If you run a small owner managed business it is not a good idea to mix your business and personal expenses.
There is a very important principle and that is:
A company is a separate legal entity in law even if you own all the shares
This means that it is governed by company law. Director owners can pay themselves either via a dividend or a salary or a combination of both.
It must be remembered that company law dictates that the directors should declare an interim dividend (this should be in the directors minutes) and then propose a final dividend which needs ratifying by an ordinary resolution of the members (shareholders). This should be done even if you are the only shareholder and director. It also must be remembered that dividends can only be paid if there are sufficient reserves in the company to pay them.
If you pay personal expenses out of your business bank account and then declare these later as a dividend, HMRC may wish to claim that these are not dividend payments but rather remuneration and thus attract national insurance contributions. You will also have a weakened argument if there are no directors minutes or shareholder resolutions.
It is always more beneficial if you make things straightforward and transparent so that there only three amounts that you pay yourself out of the company bank account.
1) Your net salary
2) Lump sum interim dividend payments (can be paid monthly but should be the same amount monthly and should be minuted at the directors meetings). The final dividend for the year must be ratified as an ordinary resolution of the shareholders
3) Any expense claims for expenses that you personally incurred on behalf of the company
If you need further help and advice please contact me non [email protected] or call me on 0845 6807084
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Paul Marks & Co Chartered Accountants is the trading name of Paul Marks Ltd a Limited Company registered in England and Wales (registered number 4487645).
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