Dividends, Salary and Other Tax-efficient Ways to Extract Profit

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A Tips & Advice book about... 

In a nutshell

This book is your go-to guide to developing a tax-effective profit extraction strategy. It shows you the most tax-advantaged and legally safe ways to get that hard-earned profit out of your company. You’ll see how each profit extraction method might work for you and which taxes come into play. This latest edition has been fully updated to include the tax rates and thresholds for 2023/24.

In detail

You'll find 19 profit extraction methods - everything from dividends to employer pension contributions. We cover each method in a structured way and tell you, in simple language:

• What's involved - what you have to do
• The direct tax consequences for you and your company
• The VAT implications
• The pros and cons of each method

We also provide you with a worked example explaining what it costs your company and the net amount you'll be left with.

Plus, this book comes with a free online service including documents and tools, such as a dividend voucher, licence agreement and profit extraction calculator so that you're able to put the advice into practice. It's the perfect combination.

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We've created this Tips & Advice book especially for... 

Directors and business owners that want to:

• Get the profit out of their company in a tax-effective and legally safe way

Advisors and accountants that want to:

• Help their clients develop a tax-effective profit extraction strategy

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You'll get the following free extras with this Tips & Advice book... 

An online service with ready-to-use documents

• To immediately apply our advice and solutions in practice
• That you can easily adapt to suit your own requirements

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In this Tips & Advice book you'll read about...

