When you set up a company for your associate dentist income, all payments for your work are paid to the company bank account. Then you’ll need to transfer what you need to your personal bank account. So how much cash can you withdraw from the company for your personal expenses?
There are 2 ways of approaching this:
1. Take what I need and leave all the administration to my accountant
While your accountant will split your withdrawals into salary, dividends, rent, interest, etc for tax efficiency, you may not be too interested in these details. You can withdraw cash from the company bank account and use it as you wish, while in the background your accountant is regularly processing payroll, sending you dividend documents to sign etc.
The main limit to how much you can withdraw is the amount of the cash in your bank account, but you’ll need to keep the following in mind:
Business expenses – what expenditure have you committed to? You need to maintain enough company cash to cover it
Tax rates – all the income you take from the company will go on your personal tax return. Your tax bill will start to increase significantly if you start to pay higher taxes.
Tax payments – you will have up to 7 tax payments to make during the year. Your accountant will inform you of the amount, type of tax and date, but you need to ensure you have the cash and make each payment.
2. Understand the different types of income and withdraw regular amounts
If you’d prefer to understand what your income is composed of, then you can withdraw each amount separately.
Salary
You (and possibly your spouse) are a director of the business and are paid a salary. After-tax and national insurance are deducted, your salary will normally be between £736 and £1,017 per month.
Home office rent
If you use any part of your home for your business, like admin, studying CPD, storing dental equipment, etc, the company can pay rent to you. This might be between £200 and £300 per month, depending on how much you use your home for work.
Dividends
The profits of the company are paid to you as dividends. With a good estimate of your income for the coming year, your accountant can advise you how much profits will be available. You may want to limit the amount you take in order to stay within the basic rates of tax.
You can then withdraw this as you need it, or set up a regular payment.
At the end of the year, your accountant will prepare dividend documents for the total that you’ve taken, and possibly split it over 2 tax years in order to optimise your tax savings.
Interest
If you’ve loaned personal money to your company (to buy equipment for example), then the company can pay you interest. This might be the case if it’s easier or cheaper to get a loan in your personal name than in the company’s name.
Expenses
Any business expenses that you’ve paid from your personal money, including an allowance for business mileage driven in your own car. More information on expenses here
Tip: Pension and donation payments are best made in the name of your company
There are different tax rules affecting personal and company payments for pensions and donations. To save having to pay an income tax to withdraw your company money. It’s tax-efficient to make these payments from your company rather than personally.
Any organisation you pay will need to correctly document that your payments are coming from your company. Contact the organisation in advance of arranging any payments to ensure you get the correct tax outcome.
Company Pension Payments
You can make company pension contributions into your personal pension fund.
It’s important to understand that this locks your money away until you reach the age where you can withdraw it from your pension fund (currently set as 57 for anyone born after 1971).
You should always speak with your financial advisor before making a pension contribution.
Company Donation Payments
Donations to registered charities are tax-deductible. Surprisingly registered charities often include schools, universities, churches and sports clubs.
Donations to other organisations e.g. Wikipedia or political parties are not tax-deductible
