If you run a small owner managed Limited Company it is not a good idea to mix your business and personal expenses and payments

A company is a separate legal entity even if you own all the shares and is governed by company law.

Director/owners of Limited Companies can pay themselves remuneration either via a dividend or a salary or a combination of both.

If you want to pay a dividend 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 and recorded even if you are the only shareholder and director.

It also must be remembered that dividends can only be paid if there are sufficient distributable reserves in the company to pay them. I have come across many small sole contractor business owners that take out more money than the distributable reserves left in the company which makes the dividend illegal.

The company has to treat this deficit as a director’s loan and therefore subject to withholding tax.

It is also not wise to pay personal expenses out of your business bank account and then declare these later as a dividend.

HMRC may claim that these are not dividend payments but disguised 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 important to 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, properly documented with receipts

If you need futher help and advice please contact me on [email protected] or call me on 0800 689 3084

Disclaimer:

Paul Marks & Co Chartered Accountants is the trading name of Paul Marks Ltd a Limited Company registered in England and Wales (registered number 4487645). This article is designed for the information of readers only and readers should not act on any of the information contained in this article without seeking professional advice. Nothing in this article constitutes advice, nor does the transmission, downloading or sending of any information or the Material create any contractual relationship. Links to third party websites are provided as a convenience to the reader, Paul Marks Ltd does not control and is not responsible for any of those websites or their content. Paul Marks Ltd accepts no liability or responsibility whatsoever for any loss or damage suffered by any user of the information contained on or accessed through this article or the Material downloaded.