Table of contents

Part 1 - Salary

1. Method

1.1. What do we mean by salary?

1.2. How should you withdraw salary?

1.3. What is the maximum salary you can have?

2. Your company

2.1. Is salary tax deductible for the company?

2.2. What is the NI cost?

2.3. Does the company have to deduct tax from your salary?

2.4. Does it matter how much salary is paid?

2.5. How does IR35 affect the tax position?

3. You

3.1. Should your salary be shown on your tax return?

3.2. What is the NI cost?

3.3. Can you deduct any expenses from your salary?

3.4. At what rate will salary be taxed?

3.5. How does your tax code affect the tax payable?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of salary

6.2. Disadvantages of salary

Part 2 - Bonus

1. Method

1.1. What do we mean by a bonus?

1.2. How do you award yourself a bonus?

1.3. Does it matter how big the bonus is?

2. Your company

2.1. Is a bonus tax deductible for the company?

2.2. Are bonuses and other earnings always tax deductible from profits?

2.3. What is the NI cost?

2.4. Does the company have to deduct any tax and NI?

3. You

3.1. Should your bonus be shown on your tax return?

3.2. What is the NI cost?

3.3. Can you deduct any expenses from a bonus?

3.4. At what rate will your bonus finally be taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of a bonus

6.2. Disadvantages of a bonus

Part 3 - Dividends

1. Method

1.1. What do we mean by dividends?

1.2. How should you withdraw a dividend?

1.3. Is there a limit to the size of dividends?

2. Your company

2.1. Is a dividend tax deductible for the company?

2.2. What is the NI cost?

2.3. Should the company deduct tax when paying a dividend?

2.4. Any restrictions on paying a dividend?

3. You

3.1. Should a dividend be shown on your tax return?

3.2. Can you deduct any expenses from the dividend?

3.3. What is the NI cost?

3.4. At what rate will a dividend be taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of dividends

6.2. Disadvantages of dividends

Part 4 - Interest

1. Method

1.1. What is interest?

1.2. How do you charge interest?

1.3. What rate can you use?

2. Your company

2.1. Is interest paid tax deductible for the company?

2.2. Does the company deduct tax from your interest?

2.3. What is the NI cost?

3. You

3.1. Should interest be shown on your tax return?

3.2. What is the NI cost?

3.3. Can you deduct any expenses from this interest?

3.4. At what rate will interest finally be taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of interest

6.2. Disadvantages of interest

Part 5 - Rent

1. Method

1.1. What do we mean by rent?

1.2. How should you withdraw rent?

1.3. Is it important how much rent you charge?

2. Your company

2.1. Is rent paid tax deductible for the company?

2.2. What is the NI cost?

2.3. Should the company deduct any taxes from the rent?

2.4. Does it matter how much rent is paid?

3. You

3.1. Should the rent be shown on your tax return?

3.2. What is the NI cost?

3.3. Can you deduct any expenses from the rent?

3.4. At what rate will the rent be taxed?

3.5. Should any tax be paid in advance on the rent?

4. VAT

4.1. When do you charge VAT on rents?

4.2. Can the company recover the VAT?

4.3. What’s the best thing to do?

5. Example

6. Pros & cons

6.1. Advantages of rent

6.2. Disadvantages of rent

Part 6 - Loans

1. Method

1.1. What is a loan?

1.2. How do you take out a loan?

1.3. What is the maximum loan you can have?

2. Your company

2.1. Is a loan tax deductible for the company?

2.2. Does the company deduct any tax from the loan?

2.3. Does it matter how big the loan is?

2.4. What is the NI cost for your company?

3. You

3.1. What do you put on your tax return?

3.2. What is the NI cost?

3.3. Can you deduct any expenses from the benefit of a loan?

3.4. At what rate will a loan be taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of a loan

6.2. Disadvantages of a loan

Part 7 - Company cars

1. Method

1.1. What is meant by a company car?

1.2. How should the company car be provided?

1.3. Does it matter what type of car you have?

2. Your company

2.1. Is the cost of the car tax deductible?

2.2. What is the position with leased cars?

2.3. What is the NI cost?

2.4. Should the company deduct tax?

2.5. What about running costs?

2.6. Does it matter how much the company pays for the car?

3. You

3.1. Should a company car be shown on your tax return?

3.2. Can you deduct any expenses?

3.3. What is the NI cost?

3.4. At what rate will you be taxed?

3.5. Is any tax payable in advance?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of a company car

6.2. Disadvantages of a company car

Part 8 - Mileage claims

1. Method

1.1. What is a mileage allowance?

1.2. How do you withdraw a mileage allowance?

1.3. How much mileage allowance can you withdraw?

2. Your company

2.1. Is a mileage allowance tax deductible?

2.2. Which mileage rates should be used?

2.3. What about NI?

2.4. What if the company pays more than HMRC’s approved rate?

3. You

3.1. Should this be shown on your tax return?

3.2. Can you deduct any expenses for unpaid mileage?

3.3. At what rate is excess mileage taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of a mileage allowance

6.2. Disadvantages of a mileage allowance

Part 9 - Personal pensions

1. Method

1.1. What is a company personal pension contribution?

1.2. How should the contribution be paid?

1.3. What is the maximum contribution that can be paid?

2. Your company

2.1. Tax deductible for the company?

2.2. What is the NI cost?

2.3. How much can be paid?

3. You

3.1. Should the pension contribution be shown on your tax return?

3.2. What is the tax and NI cost?

3.3. At what rate will a pension contribution be taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of a pension contribution

6.2. Disadvantages of a pension contribution

Part 10 - Using company assets

1. Method

1.1. What is meant by using company assets?

1.2. What needs to happen?

1.3. Does it matter how much the asset is worth?

2. Your company

2.1. Is the cost of allowing use of equipment tax deductible for the company?

2.2. What is the NI cost?

2.3. How do you calculate the benefit in kind?

3. You

3.1. Should this be shown on your tax return?

3.2. Can you deduct any expenses?

3.3. What is the NI cost to you?

3.4. At what rate will you be taxed?

3.5. Should any tax be paid in advance?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of using company assets

6.2. Disadvantages of using company assets

Part 11 - Free accommodation

1. Method

1.1. What is meant by free accommodation?

1.2. How should the accommodation be provided?

1.3. Does it matter how much the property is worth?

2. Your company

2.1. Is providing accommodation tax deductible for the company?

2.2. How do you calculate the cash equivalent of free accommodation?

2.3. What is the NI cost?

3. You

3.1. Should this be shown on your tax return?

3.2. Can you deduct any expenses?

3.3. What is the NI cost?

3.4. At what rate will this be taxed?

3.5. Is any tax payable immediately?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of free accommodation

6.2. Disadvantages of free accommodation

Part 12 - Childcare

1. Method

1.1. What is meant by the provision of childcare?

1.2. How should the childcare be provided?

1.3. Is there a limit to what the company can pay for?

1.4. Conditions for tax exemption

2. Your company

2.1. Is it tax deductible for the company?

2.2. What is the NI cost?

2.3. What does the company have to tell HMRC?

2.4. Does it matter how much the company spends?

3. You

3.1. Should childcare be shown on your tax return?

3.2. Can you deduct any expenses from this?

3.3. What is the NI cost?

3.4. At what rate will the provision of childcare be taxed?

3.5. Is any tax payable upfront?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of company-provided childcare

6.2. Disadvantages of company-provided childcare

Part 13 - Medical expenses

1. Method

1.1. What is meant by medical expenses?

1.2. How should you withdraw the cost of medical expenses?

1.3. What is the tax treatment of eye tests paid for by your company?

1.4. Is there a maximum that can be spent this way?

2. Your company

2.1. Are medical expenses tax deductible?

2.2. What is the NI cost?

2.3. Is it important how much the company spends?

3. You

3.1. Should the medical expenses be shown on your tax return?

3.2. Can you deduct any expenses from this benefit in kind?

3.3. What is the NI cost?

3.4. At what rate will medical expenses be taxed?

3.5. When will you be taxed on medical expenses?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of the company paying medical expenses

