Question submission date: February 2023
Full Question: “I’ve set up a limited company – how do I draw money from my company to pay myself?”
Let’s start by reminding ourselves that when you have a limited company, you and the company are separate entities and you will have a separate business bank account. When you provide services for a client, it is your business that invoices them and the payment goes into your business bank account.
You’ll want to talk to your accountant as to the salary amount that is most tax efficient for you as they should recommend what that level is. In addition, your accountant will be able to calculate the amount of National Insurance and tax that your company needs to pay to HMRC. You will need to pay this directly from your company which is easily done by BACs. How often you need to make those payments depends on the level of NI and tax owed so for example, if the combined NI and tax amount that you owe is over £1,500 a month, you will be required to make a monthly payment to HMRC. Your salary itself can simply be transferred from your business account to your personal account, less the deductions.
Very often, a combination of salary and dividends (rather than just salary) can be the most tax efficient way to pay yourself and it’s definitely worth asking your accountant (or talk to us here at Integro) as to whether this could be in your best interest.
The dividend part would come out of the profit in your business but before paying yourself dividends, always think about the other expenses that need to come out of the profit such as corporation tax, just so that you don’t leave yourself short!
The salary part can be taxed at source (because you’re registered for PAYE as mentioned above) but the tax you pay on dividends will be made through your personal tax return. We do have a handy guide to salary vs dividends if you’d like to read more on this.
Bear in mind, every time you make yourself a dividend payment you need to complete a dividend declaration for your records just so you can prove to HMRC (should you ever need to) that you’ve done everything by the book. FreeAgent software, that we use here at Integro, automatically produces these declarations.
