Payments that a limited company can make – Dispelling the confusion…

December 15, 2021

So, you’re a limited company and are struggling with all the rules. Don’t worry we have got you. Here’s a simplistic version of the regulations.

First of all, it’s important to know that if you are wanting to pay yours or any one else’s wages then you have to register the company as an employer.

You must take Income Tax and National Insurance contributions from the salary payments you make and pay these to HM Revenue and Customs (HMRC)

Simple so far, I hear you say but what if one of your employees has a company car, or needs to claim travel or entertainment expenses. Let me explain, you must report this as a benefit and pay the tax due.

Not that complicated so far but what do you know about dividends? They are payments normally paid at the end of the year to shareholders. The company normally pays these out of its profits. Your company must not pay out more dividends than it has available profits from the previous tax year.  Again, simple stuff, but did you know that you cannot count dividends as business costs when you work out your corporation tax? There’s always another rule thrown in just to make it a little bit more difficult.

Now the fun bit starts as I’m going to tell you all about the paperwork needed to pay a dividend. For each dividend you need to write up a dividend voucher showing the date, company name, name of the shareholder being paid and the dividend amount. You must give a copy of the voucher to the recipient and keep a copy for your company records. The good bit for you is that you don’t need to worry about the tax on dividends that’s all down to the shareholder.

Finally, another outgoing from your company could be a loan. Just a quick not on this one. If you need to take out more money than you put in this is not classed as a salary or dividend. It’s classed as a director’s loan. Directors’ loans are treated differently and again there’s paperwork involved. You must keep records of them. There are some detailed tax rules on how these are handled and that my friends will have to be another blog.