Can I pay my Personal Tax Bill from my Company?
If you’re a sole Director of a limited company, we totally understand why this would seem like an obvious way to streamline the process of getting your tax bill paid.
Our answer though, is ‘Don’t do it!’
By paying your personal tax liability from the company bank account, you could create more of a problem than you expect!
So, what should you do?
The ‘Ideal world’ answer is to save the personal tax from dividends or your salary as the year goes on, and pay the amount over as it falls due from personal funds.
And if you DO pay it from the company?
- The amount will be applied to your Directors Loan account, and increase the amount that needs to be covered by Dividends or repaid within 9 months of the company year end. If you don’t clear the loan amount in full by this point, it would be liability to Section 455 tax at a minimum rate of 32.5%!
- The amount paid by the company on your behalf would be classed as a loan, and the benefit of this loan amount would need to be shown on a P11D each year. This would give rise to additional personal tax and employers National Insurance.
- As the amount is a personal liability paid by the company Employers National Insurance would also be due on the full amount paid, at 13.8%.
And it doesn’t stop there!
Whilst we are all for making life as simple as possible for the hardworking owners of limited companies, we have a responsibility to keep them safe from HMRC.
A Limited Company is a separate legal entity, and its bank account belongs to the company and NOT to the Director.
If HMRC were to notice, perhaps during a routine review of expenses or business records, that a personal liability was paid by the company, that could be enough to trigger a full-scale enquiry into both the affairs of the company and the private affairs of the Director.
The stress, worry and aggravation of such an enquiry is just not worth the time saving of making an extra couple of transfers through the bank!
Our advice?
In case it’s unclear, our advice is to make any payments for your personal tax liability from your personal bank account. The alternatives make life way more complicated and expensive than it needs to be!
To discuss any of the above, or any questions that it may prompt, please get in touch. We’re very happy to help!
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