4 Ways to Release Profit in Limited Companies
There are four main ways to release profits from your limited company. Two being short term and two long-term.
2 Short term solutions
The easiest way would be to take a salary from the business. The company is a separate legal entity unlike a sole trade or a partnership the director/shareholder can take a salary. The salary is a deductible expense against tax saving corporation tax.
As a shareholder you can also extract company profits by taking a dividend. Dividends are taken from profits after tax, but are at a more favourable rate in personal tax.
What we can do at LHP is to calculate to most tax efficient method to draw out profits start term.
2 Long term solutions
Company contributions to a pension fund is a tax-deductible expense. The contributions are pre-tax so it will save the 19% (17% 2020) corporation tax payable. The obvious down side is that the money is locked away until pension age.
The final option would be to sell the business. Any profits left in the company would be charged at 10% Entrepreneurs’ Relief.
There are many factors that can impact the way profits are extracted from a company, each individual need is different and many clients’ needs change year on year.
Please talk to us at LHP – we can work out your personal needs and create a personalised plan for your company profit extraction. Short and long term.
-Cerith Williams, ACCA.