Posted by admin on June 03, 2017 in Limited Companies

When you are a majority shareholder and Sole director of a limited company in the United Kingdom, there are a number of legitimate routes to extracting the profits from the company. You may also wish to retrieve monies you have put into the company.

Usually, what happens is that directors draw out money from the comapany bank account continously. Then at the end of the financial year there is often a large directors loan account to  deal with. The otion chosen will depend on the circumstances at the time.

Always take professional advice before taking money out of a limited company. A company is a legal entity and has a separate legal identity from its managers and shareholders. All the monies or assets taken out of a company have to be accounted for.

Repayment of directors loans: Where the director has put money into the company over and above the share capital. The director is entitled to a repayment of these monies without tax being deducted. However, if the director charges the company interest, the interest would be a chargeable expense to the company, and taxable income in the hands of the director.

Taking a Salary: The director can take a salary and this salary would be an expense to the company. The salary would be taxable income in the hands of the director and might require setting up a PAYE scheme.

Take dividends: The company can declare a dividend if it has distributable reserves. So a company making losses, which has no historical profits brought forward should not be declaring profits per Companys Act. Dividends may be taxable inthe hands of the director.

Distributable reserves: Generally, this means the cumulative profits of the company. If a comapny has no cumulative profits, then it should not declare a profit. Directors should bear in mind that distributable profits are after all taxes and cumulative losses have been accounted for. A cummulative loss means there is no distributable profit.

All the options considered in this articles do require some work and the right choice will depend on the circumstances. Companies house lays out formalities that should be followed in running a company including the resolutions you should have on file related to these matters. In a multi director multi share holder environment, you  may need the documented consent of the other directors and shareholders.  It is good practice to document your actions and retain these documents. You must also retain records identifying the monies taken by directors and shareholders.

Please note that this article is not intended to be taken as business advice and you should consult your retained advicers.

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