Limited Company Tax for Directors / Lesson 1 of 9
The company is not you
The money in the business account is not your money. That single sentence is the whole course.
The short answer
- ✓ A limited company is a separate legal person that owns its own profit
- ✓ Money comes out as salary, dividend or loan, each taxed differently
- ✓ Undocumented withdrawals are treated as a director's loan
- ✓ Limited liability does not survive a personal guarantee
A separate legal person
A limited company is its own legal entity. It owns its assets, owes its debts, and earns its profits. You may own every share and be the only director, and it is still not you.
| Sole trader | Limited company | |
|---|---|---|
| Who owns the profit | You do, directly | The company does |
| Taking money out | Just move it, no tax effect | Salary, dividend or loan, each taxed differently |
| Who is taxed | You, on the profit | The company, then you separately |
| Liability for debts | Yours personally | The company's, with exceptions |
| Public filings | None | Accounts and confirmation statement |
Three ways money comes out
SALARY deductible for the company
taxed on you as employment income
National Insurance applies
DIVIDEND NOT deductible for the company
taxed on you at dividend rates
no National Insurance
requires distributable profit
LOAN not income at all, but must be repaid
tax charges if it stays outstandingThere is no fourth option. Money that leaves the company without being one of these is still one of them, just undocumented, and it is almost always treated as a director's loan.
Why it matters immediately
New directors routinely pay personal costs from the business account because the money is "theirs". Every such payment is a director's loan, and if the loan account goes overdrawn there are real tax consequences, covered later in this course.
The bit nobody explains
Limited liability is not absolute. Directors can become personally liable where they have given a personal guarantee, which most lenders and many landlords require, or where they continue trading when the company cannot pay its debts.
The protection is real but it is not a shield against everything, and the personal guarantee is the one people forget they signed.
Common mistakes
- Treating the business account as personal. Every withdrawal has a form.
- Paying personal costs from the company. That is a director's loan.
- Assuming limited liability covers everything. Personal guarantees survive it.
- Thinking profit is yours as it is earned. It belongs to the company.
Key takeaways
- ✓ A limited company is a separate legal person that owns its own profit
- ✓ Money comes out as salary, dividend or loan, each taxed differently
- ✓ Undocumented withdrawals are treated as a director's loan
- ✓ Limited liability does not survive a personal guarantee
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. You pay a personal bill from the company account. What is it?
2. Which route out of the company is deductible against corporation tax?
3. Does limited liability always protect you personally?
Sources
Finished this lesson?
Mark it done and we will remember where you got to.
