Many self-employed individuals or freelancers in the UK choose limited companies for their businesses. There are several possible reasons to choose a limited company, but the primary one is that a limited company is a separate entity from its own. This protects the directors and owners in the case of their assets, and there are fewer chances of risk involved. However, paying yourself as a director of a limited company is complicated. So make sure you know the fundamental facts regarding how you pay yourself from a limited company in the UK. Today’s comprehensive guide is based on how do you pay yourself from a limited company. Continue reading to gather more information on this.

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How Do you Pay Yourself from a Limited Company?

Legally, four possible ways will make you safe even if you take out money from your limited company as a director. This answers how do you pay yourself from a limited company, including Reimbursement of expenses, Salary, Director’s loan, and Dividend payments. These ways are listed and explained in the following.

1- Salary

The most common way to pay a director from a limited company is to pay a small specific amount as a salary from the company account. However, this will be a legal way to do if the company is register with HMRC. You will also have to be concerned about national insurance and other obliged taxes being deducted from the employee and employer’s salary before it is distracted. Moreover, the personal allowance is  £12,570 and you can take out this amount without having to be obliged for any kind of tax. The level of your tax obligations will also depend on the amount of your salary.

• First £12,570 at 0%
• Between £12,571 and £50,270 at 20%
• Between £50,271 and £125,140 at 40%
• Over £125,140 at 45%

In the case of national insurance obligations, the gain depends on the level of salary you’re getting, which will explain how much you will pay as an employer or as an employee in this listed company.

2- Dividend payments

If a limited company in the UK is earning profits, it is possible to pay shareholders in the form of dividends. This is to remember that the amount of dividends is also taxed just like the case of salary. However, the applicable rates in this regard are given as the Basic Rate is 8.75% and the Higher Rate is 33.75%. The additional Rate is 39.35% in this regard. The overall income level will decide the category of tax rate you are obliged to pay. The good news is that there is no national insurance to be paid on the amount you get as a dividend from your limited company in the UK.

3- Director’s loan

Sometimes you need more money for business or personal purposes and the amount of your dividends or the salary you withdraw is not enough. There comes a situation when it is not legally possible to take out money as dividends or salary from the limited company. In such a business situation you can transfer the money from the business account to your account as a direct loan. However,  unlike the amount of dividends or salary, this amount works as regular loans and you need to repay them to the business. Also, interest is charged on this amount of loan. The loan amount has to be repaid by the end of the financial year, if not you may face severe consequences in the business.

4- Reimbursement of expenses

There are times when you need an amount for the cost related to wholly and exclusively business purposes. You took out this amount but later you can claim this as a business expense based on it being a business cost amount. This will lead to enjoying the benefit of business tax relief, you will also enjoy the factor of reimbursement personally. Travel costs like business miles, Business Insurance, Equipment, Software costs, and Professional services are a few examples of such costs. It is always a good idea to claim the legitimate expense to give tax relief to your business. In the case of individuals who are working from home, the cost used for business purposes only can also be claimed.

The Bottom Line

In conclusion, there are several legal ways to know how do you pay yourself from a limited company in the UK. However, being aware of the business circumstances and the legal ways is safe to keep your business away from penalties and unfavourable business situations. Whether you are working in the capacity of a director or a shareholder, you can withdraw the money from the company account as a large portion, a director loan or dividends if your company is earning profits. This will help you to adhere to the legal ways. However, in the case of a director loan, you will also have to pay the interest amount when the time comes to repay the loan. This is usually before the financial year ends. In case of being a beginner, you must seek professional help from our experts. So get in touch now.

Reach out to our intelligent and clever-minded guys to get the answer to your queries in the UK, we will get to your answers quickly. We will help to decide how to deal with your tax implications.

Disclaimer: The general information provided in this blog about how do you pay yourself from a limited company includes text and graphics. It does not intend to disregard any of the professional advice in the future as well.