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Profit Extraction

I am not a tax expert and this isn’t meant as tax advice .

I believe business owners have a great opportunity to take out the profit in the most tax efficient way.

It’s the money you get to keep that matters and not what it’s called.

In the UK a business owner who has a limited company… has the opportunity to take out money in different ways… as salaries, various benefits including company cars but many more less obvious ways, pensions, dividends, interest on loans made to the business and rent for property used.

Each has its own tax consequences.

You need to get professional advice from an accountant or tax specialist. The bigger the profit, the more specialist advice will pay for itself many times over.

Similar logic applies if your business is not doing well. Or is at the start-up stage

It doesn’t make sense if you have other savings, to pay yourself a high salary, pay tax and national insurance or social costs and then put money back in to fund the business.

It’s much better to live off your savings and to stop the taxman taking his cut.

Because of all these different ways to take out profit, I want you to focus on the Profit you make before the owners profit extraction and make an assessment of how well the business is performing.

That way your thinking about your business and its development doesn’t get confused by tax policy changes.

Then talk to your accountant about taking out the most in a tax efficient way. It’s tough to thrive as a small business owner and you take plenty of risks. You deserve to make sure that you get paid in the most tax efficient way, provided its legal.

My own thought is that you don’t want to do anything dodgy. These years of austerity are going to continue far into the future thanks to the ever-increasing debts our politicians load onto the nation’s shoulders and there is a demographic crisis coming and the ratio of working age people to old people plummets.

Governments will clamp down on abuses and penalties for tax abuse, including jail time and public disgrace are likely to increase. Benefit fraudsters already receive tough treatment but they are often cases of genuine need and the amounts are relatively small.

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