There are several ways to extract money from your company, which, with a little investment of time throughout the year, can bring your tax bill down drastically. Here, we will explore the easiest ways and the tax implications for you.
1. Salary - If you have no other income, extracting £12,570 per year will be tax and NI-free for you personally. This will save the company £2388.30 in corporation tax at the lower rate and £3142.50 at the higher rate.
2. Mileage Claims - Keep those records, they add up. 10,000 miles per year reduces your CT Liability by £900, which is £4500 tax-free to you personally. That's a win-win!
3. Dividends - This isn't as generous as it used to be, but the 1st £1000 of Dividends are tax-free to you. Why not get your Spouse or Parents to invest and set up another class of Share so they can benefit too? Unfortunately, Dividends are paid after corporation tax, so any drawings are from taxed profits within the company. Corporation tax is 19% up to £50,000.
4. Personal Pension - You can have the company pay into your pension, and you will get the uplift in pension basic relief too. A £1000 contribution will save £190 at the basic rate of Corporation Tax and £250 at the higher, and it uplifts to £1250 once the Government adds 20%. That is just over a 54% increase in your cash if you are a director.
For more information on dividends vs salary read our up-to-date article here. Feel free to contact us or come in and talk to us if you have any questions.
Jason Short
Sales@shortandsons.co.uk
07481 479933