How to Effectivly Extract Business Profits

7th November 2017

Once a company has paid taxes, bills, wagesand other expenses, what's left is profit but it can take time for a new firm to reach this point, and directors may need to convert their hard work into fiscal reward sooner.

Here are 5 tax-efficient tactics for business owners to extract profit from their companies: Salary and Bonuses The most obvious way for a company director to receive profits is to be paid a salary. To achieve maximum tax efficiency, it's sensible to take a minimum salary. Most people are entitled to a tax-free allowance (£11,500 in the current tax year) after which they pay 20 percent if they earn between £11,500 to £45,000; 40 percent, between £45,001 to £150,000; and 45 percent if they earn more than £150,000 (relates to England, Scottish Rates are different). Keeping your salary just above the threshold of qualifying for a state pension, while keeping within a minimum tax bracket, enables you to get the most benefit from your wage. As of 2017/18, a director can pay themselves a salary of £8,164 per year (£680.33 per month) and still be able to enjoy state pension entitlement without paying National Insurance Contributions (NIC). Where remuneration is paid in a cash form (such as a salary, bonus payment), the employee is liable to income tax and Class 1 NICs (12% and/or 2%), unless the taxpayer is not liable to NIC. The employer company will also be liable for secondary Class 1 NICs (13.8%) on the remuneration paid. Tax and NIC must be deducted at source by the company under PAYE. The salary and any Class 1 NIC liability is also deductible for corporation tax purposes. Read more ...