If you are the Director of a Limited Company then the method in which you can take money out of that company is performed via the method of withdrawing ‘dividends’. If you’re new to being a Company Director then this is how you will withdraw money from a company – this can come as quite a shock to those who have upgraded from running as a self-employed sole-trader (for example) who can take money from the business as and when they wanted to. When running a company you can only withdraw money as ‘dividends’ and these are always taken from the profit the company makes.
In today’s blog article we’re just going to explain the 2 methods in which a Company Director can withdraw dividends from their limited company, which are:
- Final Dividends
- Interim Dividends
Final Dividends are a one-off payment at the end of the company’s financial year where shareholders receive their share from the total amount of profit )after tax) the company has made throughout that year.
Interim Dividends are paid every six months and are shares of the profits (after tax) from ‘retained earnings’ prior to that period, so you would withdraw any profit the company has made for the past six months up to that point.
So as you can see taking money out of a Limited Company is very different to taking money out of a self-employed business. You are only allowed to take dividends every 6 or 12 months and the money can only be taken from profit made by the company. This is why many company directors will also get paid a salary from the company as well to keep them tied over during the interim between dividend payments. Also it’s worth noting at this stage that if your company doesn’t make any profit then you can’t take any dividends, simple as that! So if you’re looking into setting up a Limited Company then be sure it’s the right thing for you and your business to do from a financial point of view.