Your Business’s Money Is Not Your Money

One of the most common questions business owners ask is: "How much money can I take out of my business?" The reality is that, as a director of a limited company, your company’s finances are separate from your personal finances. Taking money from your business incorrectly could result in unexpected tax liabilities, including the S455 tax charge of 33.75% on overdrawn director’s loan accounts.

So, how do you avoid costly tax mistakes and manage your director's loan account effectively?

Understanding Director’s Loan Accounts

As a director, you have a Director’s Loan Account (DLA)—a record of money taken out and repaid to the business. While taking funds from your company may seem simple, you need to be aware of:

• Loans to directors: If you take out more than you put in, your account could be overdrawn.
• The S455 tax trap: If your DLA remains overdrawn at the company’s year-end and isn’t repaid within nine months, you could face an additional Corporation Tax charge of 33.75%.
• Repayment deadlines: If you clear your loan within nine months of the year-end, you can avoid the S455 tax charge.

Avoiding S455 Tax: How to Take Money from Your Business Tax-Efficiently

Rather than taking an unstructured loan, consider these tax-efficient ways to extract money:

• A Salary: Paying yourself through payroll ensures you receive income tax-efficiently.
• Dividends: If the company has sufficient profits, dividends can be a tax-efficient way to withdraw funds.
• Reimbursed Expenses: If you’ve personally paid for business expenses, reclaiming these is tax-free.
• Pension Contributions: Your company can contribute to your pension without triggering Income Tax or National Insurance.

Why It Pays to Plan Ahead

Taking money from your business without a plan can lead to unexpected tax liabilities. At Carthy Accountants, we proactively guide our clients to ensure they are taking money out tax-efficiently, avoiding unnecessary charges, and keeping more of what they earn.

Get the Business You Want

Understanding how to manage your Director’s Loan Account correctly can save you thousands in unnecessary tax bills. If you’re unsure about how to structure your finances, get in touch. Our expert team is here to help you make informed financial decisions so you can grow your business with confidence.