So you've set up a company - and it's going well, now you want to get your hands on some of the money. However there are many legal and tax consequences that you need to be aware of before you withdraw your hard earned cash.
The money belongs to the company, and to you need to withdraw it either in the capacity of an employee (director/worker) or owner (shareholder).
There are lots of different options - I will discuss the 2 most common scenarios below.
Salary/Pension
As a director/employee you are entitled to draw a salary from the company. This is tax deductible for the company so will save corporation tax and is subject to the usual PAYE and NI rules.The ideal level of salary will depend on each individuals' contribution to running the company, and their personal tax circumstances. These will be discussed and taken into account when salary levels are set at the start of each tax year. The company can also make contributions into a pension scheme on behalf of its employees. Again levels need to be considered in relation to the usual pension rules and the overall salary package of the employee.
Dividend
The company may chose to pay out a dividend to its shareholders, these must be based on the classes/ownership of shares and levels of distributable profit the company has available. A year end dividend will be discussed at the pre year-end meeting, and interim dividends can be declared throughout the year, upon review of management accounts and minuted meetings (we will help with all of these). Currently each individual has a 0% tax rate for the first £2k of dividends in the tax year so this is worth making use of.
Conclusion
Considering the future investment needs of the company, and living requirements of the directors/shareholders is a fine balancing act and requires regular monitoring. I like to be in contact with clients throughout the year so that the balance of salary, dividends and company cash flow can be reviewed and adjusted as necessary - staying within the legal requirements and avoiding unwanted tax complication.
