When you plan how much to take out of your company you need to consider your personal needs and if the combination or salary and dividends is enough to cover for your personal spending.
When you setup a limited company, you and the company are considered two separate legal entities. This means that any transactions between you and the company need to be recorded in an account called “Director Loan Account” (DLA).
If you remove less money from a company that you have put in, as the director you are not borrowing money. You are simply reclaiming the money they put into the business.
Depending on how much money is taken, the director’s loan account will either remain in credit or show a balance of nil. When the account is in credit, the available money can be withdrawn at any time without any tax implications.
However, if you remove more money than they put into the business (other than as a salary, dividends, or expenses), the withdrawal is treated as a benefit and classed as a director’s loan. The Director’s Loan Account is subsequently overdrawn.
Where a Director’s Loan Account remains overdrawn nine months after the end of the accounting period, S455 Tax will be charged by HMRC at the rate of 32.5%. This tax is repayable to the business once the overdrawn loan is repaid.