Depending on the size of the company and your position within it, each or all of these methods may be open to you.
1. Taking a salary or pension from the business
If you are an employee or director of a medium-sized company, you will likely be paid a salary commensurate with your position, which is most likely based on market benchmarks for that role. The company may also agree to make pension contributions on your behalf, which are tax deductible expenses for the company.
Alternatively, and particularly in respect of smaller businesses in which you may be a Director with shares, or sole Director, you may be given, or allocate yourself, a small salary and then rely on it being topped up by a substantial pay-out through Dividends.
2. Taking a share of the profits through Dividends
Directors who take a small, or no, salary from a Limited Company, will normally take recompense through Dividend payments, made out of post tax profits. Many Limited Companies are set out in such a way that Directors take little or no salary from the business, but then share the profits out at the end of the Year, through an allocation of Dividends.
This is a way of keeping cash-flow within the business but does rely on confidence that the business will make a profit. If there’s no profit, then there’s no Dividend pay-out!
Salaried Directors, or employees, can also be awarded Dividend pay-outs, which are then taxed separate from income, through Dividend Tax.
Dividends have to be ‘declared’ at a Board Meeting, even if you are the sole Director and shareholder, and Minutes must be taken of the meeting, stating the date of the meeting. You must also produce a Dividend Voucher for each Dividend that is allocated.
3. Taking a Director’s loan
There may be a number of reasons why you would take money out of your company, in the form of a Director’s Loan:
- In order to lend money to your Company
- In order to borrow money from your Company that exceeds what you originally put into it
- To reclaim a previous investment in the Company
If you take a loan, for whatever reason, you must open up a Director’s Loan Account and show it as part of the Company’s balance sheet.
Depending on the reasons why you have taken the loan there may be tax implications, either for you, or the Company, or both. In some circumstances, there may also be National Insurance implications. In all cases, there is a requirement to keep detailed records of all loans, including money given to the Company, as well as that taken out.
Some of these Tax and NI implications can be quite complex, particularly if they run over consecutive Tax Years. Dominic Hill has experts in this field who can help guide you through these implications, to ensure that you do not break any rules, and that you do not pay any more tax than you need to.
4. Reimbursement of admissible expenses
There are often times when you need to pay for things when on Company business, which can be termed as ‘Admissible Expenses’. To be ‘admissible’, these expenses must be directly related to your role within the business. Tax deductible expenses include things such as:
- Mileage and parking charges
- Meals and entertainment
- Postage costs
- Travel and accommodation
- Mobile phones, laptops and other devices and equipment
- Training or professional fees
In order to claim expenses, you must keep receipts and submit them with a recognised claim form. Your Company can then reimburse you in line with your salary schedule, or at any other convenient time within the month. The Company must keep all receipts and claim forms for at least 6 years.
From your point of view, you must complete Form P11D, to confirm how much you have claimed and been paid in expenses and then submit it with your Self-Assessment Tax Form. Otherwise you may be taxed on that income. There may be cases where you can apply for dispensation in order to avoid having to complete Form P11D, but this can get very complex and you would probably need the help of your Accountant in these circumstances.
The Company has its own obligations in reporting how much it has paid out in expenses.
In all instances Dominic Hill can help and advise you on these issues.