.While the idea of such a loan is very appealing with so much uncertainty in the air at the moment, it's important that you fully understand and evaluate the pros and cons of applying for such a loan and of course the rules surrounding the withdrawal of one. 

Our limited company director clients are often asking us whether they are permitted to withdraw the whole amount shown in their company bank account. It's important to note that your profit available figure will often be different from the actual balance in your company's bank account, and there may be a few reasons for this... 

 

 

You should always refer to what profit is available to withdraw as a dividend, rather than what money is actually in the company account. The most common reason for this is that there are taxes due. You should always bear in mind which taxes you have due (including corporation tax, VAT and PAYE) when you are considering the amount available to draw as a dividend. 

 

You should aim to save 19% on every invoice raised throughout the year to pay your corporation tax - so for every £1,000 you raise in invoices, ensure you're putting aside £190. This doesn't take into account any deductible expenses for the purpose of this blog but you can read more about that here.  

VAT is paid on a quarterly basis, and as such you should be saving 20% from each VAT-able invoice paid for this reason. PAYE is also paid on a quarterly basis, but only if you have employees and you are paying tax and/or NI attracting salaries. You should be holding that PAYE back from their salary to pay each quarter, so your company's bank balance will be showing a higher balance than what is actually available for you to withdraw. 

 

 

Current legislation says that accounts should be prepared on an accrual basis as opposed to a cash basis. This means that both expenses and income should be matched to the accounting year that they relate to, rather than reporting revenue on the income statement once cash is received. This also means that when a company's accounts are prepared, some adjustments may have to be made to move certain expenses or invoices into a different year. This can then affect the profits available; an expense or invoice that has been paid will obviously change the bank balance itself, but may not change the available profits figure until the following year in which it will be accounted for. 

 

 

If you have any unpaid invoices i.e. debtors, this affects the available profits in the company's bank account and may make them appear higher than the company bank balance. If you owe any money to suppliers, for example a bill, then the cost of that purchase will lower the available profits, but this will not show up on the company's bank balance until the supplier has actually been paid and money has left the account. 

If you are unsure about whether or not to apply for a BBL, book a call with us or send us an email. We'll also help to ensure you are using or investing this money wisely. And remember - it is a loan. You will need to repay it!