UK director Andy Egwim breaks down three ways to extract money tax-efficiently: salary up to your personal allowance, business expenses like home office and equipment, and dividends after corporation tax. Corporation tax sits around 19% on profits below £50k, 25% above.
So limited company director, how do you pull out money from your limited company in a tax efficient way without overpaying taxes? Look, there are three main ways. As someone who's owned multiple limited companies, I'm going to share them with you. Number one, which is often the least tax efficient is salary. Look, if you pay yourself a high salary, you're going to be taxed at your marginal rate. So if a high rate taxpayer is 40%, additional rate taxpayer is 45%. If a basic rate taxpayer is 20%, look, there's a way around it. If you pay yourself just the personal tax allowance or below which is about 12, 5, 17, this current tax here, there's zero tax on that. Two expenses. Think about all the expenses you make. For instance, use of home as office. Do you need to buy equipment? Computers? Do you need to buy an electric car for your business? Think about all those things and make sure that you're claiming those expenses for HMRC has a test. It's got to be wholly exclusively and reasonable for your business. So think about things that you're spending already and check whether it applies to your business. Number three, Obviously after you've paid your corporation task which will differ depending on the amount of profit you made. If you made a profit below 50k is a different rate of about 19. If your profit is about above 50k is 25. Now after you've made all the expenses which are deducted and don't forget the full expenses like your life insurance payments could be done to your company paying into your pension several other expenses. After you've done all that, then there's corporation tax. What is left is dividend and that's the third way to pay yourself a share of the company profit, that is tax at dividend tax rate. So these are the three key ways you can actually draw money out of your company. Now tell me if you're a limited company director, if you're a doctor or healthcare professional who's using company, which one have you used? Which one did you find effective? And of course I'm more than happy to answer any questions you have there. Follow for more.
