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

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

It is probably the most frequently asked question by clients.  Director shareholders are keen 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, which minimised total Income Tax and NIC liabilities.

The dividend changes that came into effect in April 2016, with the introduction of a 7.5% surcharge on dividends above a certain level, took some of the shine off this strategy, but taking dividends in preference to salary is still the most effective of paying yourself out of your own limited company.  It's just not as good as it used to be.

Presently, there is an annual tax-free dividend limit of £5,000 (reducing to £2,000 from April 2018) with dividends drawn in excess of this amount being taxed at 7.5%, 32.5% or 38.1%, depending on what your underlying rate of tax is.  These rates are 7.5% higher than under the old regime, hence the 7.5% surcharge for taking dividends.

Dividends do not work in every circumstance.  It is important to remember that dividends can only be taken from retained profits, so if your company has no retained profits you cannot take dividends.

We can help you examine your options and advise you on a suitable approach to fit your circumstances. Please call to discuss if you are in any doubt, although we will, of course, be discussing the matter with you as a one of routine on a regular basis.



Latest News



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