Withdrawing funds from your company

As a director/shareholder, the most common ways to extract cash from your limited company is to pay yourself a bonus/salary or vote yourself a dividend. 

However, if you do neither of these and simply take money out you will make your director’s loan account (DLA) overdrawn.  Often people will sort this out with a dividend at the end of the year although it will mean your loan account has been overdrawn for many months.

The Taxman will treat an overdrawn loan account as earnings and charge PAYE tax on the balance – very costly for you!  You can avoid this if you can demonstrate that your intention was always to clear the overdrawn balance with a dividend or introducing your own funds to the company.  The best way of doing this is to get the company to minute a policy that overdrawn directors’ loan accounts must be cleared by either a dividend or personal funds introduced by the director. 

If you still get problems from the Taxman, refer him to para 29 of his own leaflet – CA44 National Insurance for Directors which confirms the above get out.