6.2. Disadvantages of the company paying medical expenses

Part 14 - Family dividend

1. Method

1.1. What is a family dividend?

1.2. How do you set up a family dividend?

2. Your company

2.1. Is the family dividend tax deductible for the company?

2.2. What is the NI cost?

2.3. Should the company deduct tax when paying the family dividend?

2.4. Any restrictions on paying a dividend?

3. You

3.1. Should the family dividend be shown on your tax return?

3.2. Can you deduct any expenses from the family dividend?

3.3. What is the NI cost?

3.4. At what rate will the family dividend finally be taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of paying a family dividend

6.2. Disadvantages of paying a family dividend

Part 15 - Family salary

1. Method

1.1. What is meant by family salary?

1.2. How should you withdraw family salary?

1.3. How much can you actually pay?

2. Your company

2.1. Is the family salary tax deductible for the company?

2.2. Should the company deduct tax when paying a salary to a family member?

2.3. What is the NI cost?

2.4. Does it matter how much family salary is paid?

3. You

3.1. Should the family salary be shown on your tax return?

3.2. Can any expenses be deducted from the family salary?

3.3. What is the NI cost?

3.4. At what rate will family salary finally be taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of a family salary

6.2. Disadvantages of a family salary

Part 16 - Selling to the company

1. Method

1.1. What is meant by selling to the company?

1.2. How should you withdraw the sale proceeds?

1.3. Does it matter what price you charge?

2. Your company

2.1. Is the payment tax deductible for the company?

2.2. What is the NI cost?

2.3. Should the company deduct tax when paying you?

2.4. Does it matter how much the company pays you?

3. You

3.1. Should the sales income be shown on your tax return?

3.2. What is the NI cost?

3.3. Can you deduct any expenses from the sales income?

3.4. At what rate will the sales income be taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of selling to the company

6.2. Disadvantages of selling to the company

Part 17 - Using a company pension fund

1. Method

1.1. What is a company pension fund?

1.2. How should you withdraw company pension contributions?

1.3. Is there a maximum that can be paid?

2. Your company

2.1. Is a pension contribution tax deductible for the company?

2.2. What is the NI cost?

2.3. Does it matter how much is paid in one year?

3. You

3.1. Should contributions be shown on your tax return?

3.2. Can you deduct any expenses from a pension contribution?

3.3. What is the NI cost?

3.4. At what rate will you be taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of a company pension scheme (SSAS)

6.2. Disadvantage of a company pension scheme (SSAS)

Part 18 - Flexible dividends

1. Method

1.1. What do we mean by a flexible dividend?

1.2. How do you set up a flexible dividend?

1.3. How much dividend can you take this way?

2. Your company

2.1. Is a flexible dividend tax deductible for the company?

2.2. What is the NI cost?

2.3. Should the company deduct tax when paying a flexible dividend?

2.4. Any restrictions on paying a flexible dividend?

3. You

3.1. Should a flexible dividend be shown on your tax return?

3.2. Can you deduct any expenses from a flexible dividend?

3.3. What is the NI cost?

3.4. At what rate will a flexible dividend be taxed?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of flexible dividends

6.2. Disadvantages of flexible dividends

Part 19 - Royalties and licence fees

1. Method

1.1. What do we mean by royalties and licence fees?

1.2. How do you set up such an arrangement?

1.3. How much can you withdraw with this method?

2. Your company

2.1. Are these payments tax deductible for the company?

2.2. What is the NI cost?

2.3. Should the company deduct income tax from these payments?

2.4. Does it matter how much is paid?

3. You

3.1. Should this income be shown on your tax return?

3.2. Can you deduct expenses from this income?

3.3. What is the NI cost?

3.4. At what rate will this income finally be taxed?

3.5. Has tax already been paid on this income?

4. VAT

5. Example

6. Pros & cons

6.1. Advantages of royalties and licence fees

6.2. Disadvantages of royalties and licence fees

Part 20 - Timing

1. Method

2. Your company

2.1. Will the profit extraction method be tax deductible for your company?

2.2. When will your company get a tax deduction?

2.3. Does it matter if the company pays you monthly, quarterly or annually?

2.4. When will any employers’ NI be payable?

2.5. When can the company pay a dividend?

3. You

3.1. When do you have to notify HMRC?

3.2. When will any income tax and NI due have to be paid?

4. VAT

5. Example

5.1. Monthly

5.2. Before your company’s year end

5.3. Before the accounts are finalised

5.4. Before the nine-month deadline

5.5. Before the end of the tax year

6. Pros & cons

6.1. Advantages of timing

6.2. Disadvantages of timing

Part 21 - Conclusion

1. Summary of the text

2. Selection process

3. Examples

Part 22 - Appendix

Scottish tax rates