The generally accepted practice for Limited Company Directors to withdraw income from their business is by way of a nominal salary topped up with dividends.
We process and declare to HMRC a small salary for you at a rate of £670 per month. This ensures that while you do not physically pay national insurance that it remains a qualifying year for your state pension and maintains entitlement to state benefits. This salary should be withdrawn from your company account on the last working day of each month. Your company gets corporation tax relief on the salary paid.
Any balance of income withdrawn will be declared as a dividend. This is possible because you own shares in your company. Dividends attract a lower rate of income tax when compared to PAYE income. In comparison dividends are taxed at 7.5%, 32.5% and 38.1% for basic rate, higher rate and additional rate bands of tax. Normal income tax rates are 20%, 40% and 45%. Dividends declared have to be settled from business profits after corporation tax so you do not get any expense relief on dividends paid.
If you withdraw the suggested £670 for salary with a further £2500 dividend then your personal income tax liability will be around £1,700 and this will be payable under Self Assessment when your tax return is completed.