PERSONAL INCOME
JPC FINANCIAL LIMITED
FINANCIAL LIMITED
THE COMPLETE BUSINESS MANAGEMENT SERVICE
CONTENTS
The next question to be considered is how the contractor should withdraw money from his company. Obviously, the agent will pay the contract payments to the company and not to the contractor, therefore the contractor has to consider the methods of obtaining that cash to support his or her personal requirements.

There are five ways in which funds are drawn from the company’s current account. There are as follows:-

  1. Transfers to Deposit Account for Tax/VAT saving purposes;
  2. Direct payment of company expenses;
  3. Reimbursement of expenses paid;
  4. Withdrawal of salary;
  5. Withdrawal of dividend.

Transfers to Deposit Account for Tax/VAT
In our example of the previous section the total income of the company is £69,000. Our calculation showed that 27.33% of this amount would be liable to be paid out in taxes. Therefore our first calculation is as follows:-

 

£

Total Income Received

69,000

Plus: VAT @ 17 ½ %

12,075

Total cash received

81,075
   

Transfer to Deposit Account - VAT

12,075

Tax (25% x £46,000)

18,858
 

30,933

So in this example a total of £30,933 would be transferred to the deposit account during the course of the year. This would not of course remain in the deposit account, as it would be transferred out to pay the monthly PAYE and quarterly VAT bills and the Corporation Tax liabilities as they fall due.
Direct Payment of Company Expenses
It will be possible to pay certain expenses directly from the company bank account (e.g. accountant’s fees).

Let us assume that in our example the following expenses are paid directly by the company:-

 

£

Car Tax and Insurance

700

HP Loan Interest

700

Pension Scheme

2,400

Accountant’s Fees

900
Total

4,700

Reimbursement of Expenses Paid
A number of expenses will be paid directly by the contractor from his personal funds, but which relate to company expenditure, (the most obvious examples being petrol and stationery). The contractor should regularly reimburse himself in respect of this expenditure (either monthly or quarterly) in the same manner in which he would claim expenses from an independent employer. An expenses reimbursement claim should be submitted to the company and a cheque written to the contractor for the claim. It should be emphasised at this stage that all receipts and vouchers for expenses should be maintained by the contractor for submission to his accountant for VAT and accounting purposes.

In our example the total claim in the year in question would be as follows:-

 

£

Car Running Expenses

1,500

Stationery etc.

300

Books and Literature

250

Domestic Bills (Business Proportion)

450
 

2,500

Withdrawal of Salary
Assuming that the contractor has engaged the ongoing services of an accountant, each month he will receive a salary payslip. This will show the gross salary, tax and National Insurance deductions, and net salary. In our example a gross salary of £15,000 is subject to tax of £2,246 and employees National Insurance of £1,157, leaving net earnings of £11,597, or £966.00 per month. If the accountant does not provide this service then the calculations and compliance paperwork will have to be prepared on a monthly basis by the contractor. Year end procedures such as P14, P35, P60 and P11D compliance must also be completed. (See Our Services).
Withdrawal of Dividend
The balance of funds left in the company should be drawn against the dividends declared by the company. This should preferably be done by the contractor drawing a cheque once per quarter as "drawings against dividend". In our example total dividends amounted to £56,000, i.e. £9,000 per quarter.