Shareholder salary, drawings, and the current account

The day your contracting income starts landing in a company account, a question appears that sole traders never face: how do you actually get paid? The words that matter are salary, drawings, and the shareholder current account, and confusing them is the most common bookkeeping mess in small companies. This guide keeps them straight.

The shareholder current account, first

Think of the current account as the running ledger between you and your company: money you put in (setup costs, expenses paid personally, salary credited but not paid out) increases what the company owes you; money you take out decreases it. Every other concept in this guide is a movement on that ledger. While the company owes you, taking money out is repayment of a debt, and nothing taxable is happening.

Drawings: not income, not free

Drawings are simply money taken from the company outside payroll. They aren't taxed when taken, because they aren't income; they're movements against the current account. The discipline is watching the balance: draw more than the company owes you and the account goes overdrawn, which means you now owe the company money, and that has real consequences (below).

Shareholder salary: the two routes

• PAYE through the year.Pay yourself like an employee: regular amounts, tax deducted each pay. Tidy and predictable; the trade-off is committing to an amount before you know the year's profit.
• End-of-year shareholder salary.After the year's profit is known, the company credits you a salary with no PAYE deducted; you return it as income and pay the tax yourself, which brings provisional tax obligations with it. Flexible, profit-aware, and the reason many contractors' companies pay tax twice a year instead of every payday.

Either way, salary is taxed at your personal rates, which is why the 28% company rate only helps on profit you leave in. A common shape: drawings through the year for living costs, then an end-of-year salary sized to clear them, so the current account lands at or above zero.

The overdrawn account: where it goes wrong

If the year ends with you owing the company (drawings ran ahead of salary and profit), the tax system treats the overdrawn balance as a loan from the company. Left interest-free, that loan is itself a benefit with tax consequences: the company should charge interest at the prescribed or market rate, or the arrangement risks fringe benefit tax or deemed-dividend treatment. None of this is exotic; it's the predictable cost of drawing more than the business earned you, and the fix is sizing the end-of-year salary (or repaying the balance) before the accounts close.

The three habits that keep it clean

• Never spend from the company account personally. Transfer to your own account first, even on the same day; the ledger stays legible.
• Watch the current account quarterly, not annually: an overdrawn balance you notice in month three is a plan, in month twelve it's a problem.
• Set personal tax aside from drawingsthe same way a sole trader sets aside from invoices; the end-of-year salary's tax bill is coming either way.

How Coffer fits

Coffer is built for sole traders today; support for companies, including the shareholder current account, is on the roadmap. The set-aside discipline this guide describes is the same one Coffer automates for sole traders now, and it transfers: the contractor who ringfenced tax per invoice becomes the shareholder who ringfences tax per drawing.