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Withdrawing capital from your business tax efficiently

If you own your own business, you have to pay tax on any profit the business makes and on any income you take out of the company. It is essential to take advice on the most tax efficient way to make business capital withdraws. Contact our capital withdrawal advisers

How much tax is due with business capital withdraws?

As a business owner, you have to pay tax on profits and personal tax on earnings, but with capital withdrawal planning, there are ways to limit the amount of tax you pay. You can maximise your post-tax earnings by paying yourself a low salary under the income tax threshold and then topping it up with dividends from company profits. Dividends are how companies distribute profits to shareholders and, as long as the company is in profit, it can declare a dividend at any time. Tax treatment varies according to individual circumstance and is subject to change.

Profit is calculated by deducting any business expenses such as salaries, insurance, accountancy bills and travel costs, from the income. Corporation tax of 20% is then deducted from profits and the balance can be distributed as a dividend to the company’s shareholders. This will usually be the business owner and their spouse. Without capital withdrawal advice, you may be limiting your post-tax profits.

Accountancy and financial planning working together

Not only are there many different tax rates that affect both people and businesses, but they are complicated and always changing. Additionally your finances could be affected by the shifting of tax bands and allowances. Planning for tax varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate taxation advice, so Unividual is not authorised to advise on tax – this is what accountants do. However, our capital withdrawal advisers will ensure that you do not pay any more tax than you should. Therefore, it’s essential to have a good financial planner and accountant working together to achieve what you need. There are various options for reducing tax on business capital withdraws; Unividual’s skill lies in knowing when and how to use various allowances and UK government backed schemes to ensure you maximise your earnings. Accountancy services are available by referral only.

Withdraw capital from your business

Salary versus dividend

Even after the dividend hikes implemented in 2016, making business capital withdraws through dividends is still more tax-efficient than paying yourself a bigger salary because dividends are not subject to either employer or employee National Insurance contributions. If your spouse is a shareholder too, you can make full use of the spouse’s tax allowance by splitting the basic salary and the dividend income, which will limit tax liabilities and maximise net income. It sounds complicated but if you work alongside Unividual our Chartered Financial Planners can help you with all this, while also examining other areas for tax efficiencies, such as investments.

How to plan for your business year end

Your financial well-being is intrinsically linked to your business. As your company year-end approaches there are a lot of challenges to consider from profitability, cashflow, and ensuring that your remuneration is making the most of tax allowances and thresholds. In this podcast Unividual’s directors Cherie-Anne Baxter and Greg Harris take you through how to implement advanced planning techniques to reduces stress around company year end. Find out how to successfully review and plan your personal and business finances.

Business owner pensions

You can contribute up to £40,000 in to a pension every year, provided you meet certain criteria. This is actually a deductible business expense so your business wouldn’t pay corporation tax on the lump sum. Additionally, you will not be subjected to personal income tax. Where financial advice adds value is around the organisation of this and the knowledge of all the things you don’t know, for example additional rules in and around carry forward, which could be of benefit to you or different share classes that have different rights. A financial adviser would look at your personal situation, your business situation and come up with a remuneration strategy that is rewarding to yourself and tax efficient.

If you are interested in retirement planning why not check out our our ultimate guide or take a look at this article on stress-free business exit planning.

False economy

If you don’t get financial or capital withdrawal advice, you might save some money at the start but it will lead to greater expenditure later on down the road. Tax rules are complicated and trying to do everything yourself can be a false economy. Unividual is well versed in working alongside accountants and solicitors so that business owners can generate the greatest return on their hard work. Together, you can focus on what you’re good at – running your business – and we can focus on your financial future. Start capital withdrawal planning today.

Get capital withdrawal advice

The Financial Conduct Authority do not regulate tax planning.

Tax treatment varies according to individual circumstance and is subject to change.

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