Ep04 - Money Matters – What’s the Company’s and What’s Yours?

Managing money in a Limited company can be confusing. In this episode, Nicola clarifies what belongs to the business and what belongs to you. She explains the difference between taking a salary, dividends, or a director’s loan; how to structure your pay to be tax‑efficient; and why using the company bank account as a personal spending pot is a bad idea. You’ll also learn about bookkeeping basics for tracking receipts, paying expenses, and recording transactions. With her approachable style, Nicola helps you understand how to pay yourself confidently and comply with HMRC rules. If you’ve ever wondered how to take money out of your business without getting in trouble, start here.

What You’ll Learn:

•           How to pay yourself as a director using salary, dividends, and loans.

•           The importance of separating company and personal finances.

•           Common pitfalls and how to keep good financial records.

Resources & Links:

I’ve written a book that expands on the topics in this podcast and comes with a companion guide. Learn more at www.thenumbersquarter.co.uk/book.

About the Podcast:

The Balanced Business – The Director’s Handbook is a 12‑part podcast series hosted by Bedford‑based Chartered Accountant Nicola Hageman. Designed for UK small business owners and company directors, the podcast explains how to run a Limited company with more clarity, confidence, and control. Each episode covers a practical topic – from choosing your business structure and staying compliant with HMRC to budgeting, VAT, systems, and delegating. The series is based on Nicola’s book and companion guide, available at www.thenumbersquarter.co.uk/book.

About Nicola and The Numbers Quarter:

Nicola Hageman is the founder of The Numbers Quarter, a friendly and approachable accountancy practice based in Bedford. She specialises in helping owner‑managed businesses grow their profits, plan for the future, and reduce stress. Nicola is known for her plain‑speaking advice and passion for aligning personal and business goals.

Connect with Nicola:

• Instagram – www.instagram.com/nicola_hageman
• LinkedIn – www.linkedin.com/in/nicolahageman
• Website – www.thenumbersquarter.co.uk

