There’s a lot to keep track of when running your own business. As a business owner you probably have a business account and a personal bank account, and you probably have to transfer money between the two at some point. Perhaps you need to pay yourself a salary or take out some money from your business for unexpected costs. Transferring money between accounts can be straightforward if you know what steps to follow. In this blog post we’ll share more information about transferring money from your business to your personal account.
Is transferring money from your limited company to your personal account legal?
It is definitely legal to transfer money from your limited company to your personal account, as long as this is done for legitimate business reasons and it won’t jeopardise the company or put it at risk of insolvency.
If you think about it, transferring money from a limited company to a personal account is just like any other business expense. You are simply moving money from one account to another because the money is needed elsewhere. The main difference is that instead of paying for office supplies or marketing expenses, you are using them to pay for yourself.
This transfer is considered as an "income" and can be transferred to your personal account as long as you have paid the necessary taxes on it. So, it is important to make sure that you have correctly reported and paid any taxes due on the income that you are transferring.
Keep in mind that you cannot transfer money from your company account to your personal account for personal expenses that are not related to your business. If you do so, it could be considered a breach of your legal and tax obligations as a business owner.
Why do you need to pay yourself from your business?
Time for some real talk: we all have bills to pay and expenses to cover, and sometimes our personal finances need a boost. That's where being able to transfer money from your business account can be really useful. Below are some of the reasons you might want to transfer money from your business account to your personal account:
- Paying yourself a salary: You’ve probably been working really hard and way more hours than you would if you were employed – and you deserve to be compensated for this.Paying yourself a salary is a common way to do this and ensure a steady income for yourself.
- Covering personal expenses: Life happens, and sometimes unexpected expenses come up that need to be covered. Using money from your business account can help cover some of these costs and keep your personal finances afloat.
- Investing in yourself: Taking money out of your business account to invest in yourself is important for personal growth and it will also probably benefit your company in the long run. This might include paying for a course to upskill yourself, going on a holiday or even funding a hobby.
- Diversifying your investments: If your business is successful and you find yourself with extra profits, it might make sense to take money out of your business account to invest elsewhere, therefore spreading your wealth across multiple assets.
Reasons to take money out of your business
Now comes the important question of how to pay yourself from your business, for the work you’re doing. Here are some common ways to do so:
Salary is like getting a paycheck – just like you would if you worked for someone else. To start paying yourself a salary you’ll need to create a payroll system for your company.
How much do you want, or need, to pay yourself? You can base this on industry standards, your role in the business, and how much revenue your business is generating. Do you want to pay yourself weekly, bi-weekly, or monthly? You’ll need to figure out what works best for you and the business.
Once you've determined your salary and pay frequency, you can set up a payroll system. This can be done manually or with payroll software. Make sure to include all necessary deductions and contributions, such as National Insurance contributions, paye-as-you-earn income tax, workplace pensions and any other loans or deductions or tax relevant to your situation.
As a business owner, you are considered a shareholder in your own company, so you can receive dividends (profit generated by your business) as a way of paying yourself.
To pay yourself through dividends, your company must first earn a profit. Then, the corporation's board of directors can declare a dividend, which is typically paid out in cash or additional shares of stock. Based on how much of the company you own, or have shares in, you will receive a portion of the dividend.
Paying yourself through dividends is often considered a tax-efficient way to receive income. They’re typically taxed at a lower rate than other types of income, like salary or wages for example. You’ll need to keep in mind though, that dividends aren’t guaranteed and can be affected by various factors including the company’s financial performance over time and the decisions the board of directors make.
If you decide to pay yourself through dividends, it's important to follow the proper legal and tax procedures. Your company must adhere to specific rules and regulations, including the distribution of dividends.
Owner's draw is a common way for business owners to pay themselves. Essentially, it's a withdrawal of funds from your business account for personal use. Unlike paying yourself a salary, an owner's draw does not require a formal payroll system, which can be simpler for small business owners.
When you take an owner's draw, you should be aware that it may have tax implications. The money you take out of your business account will be seen as part of your personal income for tax purposes. You might also need to pay self-employment taxes on the money you withdraw, depending on your business structure and other factors.
This method involves the business reimbursing the owner for expenses that they have personally incurred on behalf of the company. If you use your personal credit card to pay for certain business expenses then you can claim a reimbursement to get the company to cover those expenses. This might include costs related to travel or meals for example.
To pay yourself through reimbursements, you'll need to keep accurate records of all business-related expenses that you pay for personally. Keep track of all receipts, invoices and any other documents that show what you’ve spent, and use these when submitting a reimbursement request.
Since you are not technically earning income through reimbursements, they are not subject to income tax. You will need to make sure you’re following all the proper legal and tax procedures correctly as not all expenses will be eligible for reimbursement. Again, it might be useful to consult with a professional while you’re still figuring all of this out in the beginning of running a business.
Ready to pay yourself from your business? Let’s take a look at some steps to follow:
- Determine your payment method: Will you be paying yourself a salary, taking a dividend, or opting for an owner's draw? Decide which method works best for you and your business.
- Set up payroll (if necessary): You will need to set up a payroll system for your business if you’ll be paying yourself a salary. This involves registering with HMRC, calculating taxes and national insurance contributions, and setting up a payment schedule.
- Record the payment: Once you've determined how you'll be paying yourself and set up any necessary processes, it's time to record the payment in your financial records. This helps keep track of your business finances and ensures that you have accurate records come tax time.
