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Using Company Money for Personal Purposes

Business is going well, so can you take some money out of your business accounts to pay for personal items? It depends on your company structure, among other factors. We’ll discuss the rules surrounding an owner using company money for personal use below.

Understanding limited company vs sole trader

The rules surrounding taking company money for personal use depend on your business structure. Sole traders have no legal distinction between their personal and business finances, though most will keep separate bank accounts for accounting purposes. This means that if a sole trader is using company money for personal use, there is no issue – they are one and the same. All business income is reported to HMRC on the sole trader’s self-assessment account either way.

However, limited companies must be registered at Companies House and are separate legal entities to their owners. A limited company’s assets and debts belong to the company itself, not the owner or shareholders.

For the rest of this article, when we talk about an owner using company money for personal use, we’re referring to the owner of a limited company. Each limited company consists of four components:

  • The company: A legally separate entity registered at Companies House

  • The business: The business itself pertaining to day-to-day operations

  • The shareholders: The members of the company who share in its profits

  • The directors: The individuals who have registered the company

How does a director get paid?

In most cases, a director using company money for personal use should be paid a regular salary. Director salaries can be set up using the PAYE system as with any other employee. This ensures that income taxes, National Insurance, and Employer’s National Insurance contributions are all covered to keep your business above board with HMRC. Directors can set their own salary to cover all necessary personal expenses.

A second option is to take out a director’s loan. This should be managed in a separate director’s loan account, with funds noted both on the director’s self-assessment tax return as well as the company tax return. There are certain tax implications to an owner using company money for personal use this way, so it’s best to sit down with an accountant before taking out your loan.

How do shareholders get paid?

Both directors and shareholders can access company funds through dividend pay-outs. Dividends can be regularly distributed so that all members can share in the profits. As with a director’s salary, income from dividends must be declared to HMRC. After a certain threshold, income tax will be due on these profits.

If you’re in need of a short-term injection of cash to your personal finances, dividends probably won’t be the most efficient option. They’re usually not paid to shareholders until the end of the financial year. It’s a good idea to combine dividends and salary to maintain a steady flow of income. This prevents the need to dip into your business accounts for other reasons.

Taking company money for personal use: the bottom line

A director using company money for personal use isn’t illegal, but it’s not best business practice. Technically, you can withdraw money from your business account and use it any way you see fit, provided you keep detailed accounting records and repay the funds as soon as possible. Records should show the date of the withdrawal, the amount withdrawn, and the corresponding repayment.

However, it’s best to keep this type of withdrawal to a minimum. Spending company money for personal use can be an accounting and tax headache, so it’s recommended to stick to the methods above when you need to use company cash.

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