{"id":9198,"date":"2022-02-14T07:22:59","date_gmt":"2022-02-14T07:22:59","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=9198"},"modified":"2024-01-30T13:34:15","modified_gmt":"2024-01-30T13:34:15","slug":"take-too-much-money","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/take-too-much-money\/","title":{"rendered":"What happens if I take too much money out of my limited company?"},"content":{"rendered":"<p>A common misconception is that the money generated by a company belongs to the people who own it. If you hold this belief, you risk taking too much money out of your limited company, which can cause serious accounting and tax issues. Below, we\u2019ll discuss how to legally take money out of your UK limited company &#8211; and what to do if you remove too much.<\/p>\n<h3>Your limited company is legally and financially independent<\/h3>\n<p>A limited company is incorporated as an independent legal entity, which means that it is legally and financially separate from its directors and owners (shareholders). Therefore, certain protocols must be followed whenever <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/pay-yourself-through-limited-company\/\" data-wpel-link=\"internal\"><u>taking money out of a limited company<\/u><\/a>.<\/p>\n<p>Legally, you are not your company, so you cannot simply withdraw or transfer cash from the company\u2019s bank account for personal use whenever you want. The income generated by your company does not belong to you unless it is removed as:<\/p>\n<ul>\n<li>a director\u2019s salary<\/li>\n<li>expenses and benefits<\/li>\n<li>dividends<\/li>\n<li>a director\u2019s loan<\/li>\n<\/ul>\n<p>The biggest benefit of this separation is that you are not held personally liable for any debts of the company &#8211; those debts belong to the company. You are only responsible for paying the nominal value of your shares or personal guarantee.<\/p>\n<p>This is very different from the sole trader setup. Essentially, the person is the business, so there is no legal distinction between the two. All money that comes into the business (and all debts accrued) belongs to the individual.<\/p>\n<h3>If you pay yourself an excessive director\u2019s salary<\/h3>\n<p>If you are the sole director and shareholder of a company, it\u2019s really up to you how much you pay yourself as a director\u2019s salary. Whilst it is more tax-efficient to take a lower salary topped up with dividends, you can take whatever salary you like &#8211; provided the company has enough money in its bank account.<\/p>\n<p>However, if your company has other directors and shareholders, paying yourself an <a href=\"https:\/\/www.gannons.co.uk\/insights\/excessive-director-remuneration-beware\/\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\"><u>excessive director\u2019s salary<\/u><\/a> may breach your legal duties to the company and shareholders by putting your own interests first. In such instances, the other directors and shareholders (and even the courts) could challenge your remuneration and order you to repay a certain amount to the company.<\/p>\n<h3>If you take too much in dividends<\/h3>\n<p>Dividends must only be declared and paid when a company has sufficient distributable profits to support them, otherwise, they are deemed illegal.<\/p>\n<p>This means that your company must have enough remaining profit after you\u2019ve accounted for all Corporation Tax and VAT liabilities, salaries and wages, loan repayments, bills, and any other expenses that are due to be paid in the current financial year.<\/p>\n<p>If you mistakenly <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/issue-dividends\/\" data-wpel-link=\"internal\">issue dividends<\/a> that exceed the value of your company\u2019s available profits, you can rectify the problem by simply repaying the money into the company\u2019s bank account and recording the transaction in your financial accounts.<\/p>\n            <div class=\"complete_package__shortcode\">\n                <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/fully-inclusive-package\/\" data-wpel-link=\"internal\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-quality.s3.eu-central-1.amazonaws.com\/assets\/custom\/images\/blog\/qcf-blog_sidebar.png?v=2\"\n                        alt=\"Fully Inclusive Package Special Offer\"\n                        class=\"complete_package__mobile\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-quality.s3.eu-central-1.amazonaws.com\/assets\/custom\/images\/blog\/qcf-blog_banner.png?v=3\"\n                        alt=\"Complete Package Special Offer\"\n                        class=\"complete_package__desktop\">\n                <\/a>\n            <\/div>\n        \n<p>If you have spent the dividend money, you will have to cover the overpayment from future sales until the company is back in a profit position. Until this happens, you cannot issue any more dividends.