- Transfer the funds: The easiest way to transfer funds from your business account to your personal account is usually by using your bank’s mobile app or website.
- Pay taxes (if necessary): Always make sure you know the tax implications of paying yourself and have money set aside for this purpose. The tax you’ll need to pay will depend on your specific business structure and the payment method.ions of paying yourself and set aside funds accordingly.
As a business owner you have many responsibilities to keep track of, and it’s your role to keep things running. It’s therefore not only important to pay yourself fairly, but it is also a smart decision in creating a successful business model.
Top 3 business account providers that make it easy to transfer money from your business to your personal account
A big part of being a business owner is managing and having a general oversight of your finances. It isn’t purely about selling your products and services to your customer base. One important aspect of managing your finances is having a business account. Here are three business account providers that can make the process of transferring money from your business account to your personal account easy:
Tide is a UK-based digital banking platform that offers business accounts to small and medium-sized businesses. They aim to make business banking easy and accessible, offering a range of features such as invoicing tools, expense management, and the ability to integrate with accounting software.
Tide's business account comes with a contactless Mastercard that can be used to make purchases and withdraw cash. They also offer mobile banking through their app, which allows you to manage your account, view transactions, and make transfers between your business and personal accounts.
To transfer money from your Tide business account to your personal account, simply login to the app and initiate the transfer. You can transfer funds to any UK bank account, and the transfer should typically be completed within a few hours. Overall, Tide is a popular choice for small business owners who want a simple and straightforward banking experience.
Wise is another super popular online platform that lets you easily transfer money between different currencies and countries, all at a great exchange rate. In addition to their popular personal account, Wise also offers a business account that can be a great option for medium-sized and large sized businesses.
With Wise's business account, you can receive and hold money in multiple currencies, making it easy to do business internationally. They also offer the ability to make payments and transfers in over 50 currencies, as well as access to accounting and bookkeeping tools to help you manage your finances.
To transfer money from your Wise business account to your personal account, simply log in to your account and initiate the transfer. You can transfer funds to any bank account in the world, and the transfer will typically be completed within a few hours. There are low fees for making transfers and exchanging currencies, which can save you money compared to traditional banks.
Overall, Wise is a great option for businesses that need to do business internationally and want a fast, low-cost way to transfer money between different currencies and countries.
wamo is a fast-growing payment and financial management mobile app in the UK that offers business accounts to entrepreneurs and small businesses. Their mission is to make financial management easy and accessible for small and mid-sized business owners who have struggled in the past to get a business account.
With a wamo business account, you can manage your finances on the go, with features such as mobile payments, invoicing, and expense management. wamo also offers a contactless debit card that can be used to make purchases and withdraw cash, as well as the ability to make international transfers with low conversion fees and competitive monthly plans.
To transfer money from your wamo business account to your personal account, simply login to the app and initiate the transfer. You can transfer funds to any bank account in the UK, and the transfer will typically be completed within a few hours. There are no fees for transferring money between your wamo business account and personal account and the process is pretty straightforward. All you need is a business account with wamo to get started with your business transactions.
Overall, wamo is a great choice for small businesses that want a mobile banking app that is easy to use and offers a range of useful features.
How to open a wamo business account?
To open a business account with wamo, download wamo Business from Google Play or the App Store. You can also open an account from the website. wamo can be used from your smartphone or desktop via the web app, whatever works best for you.
To register you’ll be taken through a series of simple steps where you’ll need to share some basic information about you and your business. The team will then need to verify your identity - for everyone’s security - by asking you to scan your ID and record a very short video. Don’t worry, you won’t have to run through any credit checks or use your data for anything other than verifying that you are who you say you are. As for wamo - security is our top priority.
How long does it take to transfer money from your business account to your personal account?
Transferring money from your business account to your personal account will vary depending on a few factors, but it is usually a pretty smooth and quick process.
If your personal and business accounts are with the same bank or financial services provider, the transfer will usually be done in a few minutes. This is because the bank doesn’t need to use any third party or intermediary services and can simply move the money from one account to the other.
The process will take a bit longer if you’re transferring money between different banks. It will usually take anywhere between a few hours to a few business days for the transaction to be completed. The banks need to communicate with each other and verify all the details before the money can be transferred.
However, many modern digital banking platforms, like the ones we mentioned earlier, can make transfers between banks much faster and more efficiently, often completing transfers within a few hours or even instantly.
Top tips to keep your financial health in check
There are a few important things to be mindful of when you’re moving money from your business account to your personal account. Here are some tips:
- Keep accurate records: Always keep clear records of your business and personal transactions to help track your expenses and income. This will be useful when you’re filing your taxes, and it will also make it easier to balance your accounts.
- Have a valid reason: There should always be a good and valid reason that you’re transferring money from your business to your personal account. This might include paying yourself a salary, reimbursing yourself for business expenses or taking out a loan from the business.
- Follow legal and tax procedures: Always ensure you’re in line with legal and tax procedures when you’re transferring money between your accounts. This might include filing the correct paperwork, paying taxes, and following any restrictions set by your business structure.
- Be cautious of potential issues: Finally, be aware of potential issues that could arise from transferring funds between your accounts. This could include accusations of commingling funds, which can have legal and financial consequences. To avoid this, make sure to keep your business and personal accounts separate, and only transfer funds for legitimate business reasons.