I hope you’re having a great day. And today’s video, I want to just go over the different ways you can actually take money out of your limited company. So this video, as you may have guessed, is actually aimed at people who run a business through a limited company. So if you are a owner, as in a shareholder and director of your own company, then this is going to give you a really good overview of how you can get money out of your company.

So what we’ve got is three mainstream ways, sorry, four mainstream ways, and then one way not many people know about, and then one really naughty way, which people shouldn’t be using. So I’ll go straight into it.

So just before I do, though, because each of these methods is quite complex in itself and has a load of pros and cons attached to it, what I’m going to do is I’m going to give you an overview in this video, and then in the follow-up videos, I’m going to then go into a bit of detail about each one. So I’ll get straight into it.

So the first way, and it’s probably the most commonly known one, is as a director or shareholder, you can take a salary. So if you’ve got a lot of friends who run limited companies, you might be aware that even though their business might be making a lot of money, they tend not to take gigantic salaries. So what owner/directors tend to do is just take a smaller salary, and I’ll go into the reasons in a later on video.

But so the first way is really just take a salary from your company. Just as an overview, it’s a great way to do it because it uses up your personal allowance, because it does reduce your tax bill by using up their personal allowance. But then there’s also limits on how much salary you can take without going into paying loads and loads of national insurance. So I’ll talk about them later. So that’s the first way, take a salary. But more importantly, take the right salary, which I’ll explain in a later video.

So the second way is take dividends. So dividends are different from a salary. Dividends are technically classed as investment income rather than employment income. So the salary is there to pay you as a director, whereas the dividends are there to reward you for being a shareholder. So if you’ve got bank shares, you’ve got shares in like Footsie, 100, 250 company, any other listed company, you may occasionally get a dividend. So your company paying you the dividend is no different, really. And what a dividend is is it’s a distribution of profits. So it’s very important to note that, distribution of profit. So if your company is not making a profit, there is no profit to distribute. Hence, you can’t pay a dividend. So that’s the second way. There’s a few rules around dividends and strategies around dividends, which I will cover in another video.

So the third way is take it as a pension. So essentially take money out of your business to contribute into your pension scheme. Contributing in the pension is really good, because the tax relief on it is better than any of the other methods, although there is a drawback because it does lock money away until you’re 55. If you’re almost 55 or you’re over 55, not a problem. But if you’re really young and you are way off being 55, then you’ve got to take a bit of a view in terms of what your financial requirements will be during the course of your life. So that’s something I’ll also cover later on.

So the fourth way is take it as employee benefit. So you may have watched my video recently on trivial benefits for directors. If not, go have a look at it, because it’s a great little tax saving. But other benefits could include company cars, although also watch my video on electric cars because putting petro and diesel cars for your company is definitely not a tax saving. It’s the opposite. But you can include employee benefits as part of that. So including things like health insurance and gym memberships potentially. So there’s quite a few things you can do around that. And also, in terms of those employee benefits, if you get the right kind of life insurance, I think they call it life assurance, and you get the right kind of critical illness cover, which is otherwise known as key man covered, then that’s all really tax efficient. So you’ve then shifted a lot of your insurance costs through your business as well. So employee benefits, that is the fourth way you can essentially take money or money equivalent out of your business. I’ll go into those in a later video as well.

So did I say I’d do the naughty way first or the one that people didn’t … Yeah, so the one people don’t really know about. Okay. So a lot of director/shareholders, they often end up being owed money by their companies. So the fifth obscure way is essentially around interest and getting paid interest from your company. So I’ll go just as an overview, essentially, if you’ve been putting money into your business over the years and you may be in a position where the business actually owes you quite a lot of money, you might have put a lot in to start the business up, for example. You might have recently put more money into investing a particular project or something in your business, so you might be owed that money.

So one thing a lot of people don’t realize you can actually do is you can charge your business, your limited company, a commercial rate of interest for the money you’ve lent it. So for all the people out there with big director loan accounts where they’re owed the money, then think about charging eight or 10%. It used to be higher, but interests and business lending rates have gone down anyway. But think about charging 10% interest rate for the money you are owed by your business. Because what your business can then do is it can pay you that 10% interest. So let’s say the business owes you 50,000 pounds and you charge it 10% a year. Then the business could pay you 5,000 pounds in interest a year. And because you are a director/shareholder, your savings and investment allowance is slightly different to your regular employee.

So you get something called the savings nil rate band, and then you get an additional savings allowance on that. So in theory, you can earn up to about 6,000 pounds a year in interest costs without actually having to pay any tax on them. So it’s worth thinking about. There are certain procedures and forms that need to be filled in to be able to do that, so it’s not completely simple. But if, for example, you’ve borrowed money yourself to put into the business and you’ve borrowed it about 3%, which is a reasonable personal interest rate, and then you’re recharging it to your company at 10%, then in theory, you’re getting about 7% interest on that money you’ve lent your company tax free. So definitely worth thinking about.

And then the final naughty way which I mentioned, which people shouldn’t really be doing, but it can be useful in the short term to get you out of a pinch, is just borrow the money from your company as a director’s loan. So the last method I was talking about how you might have lent the company money through your director’s loan account. Well, it can go the other way, and the company can actually lend you money. So one thing to bear in mind, and I’ll cover director’s loan accounts in another video as well, is that’s only ever a short-term strategy. So if your plan is to just keep on borrowing money as a loan and never pay any tax on it, it will eventually backfire. But if you have a short-term financial need for that money and you’re confident you can repay it back to your company in the near future, then actually borrowing the money from the company isn’t a bad way to do it.

So there you are, the four ways most people know about, the one way not many people know about, and the one thing you shouldn’t really do if you can help it, but it can get you out of a pinch. So what I’m going to do is I’m going to do six parts as a follow-on to this video and I’ll talk about all of those in detail, the pros and cons, so keep watching. And just remember, if you found this useful, just remember to like, share, and follow, and subscribe.

And also, what we do as accountants, yeah, we get all the tax right. We make sure our clients save money. But what we do better than any other accountants is essentially we help people build their million pound business. So we look at what a million pound business looks like for that client. We point them in the right direction. We give them all the tools they need to do it, and we give them the regular ongoing support to do that. So if you’re looking to build a business that you can sell for a million pounds, then we are the accountants to start working with. So get in touch. We offer a free strategy session and look forward to seeing you either there or at the next video. Thanks.

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