<\/p>\n<p>Issuing an illegal dividend is a serious matter, but it is not a criminal offence if the payment was an oversight and the issue is remedied. However, you could face serious consequences if the company is insolvent and\/or you were fully aware that the company could not support the payment of dividends.<\/p>\n<p>In such instances, you can be disqualified as a director and held personally liable for the overpayment and any company debts that went unpaid due to the issuing of illegal dividends.<\/p>\n<p>HMRC\u2019s <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/company-taxation-manual\/ctm15205\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">Company Taxation Manual<\/a> provides detailed guidance on declaring dividends and how to rectify the payment of illegal dividends.<\/p>\n<h3>If you withdraw too much money from your company<\/h3>\n<p>If you intentionally or accidentally withdraw any money from your limited company for personal use (other than a director\u2019s salary, expenses and benefits, or dividends), it is classed as a <a href=\"https:\/\/www.gov.uk\/directors-loans\/you-owe-your-company-money\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\"><u>director\u2019s loan<\/u><\/a> and must be recorded in a director\u2019s loan account.<\/p>\n<p>The account will be \u2018overdrawn\u2019 if you\u2019ve taken more money from the company than you have paid in. Conversely, the account will be \u2018in credit\u2019 if you\u2019ve paid more money into the company than you\u2019ve taken out.<\/p>\n<p>Depending on the amount of money borrowed from the company, you may not have to pay any personal tax if the loan is repaid within 9 months and one day of the company\u2019s accounting reference date (ARD). However, the company will have to pay Corporation Tax and interest on the outstanding loan amount until it is repaid. The Corporation Tax can be reclaimed, but the interest cannot.<\/p>\n<p>All transactions in your director\u2019s loan account must be included in the company\u2019s balance sheet. In some instances, you will also need to report the loan in the Company Tax Return and your Self Assessment tax return.<\/p>\n            <div class=\"revolut_shortcode\">\n                <a href=\"https:\/\/revolutbusiness.ngih.net\/daV2kQ\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/revolut_mobile.png\"\n                        alt=\"Revolut Business & Affiliates.\"\n                        class=\"revolut_shortcode-mobile\">\n                    <img decoding=\"async\" src=\"https:\/\/cdn-brand.s3.eu-west-1.amazonaws.com\/assets\/images\/revolut_desktop.png\"\n                        alt=\"Revolut Business & Affiliates.\"\n                        class=\"revolut_shortcode-desktop\">\n                <\/a>\n            <\/div>\n            \n"},"excerpt":{"rendered":"<p>A common misconception is that the money generated by a company belongs to the people who own it. If you hold this belief, you risk taking too much money out of your limited company, which can cause serious accounting and tax issues. Below, we\u2019ll discuss how to legally take money out of your UK limited&hellip;<\/p>\n","protected":false},"author":10,"featured_media":9200,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false},"categories":[1239],"tags":[],"class_list":["post-9198","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-accounting-finance","category-1239","description-off"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.5 (Yoast SEO v23.5) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Happens if I Take Too Much Money Out of My Limited Company? | QCF<\/title>\n<meta name=\"description\" content=\"Find out what happens when you take too much money out of your limited company, We also cover how to legally take money out of your company.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/take-too-much-money\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What happens if I take too much money out of my limited company?\" \/>\n<meta property=\"og:description\" content=\"Find out what happens when you take too much money out of your limited company, We also cover how to legally take money out of your company.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/take-too-much-money\/\" \/>\n<meta property=\"og:site_name\" content=\"Quality Formations Blog\" \/>\n<meta property=\"article:published_time\" content=\"2022-02-14T07:22:59+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-01-30T13:34:15+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.qualityformationsblog.co.uk\/wp-content\/uploads\/2022\/02\/businessman-putting-money-in-suit-jacket-pocket-picture-id874316744.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1750\" \/>\n\t<meta property=\"og:image:height\" content=\"750\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Nicholas Campion\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Nicholas Campion\" \/>\n\t<meta name=\"twitter:label2\" content=\"Estimated reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"What Happens if I Take Too Much Money Out of My Limited Company? 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