What is the best way to extract funds from your company?

Source: HM Revenue & Customs | | 28/06/2017

Director shareholders are wont to ensure that they pay the lowest amount of tax and NIC consistent with their obligations under the relevant legislation. For many years, director shareholders have followed a high dividend, low salary extraction strategy. This tended to reduce Income Tax and NIC contributions. The dividend changes that came into effect in April 2016, took some of the shine off this strategy, but taking dividends in preference to salary is still effective. Presently, there is an annual tax-free limit of £5,000 and dividends drawn in excess of this amount are taxed at 7.5%, 32.5% or 38.1%, it all dependent on where the dividend income slots into the basic, higher or additional rate Income Tax bands. Also, dividends continue to be exempt from a National Insurance Contributions (NIC) charge.

Planning note: It is important to remember that dividends can only be taken from retained profits, if your company has no retained profits you cannot take dividends. There are also other profit extraction options: paying interest on any funds directors may have loaned their company is one, or re-examining tax-free benefits. Further, director shareholders looking at implementing the high dividend, low salary strategy should ensure that they take at least a minimum salary to ensure that they maintain sufficient contributions for State Pension purposes. This is currently, 2017-18, a minimum of £157 per week or £8,164 per year.

We can help you examine your options and advise you on a suitable strategy to fit your circumstances. Please call to discuss.

 



Accountancy service

“Are you feeling confused about how to comply with HMRC’s accountancy requirements?

Read more...

Your business

Your business

Are you a Start-up business? Are you a little confused about the different types of companies? 

Read more...

Virtual Director

Virtual Director

Are you looking to grow your business? A Virtual Financial Director can help you take your business to the next level.

Read more...

Xero

XERO

Ensure that your business has the edge over your competitors and incorporate Xero into your business, today!

Read more...

Latest News

Autumn Budget 2017
22/11/2017 - More...
Prospects for growth, especially for productivity have been downgraded, but the

How to appeal against a tax decision
15/11/2017 - More...
It is not unusual for taxpayers to find themselves in a position where they

Claiming an “unclaimed” estate
15/11/2017 - More...
There are special rules that govern how assets are divided if a person dies

Search News


Newsletter

With our newsletter, you automatically receive our latest news per e-mail and get access to the archive including advanced search options!

» Sign up for the newsletter
» Login