Salary and dividends are both ways a company director may take money from a limited company, but they are not the same. The bookkeeping needs to show which is which.
Salary records
Salary should run through payroll, with PAYE records where required. The company accounts should match the payroll reports.
- Payroll summaries
- PAYE and National Insurance records
- Net salary payments from the bank
Dividend records
Dividends are paid from company profits after tax considerations. They need proper paperwork and should not be treated like casual withdrawals.
- Dividend vouchers
- Board minutes or written approval
- Profit checks before payment
Expense reimbursements
Reimbursing a director for business costs is different from salary or dividends. The business should keep receipts and a clear claim record.
- Mileage claims
- Travel or subsistence receipts
- Business purchases paid personally
Director loan account movements
If money is taken without being salary, dividend or reimbursement, it may sit on the director loan account.
- Label transfers clearly
- Avoid unexplained drawings
- Review balances before year end
Monthly checks
Good monthly bookkeeping stops director payments becoming a year-end puzzle.
- Compare payroll to bank payments
- File dividend paperwork
- Discuss unusual payments early
Key takeaway
The company bank payment is only part of the story. The bookkeeping must show whether it was salary, dividend, expenses or a loan.
