Taking money from a company in the most tax efficient way can be tricky. Below is a guide to help you in making this decision.
Remuneration and Dividend: are the most common methods use by directors; the most tax efficient extraction should comprise of a mixture of salary (£8,164 if you don't want to make national insurance contributions but still be able to enjoy the benefit of state pension entitlement) and dividend (greater than £2,000 but below £33,500)
Pension contribution: subject to cash flow consideration and £40,000 annual cap, remains one of the most tax-efficient method of extracting profits from a company as it attracts nil tax.
Rents: If allowed by the company's Articles of Association, rent could be charged to the company if property owned by the director is used for trade by the company.
Interest: If a director lends money to the company, the director can charge interest to the company
taking a low tax efficient salary below the personal allowance will not attract personal tax
ensure the salary is high enough for national insurance contributions; this will help protect your future entitlement to state pension and other benefits
taking salary will save you tax (19% of salary)
£11,500 tax free Personal allowance is available for 17/18
any additional amounts above salary is treated as dividend, first £5000 is tax free.
dividend is not expense and does not attract NI contributions
you can claim Employment Allowance (The first £3000 of Employers national insurance attracts no national insurance) if you’re a business or charity (including community amateur sports clubs) paying employers’ Class 1 National Insurance. You can also claim if you employ a care or support worker. Sole directors are not eligible.
Other points to consider:
It's better to make pension contributions via the company than from your personal income as such contributions can be deducted from the company’s taxable profits. Consequently, these contributions will receive a corporation tax relief.
Directors can extract money via setting up a landlord contract with their company for the use of the private residence as an office (seek professional guidance)
Interest (at HMRC rates) can be applied on loan from directors. A rate of 0% applies to interest within an individual’s savings allowance, basic rate tax payer allowance of £1000, Higher rate allowance of £500.
Form CT61 has to be filed for 20% tax withheld at source.
