How to extract more money from your company and save on tax

how to extract more money from your company and save on tax

Many small business owners know that the only three legitimate ways of extracting money from a company are:

1.  Salary
2.  Dividends
3.  Loan

However, the above three ways, while being tax efficient, are not exactly tax-free!

If your salary exceeds your personal tax-free allowance (currently set at £12,500), then you will have to pay Income Tax and National Insurance.

If you pay yourself more than 2K of dividends per year, you will be paying tax on any additional amounts paid out to you.

A loan that you can take from your company can be an attractive alternative to other ways of borrowing as it is interest-free. However, the downside isthat such a loan can only be paid from the business to you after corporation tax has been paid and has to be repaid to the company within a limited period of time.

The good news is that salary, dividends and loans are not the only tax efficient ways you can take money out of your business.

Check out a list below for some of the most popular ways of extracting cash from a limited company, while reducing your corporation tax and not increasing your personal tax bill either!

  • Pay into your private pension fund
  • Pay into your ‘relevant’ life insurance
  • Pay for a training to upgrade your skills
  • Pay yourself £300 per year for personal (not business-related) purchases
  • Pay for an overseas medical treatment
  • Pay for an annual medical check up
  • Pay for a Christmas family party or a meal
  • Pay yourself an allowance for use of your home as an office
  • Pay a salary to your partner or a close family member
  • Get paid for renting or selling your personal asset to the business
  • Pay for car parking
  • Pay for your mobile phone handset, internet and call charges
  • Pay for an occasional late hour taxi home
  • Pay for your stationary and other home office costs
  • Pay for occasional sit downs for a lunch or coffee that we all miss so much now!…

This list is not exhaustive but just good enough to make a point.

The reason why I love sharing these tips with solopreneurs is because many of them have no idea that these items can count as legitimate business expenditure so they pay for them from their  ‘take home’ income which is in effect reducing money available for their livelihood, holidays and hobbies.

These tips are also relevant for someone who still has a 9-to-5 job but is figuring out his or her ‘side hustle’ business to generate some additional income.

It’s nice to know about these little “life hacks” so that our quality of life can go further and also be tax free!

If you want to learn more about how to use any of the above allowances correctly, or if you are at the point in your life when you are ready to use your innate creativity and self-authority more fully by becoming a small business owner, book a free (no strings attached) chat and ask all the questions you might have. I love having these kind of conversations!

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