Extracting profits from a small, limited company

It is pretty much universally accepted that shareholders (usually directors) of small companies take out their remuneration as a small salary – a salary pitched high enough to secure NIC benefits but not high enough to that employee NIC contributions are payable – and any balance as dividends.

Unless directors have the need for remuneration in excess of the current basic rate Income Tax band (set at £50,270 for 2024-25) then salary plus dividends should be set at a level that does not exceed this limit.

But there are other ways that director/shareholders can extract profits from their company. They include:

• Interest can be paid to directors if they have credit balances on loans made to their companies. In some cases, this interest will be covered by the Personal Savings Allowance.
• If directors have loaned assets to the company there may be an option to charge the company a rent for the use of these assets. Isolated rentals up to a maximum £1,000 a tax year should be free of any tax payment.

Directors can also choose to leave accumulated profits and cash balances inside their companies and build up these reserves as rainy day funds. Dividends can be taken from accumulated reserves (after corporation tax has been paid) even if the company has ceased trading.

If you would like to revisit your present strategy for extracting profits, or your longer term exit planning from your business, please call so we can consider your options.