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Welcome to our Mythbusters blog series, where we will expose the biggest financial myths that could land business in trouble. At Black & White Accounting, we believe that understanding financial rules is the key to long-term success, and today we’re tackling one of the biggest misconceptions among business owners and directors:
“My company’s money is my money.”
If you’re a limited company director and you think you can dip into company funds whenever you like, you could be setting yourself up for serious financial and legal consequences. Let’s break it down and explain how to pay yourself properly while staying compliant.
The Myth: “As a Director, I Can Spend Company Money However I Like”
Many business owners assume that because they run the company, they can freely access company money for personal expenses. It’s your company, so it’s your money, right?
Wrong! Your limited company is a separate legal entity, meaning its money does not automatically belong to you. If you take company money incorrectly, you could face tax penalties, HMRC scrutiny, and even legal issues.
The Reality: Your Company’s Money is NOT Your Personal Money
A limited company is legally separate from its directors and shareholders. This means the money in the company belongs to the business, not you personally. Taking money out the wrong way could be seen as tax evasion or even misappropriation of funds.
So how can you legally pay yourself from your company? Let’s look at the right ways to do it.
The Right Ways to Pay Yourself as a Director
1. Salary (Through PAYE)
One of the most common ways to withdraw money from your company is by paying yourself a salary through Pay As You Earn (PAYE).
- You must register your company for PAYE with HMRC.
- Your salary is subject to Income Tax and National Insurance.
- Many directors choose to pay themselves a small salary below the National Insurance threshold to reduce tax liability while still qualifying for a state pension.
2. Dividends (For Shareholders)
If you’re a shareholder in your company, you can pay yourself dividends from company profits.
- Dividends are taxed at lower rates than salary payments, making them a tax-efficient way to pay yourself.
- You can’t pay dividends if your company isn’t making a profit.
- Dividends must be formally declared and recorded with proper documentation.
3. Director’s Loan (If Used Correctly!)
You can borrow money from your company in the form of a director’s loan, but be careful:
- If you take out a loan over £10,000, it must be declared on your Self-Assessment tax return and may be subject to additional tax.
- If you don’t repay a director’s loan within 9 months of your company’s year-end, HMRC will charge extra Corporation Tax (32.5%) on the outstanding amount.
4. Claiming Expenses
If you’ve paid for legitimate business expenses with personal funds, you can claim this money back from the company tax-free.
- Keep detailed records and receipts to justify expenses.
- Ensure all claimed expenses are wholly and exclusively for business purposes.
The Dangers of Taking Company Money Incorrectly
If you treat company money as your own without following the right process, you could face serious consequences:
- Tax Penalties – HMRC can charge penalties, backdated tax, and interest on improperly withdrawn funds.
- Legal Trouble – Taking company money without proper documentation could be classed as fraud or mismanagement.
- Cash Flow Problems – Uncontrolled withdrawals can leave your company struggling to pay suppliers, employees, or even HMRC tax bills.
- HMRC Investigations – Improper payments often trigger tax audits, which can be stressful, time-consuming, and expensive.
The Smart Approach: Stay Compliant & Maximise Tax Efficiency
The good news? Paying yourself the right way can actually save you money on tax and keep your business financially healthy. By working with an experienced accountant, you can:
✅ Set up a tax-efficient salary and dividend strategy ✅ Ensure director’s loans are managed correctly ✅ Claim the right business expenses without HMRC issues ✅ Stay fully compliant with tax and legal obligations
Don’t Fall for This Costly Myth – Get Expert Advice
At Black & White Accounting, we help business owners take full control of their finances while staying compliant. If you’re unsure about how to take money from your company the right way, we can guide you through tax-efficient strategies that work.
Get in touch with our expert team today and make sure you’re running your business the right way!
Stay tuned for more Mythbusters blogs, where we continue busting financial myths and helping businesses thrive with confidence.
