If you are the director of a limited company then it is likely you will plan to take a low salary of around £7,000 per annum and then take the rest of your income as dividends. This is sensible tax planning and perfectly legitimate, however resist the temptation to take dividends monthly otherwise you could find yourself in trouble.
Firstly, a regular monthly withdrawal from the business bank account can lead HMRC to deem all payments as salary, on which you would have to pay full tax, employee’s and employer’s national insurance.
Secondly, taking funds from the business before profits are calculated, can lead to you becoming a debtor of your own company. You are then in danger of insolvent trading, having effectively spent the Corporation Tax money.
the need for regular income
Often the need for monthly dividend payments is a problem faced by individuals who have left permanent employment, with the security of a regular income. The solution is to prepare your finances in advance and to work with an accountant who can help you to forecast your profit levels at the start of trading.
we can help
At a4c we can provide you with an illustration tailored to your exact circumstances at the start and will provide you with quarterly management reports throughout the year, which demonstrate how much you should put away to cover your Corporation Tax and how much is left available for you to take as dividends.
Call today for a free, no obligation chat to find out how much you could take home through a limited company, or to discuss how you could improve your current trading style to be more compliant.