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Transcript

0:04

Hello again and welcome back to the Balanced Business Podcast. I'm Nicola Hageman from The Numbers Quarter, and this is episode four of the Director's Handbook series. A short, practical guide to the things you really need to know when you're running a limited company. In today's episode, we are talking about something that seems simple on the surface, but often trips people up. It's the difference between your company's money and your personal money. When you set up a limited company, especially if you're coming from a sole trader background, this can be a really big mindset shift. It's one of those things, if you don't fully get it from day one, it can lead to confusion, cashflow problems, or even HMRC issues down the line. So let's clear it up and talk about what's yours, what belongs to the business, and how to keep everything clean, compliant, and in control. So let's start with a quick recap of something that we touched on back in episode one. When you run a limited company, you and your business are two separate legal entities. This is one of the main reasons people go limited in the first place. Limited liability. The business has its own identity. It can owe money, it can enter into contracts, be sued, and yes, it can owe tax. All of this sits with the business, not with you personally. And what that means in practical terms is the money that's in the company's bank account does not automatically belong to you, Even if you are the only director, even if you own all the shares, the business's money is the business's money. You can absolutely access it, and that's one of the perks of being a director and a shareholder. But you have to make sure you take it out properly in line with the law and good financial management. So how do you pay yourself? Now, there are a few different ways you can take money out of a limited company, and each one has its own different rules and consequences, especially when it comes to tax. The main ones are salary, dividends, and director's loans. So we are gonna go through them one by one. So first up, salary. This is just what it sounds like. It's a regular wage that you pay yourself through the company's payroll system. You run PAYE, you get a pay slip, and the company deducts, tax and national insurance as is needed. Salary is often the starting point for most directors because it's predictable, it's easy to understand, and it also means you have a steady income on record, which is really helpful for things like applying for mortgages or building your pension record. Most small business directors choose to take a fairly modest salary, um, enough to qualify for national insurance contributions and stay in the system, but not so much that it creates a big personal tax bill. And the company can claim that salary is a business expense, which does reduce your corporation tax. So a salary is clean, it's simple, and it works really well when combined with the next option, which is dividends. So dividends. Dividends are payments you receive as a shareholder, not as a director. You can only take dividends if the company's making a profit, and that means a profit after tax and all other obligations. It's not just about what's in the bank account. You need to have clear up-to-date accounts showing that the business is in the black. Dividends are popular because they are generally taxed at a lower rate than salary, and you don't pay National insurance on them. So in many cases it can be more tax efficient to pay yourself through a dividend if you're doing it properly. Now that means checking your accounts, issuing a dividend voucher, recording the decision the whole lot. It's not a casual transfer just because you feel like it. And just a quick but important point here, taking dividends when the company hasn't made a profit. Now that's what HMRC calls an an illegal dividend. It's not a slap on the wrist. It's a compliance issue that could lead to penalties or reclassifications of loans as a salary, both of which comes with tax consequences. So, yes, dividends are great, but they come with rules and they are not something to take lightly or guess your way through. So what about taking money as a loan? So this brings us to the third option, the director's loan account or DLA. Now, this is where things often go a bit sideways. A director's loan account is a kind of running balance between you and the company. It records any money that you personally put into the company or any money that you take out that's not a salary or a dividend. So let's say you cover a business expense with your personal card that can go on the DLA as money that the company owes to you. Or maybe you are waiting on a dividend, but you need a bit of cash. Now you might take a short term draw down of that DLA and then you'll pay it back later. That's all perfectly legal and it can be a really useful for managing short term cash flow. But, and this is a big, but if you start using the DLA, like a personal piggy bank, you are asking for trouble if you take out more than you put in. And that balance isn't repaid within nine months of your company's year end, The company may owe extra corporation tax on that amount, and if the amount you owe is over 10,000 pounds and you don't pay interest, it might be considered as a benefit in kind, which means you are going to be taxed personally as if it was extra income. So where the DLA has a place, but it is not a long-term solution. It needs to be carefully tracked and ideally cleared regularly, either by repayment or by treating part of it as a formal dividend or salary. I. Now to keep all of this straight salary, dividends, loans, you need good bookkeeping. No way around it. You need a system that clearly tracks what the company earns, what it spends, what you as the director are taking out, and whether those withdrawals are salary, dividends, or loans. The clearer your records, the easier it is to stay compliant, pay the right amount of tax, and make informed decisions. Now, this doesn't mean you have to do it all yourself. If bookkeeping isn't your thing, this is a great area to get support, but don't ignore it or assume that it will sort itself out. It won't. And poor records are one of the fastest ways to lose control and feel stressed about money. So let's talk briefly about what a healthy financial structure can look like for a small limited company. At a minimum, you're gonna want a separate business bank account. This one's non-negotiable. Mixing business and personal money is a recipe for confusion and stress. You might wanna set up PAYE and start paying yourself a regular salary. You can decide in advance how often you'll review and pay dividends monthly, quarterly, once a year. You should keep your director's loan account tidy and avoid relying on it. For long-term funding, You should set aside tax money regularly for both corporation tax and also your own personal tax if you're drawing dividends, and you should review your numbers monthly, not just once a year. That visibility will give you confidence and control. Okay? So what can happen if you get it wrong? Now, I don't wanna scare anyone, but I also want to be honest. If you blur the lines between company and personal money, HMRC might challenge your dividends or treat some of your payments as undeclared salary, or add interest and penalties or to an unpaid loan. In more serious cases, if your bookkeeping is a mess and your DLA is out of control, it could lead to investigations, backdated tax charges, or even claims of director misconduct. But, and this is important, if you're listening to this now and you're thinking, oops, I've definitely done some of that, you're not alone. It is common. It is fixable. And the sooner you draw a line in the sand and get clear about your processes, the better. so my final thoughts, paying yourself from a limited company isn't about jumping through hoops. It's about understanding the rules of the structure that you've chosen to trade under. The more you respect the boundary between personal and company money, the more confident you will feel as a business owner. You'll avoid messy accounts. You'll stop second guessing every payment, and you'll feel more in control, which let's be honest, is what most of us are after. And remember, this is the kind of stuff that we help our clients with every day. You don't have to figure this out all alone. So thanks again for joining me on the Balanced Business Podcast. I hope this episode has helped you feel more confident about paying yourself properly and understanding what's really going on when money moves between you and your company. In the next episode, we will get into the world of tax, what deadlines you need to know about, how to plan for them, and how to take the pressure off when it comes to keeping HMRC happy. I'm Nicola Hageman from the Numbers Quarter, and I'll see you next time.