Getting money out
of your company.

What are the three ways money leaves a company?

A limited company's money is the company's, not yours, and there are only three legitimate routes out. Everything else is one of these three wearing a disguise.

• —Salary — paid through PAYE, deducted from company profit before corporation tax, and subject to income tax and National Insurance.
• —Dividends — paid out of profit after corporation tax, only when there is distributable profit to pay them from, and taxed at dividend rates with no National Insurance.
• —Director's loan — anything else. Not wrong in itself, but it has to be recorded, and it has consequences if still outstanding at year end.

Why do most directors take a small salary and the rest in dividends?

Because the two routes are taxed differently. Salary is a deductible cost for the company but attracts National Insurance from both you and the company. Dividends carry no National Insurance, but they come out of profit the company has already paid corporation tax on.

The common pattern is a salary set around the level that preserves a qualifying year for the state pension and uses the personal allowance efficiently, with the remainder taken as dividends. Whether that is optimal for you depends on your profits, your other income, and the rates in force this year.

Rates move. The dividend allowance has been cut more than once in recent years, and National Insurance thresholds shift regularly. Treat the split as something to review annually with your accountant, not a setting you configure once.

When can a company legally pay a dividend?

Only out of distributable profits — broadly, accumulated profit after corporation tax, less dividends already paid. If the company has not made enough profit, the dividend is unlawful and can be reclassified, usually as salary or as a loan, both of which cost more.

This is why current books matter more after incorporating than before. Declaring a dividend in November on a hunch about the year's trading is a guess; declaring one against a ledger reconciled to yesterday is a decision.

Dividends should also be documented: a board minute and a dividend voucher for each one. It takes a minute, and it is the difference between a dividend and an unexplained transfer.

What is a director's loan account, and when does it bite?

Every pound that leaves the company that is not salary, a dividend or a reimbursed expense is a loan to you, tracked in the director's loan account. Borrowing from your own company is allowed.

It bites at year end. If the account is overdrawn — you owe the company — and is not repaid within nine months and a day of the year end, the company pays an additional tax charge on the outstanding balance. It is refundable once the loan is repaid, but the money is gone in the meantime.

There is a second charge worth knowing about: an overdrawn loan above a modest threshold carrying no interest, or interest below the official rate, creates a benefit in kind — which means a P11D and Class 1A National Insurance for the company.

None of this is exotic. It happens because someone paid for a personal thing on the company card in March and nobody wrote it down.

What counts as a legitimate expense reimbursement?

Costs you personally incurred wholly, exclusively and necessarily for the company's business — mileage in your own car at the approved rate, travel to a temporary workplace, professional subscriptions relevant to the role.

The bar for directors is higher than for a sole trader: the word necessarily is doing real work in that sentence. Where a cost is partly personal it is generally not reimbursable in full, and putting it through anyway makes it a loan or a benefit in kind rather than an expense.

How does Bizzle keep the loan account clean?

Every payment out of the company account is classified as salary, dividend, expense reimbursement or director's loan when it happens, not nine months later. Anything ambiguous is raised while you can still remember what it was.

The loan account balance is visible continuously rather than emerging from your accountant's year-end journal, which means the repay-before-the-deadline decision is one you get to make on time.

Payroll runs in the same system, so the salary you take is already in the ledger — and dividend documentation sits with the transaction that paid it.