Accessing your company profits
When business owner-managers take profits from their companies, it isn’t surprisingthat they want to do so in the most efficient manner. There are various ways to do this that can minimise both tax and national insurance contributions (NICs).
Of course, tax is not the only issue. You will almost certainly need to draw a basic level of income to cover your personal requirements, regardless of the tax cost, and to ensure sufficient profits are retained in the company to cover its future needs.
The Challenges
For most companies, the tax rules are in a state of flux; just because you have drawn profits in one way in the past does not mean that this is now the best approach. From 1 April 2023, the rate of corporation tax for companies with profits in excess of £250,000 has increased to 25%, and the taxation of dividends has become even more punitive following a reduction to the dividend allowance.
Owner-managers with profits between £50,000 and £250,000 now face a 26.5% marginal corporation tax charge, and they may therefore decide to take more drastic tax saving measures – such as making a substantial company pension contribution – than would have previously been considered.
At least the economic outlook has improved. Labour shortages are not as bad as they were, and inflation is down to 2% (May 2024). Energy costs, however, remain relatively high. It also helps that the new Labour government has said it will cap corporation tax at the current rate of 25% for the entire parliament.
