Limited Company Withdrawal Options: What You Need To Know

Managing a limited company in the UK involves a range of responsibilities, including understanding how to withdraw funds. Whether you are a director or a shareholder, you must know these tax-efficient withdrawal strategies to help you make informed financial decisions. Today, in this blog, we will discuss withdrawal methods while emphasising tax-efficient strategies.

If you need expert tax advice tailored to your unique situation, call Carter Collins & Myer on 01706 225 617 or email us at enquiries@uk-ccm.com to book a free consultation today!

Understanding Limited Company

Before we hand you over the strategies, it’s essential to understand what a limited company is.

A limited company is a separate legal entity from its owners (shareholders). The company can own assets, enter contracts, and incur liabilities independently. In the UK, limited companies are typically registered with Companies House and can be private (Ltd) or public (PLC). The advantages of limited companies are as follows:

1. Limited liability: One of the primary benefits of forming a limited company is limited liability. This means that shareholders’ assets are protected from the company’s debts.
2. Tax efficiency: Limited companies often benefit from lower tax rates than personal income tax rates, making them an attractive option for many business owners.
3. Credibility: Operating as a limited company can enhance your business’s credibility and attract more clients and investors.

Despite these advantages, there may come a time when you need to withdraw from your limited company for various reasons. Keep reading; we will share them in detail in the next section.

4 Tax-Efficient Withdrawal Strategies

As mentioned above, when you set up a limited company, it becomes a separate legal entity. It means the company’s assets and profits belong to the business, not yours personally. Therefore, withdrawing money isn’t as easy as it may seem. Let’s explore the tax-effective strategies for withdrawing funds from your limited company.

1. Director’s Salary

Salary is one of the most common ways to withdraw money from a limited company. Here are the key points that you must remember:

• Register for PAYE: Register the company as an employer and set up a Pay As You Earn (PAYE) system.
• Salary levels: Many directors opt for a low salary, often around the National Insurance threshold of £12,570 per year. This allows them to avoid personal tax liabilities while qualifying for state benefits.
• Tax deductible: Salaries are considered tax-deductible expenses for the company, thus reducing its overall tax liability.

2. Issuing Dividends

Dividends are payments made to shareholders from the company’s profits after corporation tax has been paid. This method is highly tax-efficient:

• Profit requirement: The company must have sufficient retained profits to issue dividends legally.
• Tax rates: The first £1,000 dividend income is tax-free due to the annual dividend allowance. Beyond that, the tax rates depend on your income tax band:
  • Basic rate: 8.75%
  • Higher rate: 33.75%
  • Additional rate: 39.35%
• Formal declaration: Dividends must be formally declared in a board meeting, with proper minutes recorded, even if you are the only director and shareholder.

3. Director’s Loan Account

If you withdraw money that isn’t classified as salary or dividends, it is termed a director’s loan. Here’s how it works:

• Loan tracking: You must maintain a director’s loan account to track any funds borrowed or paid into the company.
• Credit vs. overdrawn: The loan account is overdrawn if you withdraw more than you have contributed. Conversely, it is in credit if you have deposited more than you’ve taken out.
• Tax implications: If your loan account remains overdrawn for more than nine months, the company must pay a tax of 33.75% on the overdrawn amount. You may also need to declare the loan on your self-assessment tax return.

4. Reimbursement Of Expenses

You can reclaim these from the company if you incur business-related expenses personally. This method not only gives you access to your funds but also helps the company benefit from tax relief:

• Allowable expenses: Common reimbursable expenses include business travel, office supplies, and professional fees.
• Documentation required: Keep receipts and proper records of all claims. You must report these expenses on the P11D form at the end of the tax year.

Carter Collins & Myer’s Role As Professional Advisor For Limited Companies

We know navigating the complexities of limited company withdrawals can be overwhelming, especially when considering tax implications and compliance with HMRC regulations. This is where Carter Collins & Myer can make a big difference. With years of experience in corporate taxation and financial planning, our expert accountants are dedicated to helping limited company directors choose the most efficient withdrawal methods.

Whether you’re unsure about balancing your salary with dividends or managing an overdrawn director’s loan account, we offer tailored advice that will align with your business needs. Our experts will thoroughly assess your financial situation and guide you through the best strategies to maximise your tax efficiency, ensuring you make the most of your profits while staying fully compliant.

Additionally, our in-depth understanding of UK tax laws for limited companies means we can help you avoid costly mistakes, such as issuing illegal dividends or incurring extra taxes on an overdrawn director’s loan. By working closely with us, you can peacefully focus on other business activities, knowing that your financial affairs are in capable hands.

Conclusion

So, taking money from a limited company with these tax-efficient withdrawal strategies can make all the difference.

If you need practical advice on UK company tax planning and smart financial planning, consult our professionals at Carter Collins & Myer. Call us today on 01706 225 617 or email us at enquiries@uk-ccm.com to ensure you’re making informed decisions about your limited company withdrawals.