of you, it has the same effect on your pocket. Company cars, private medical insurance, gym memberships… all potentially available, but all taxable as benefits.
Interest payments
If you’ve loaned money to your company, you can charge interest. The interest is tax-deductible for the company but taxable on you personally.
JVCA tip: There’s a quarterly reporting requirement to HMRC for this, so if it applies to you, talk to us. We can help.
Salary and bonus
The company pays 15% Employer’s National Insurance on salary, so there’s a cost to the business as well as to you. But paying a higher salary = or a bonus – can actually be one of the more tax-efficient ways to get money out of limited company profits, depending on your circumstances.
So which is best?
Honestly? It depends.
Best for lowest overall tax bill? Best for biggest take-home? Best for simplicity? These aren’t always the same answer.
As a rough guide:
- Company profits up to £50k: A small salary plus dividends is usually the way to go
- Taking out over £125k: The lowest total tax bill often comes from paying a bonus, but the biggest take-home comes from dividends
The real answer is to get advice tailored to your situation. That’s what remuneration planning is for, and it’s one of the things we do for clients all the time.
Want help figuring out the best way to get money out of your limited company? Get in touch and we’ll book in a remuneration planning meeting. |
