How To Extract Profits From Your Limited Company
Using a salary or by taking dividends ...
POSTED BY HELEN BEAUMONT ON 27/11/2019 @ 8:00AM
There are a couple of ways to extract profits from your limited company, and this is usually through a mixture of dividends and salary ...
If you want to extract profits from your limited company, there are two ways to do it!
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Via a salary
If your salary doesn't reach the Income Tax threshold of £12,500 or even the National Insurance threshold of £8,632 then you will have nothing to pay HMRC, but will still have a paid-up NI record for that particular tax year. If you pass the NI threshold, but remain under the Income Tax threshold, then there will be a small amount of NI to pay.
If your limited company has no profits to take dividends from, it makes a lot of sense to take a salary up to the Income Tax threshold to ensure you use up your tax-free allowances.
You can run your payroll monthly, or in one single payment (usually in March). You don't have to pay any money out of the business either, as it can be credited to the individual director's loan account until the cash is available to be drawn out of the limited company.
A dividend can be paid to the level of the profit made by the limited company, minus the Corporate Tax. Dividends do not attract NI so it is tax-efficient to take profits as dividends. Remember to retain at least 19% of any profit to cover your Corporation Tax when it's due, so for every £100 in profit, you could tax £81 as a dividend.
Directors commonly take monthly dividends to cover their normal living expenses then look at awarding further dividends at the end of the accounting year. Dividends must have a board resolution and certificate which need to be retained internally rather than filed.
You must be careful to restrain yourself when taking excess dividends. They are taxed at 32.5% until you can prove in the next set of accounts that they have been repaid.
Remember, if you are switching from self-employed to a new limited company, you may not need to take a salary in that first year.
Until next time ...
Would you like to know more?
If you are looking to extract profits from your limited company and need some good tax advice, do call me on 01908 774323, leave a comment below or click here to ping over an email and let's see how I can help you.
About Helen Beaumont ...
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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