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

Contents

Introduction

Part 1 - Salary

Section 1: Method

What do we mean by salary?

How should you withdraw salary?

What is the maximum salary you can have?

Section 2: Your company

Is salary tax deductible for the company?

What is the NI cost?

Does the company have to deduct tax from your salary?

Does it matter how much salary is paid?

How does IR35 affect the tax position?

Section 3: You

Should your salary be shown on your tax return?

What is the NI cost?

Can you deduct any expenses from your salary?

At what rate will salary finally be taxed?

How does your tax code affect the tax payable?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Example 1. Tax-efficient salary - employment allowance not available

Example 2. Tax-efficient salary - employment allowance available

Example 3. National living wage or national minimum wage salary

Example 4. Significant salary

Section 6: Pros & cons

Advantages of salary

Disadvantages of salary

Part 2 - Bonus

Section 1: Method

What do we mean by a bonus?

How do you award yourself a bonus?

Does it matter how big the bonus is?

Section 2: Your company

Is a bonus tax deductible for the company?

What is the NI cost?

Does the company have to deduct any tax and NI?

Section 3: You

Should your bonus be shown on your tax return?

What is the NI cost?

Can you deduct any expenses from a bonus?

At what rate will your bonus finally be taxed?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Example 1. If you are already a 40% taxpayer

Example 2. If you are only paying tax at 20%

Section 6: Pros & cons

Advantages of a bonus

Disadvantages of a bonus

Part 3 - Dividends

Section 1: Method

What do we mean by dividends?

How should you withdraw a dividend?

Is there a limit to the size of dividends?

Section 2: Your company

Is a dividend tax deductible for the company?

What is the NI cost?

Should the company deduct tax when paying a dividend?

Any restrictions on paying a dividend?

Section 3: You

Should a dividend be shown on your tax return?

Can you deduct any expenses from the dividend?

What is the NI cost?

At what rate will a dividend be taxed?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Example 1. Basic dividend

Example 2. Extra dividend

Section 6: Pros & cons

Advantages of dividends

Disadvantages of dividends

Part 4 - Interest

Section 1: Method

What is interest?

How do you charge interest?

What rate can you use?

Section 2: Your company

Is interest paid tax deductible for the company?

Does the company deduct tax from your interest?

What is the NI cost?

Section 3: You

Should interest be shown on your tax return?

What is the NI cost?

Can you deduct any expenses from this interest?

At what rate will interest finally be taxed?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of interest

Disadvantages of interest

Part 5 - Rent

Section 1: Method

What do we mean by rent?

How should you withdraw rent?

Is it important how much rent you charge?

Section 2: Your company

Is rent paid tax deductible for the company?

What is the NI cost?

Should the company deduct any taxes from the rent?

Does it matter how much rent is paid?

Section 3: You

Should the rent be shown on your tax return?

What is the NI cost?

Can you deduct any expenses from the rent?

At what rate will the rent finally be taxed?

Should any tax be paid in advance on the rent?

Section 4: VAT

When do you charge VAT on rents?

Can the company recover the VAT?

What’s the best thing to do?

Section 5: Example

Section 6: Pros & cons

Advantages of rent

Disadvantages of rent

Part 6 - Loans

Section 1: Method

What is a loan?

How do you take out a loan?

What is the maximum loan you can have?

Section 2: Your company

Is a loan tax deductible for the company?

Does the company deduct any tax from the loan?

Does it matter how big the loan is?

What is the NI cost?

Section 3: You

What do you put on your tax return?

What is the NI cost?

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

At what rate will a loan finally be taxed?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of a loan

Disadvantages of a loan

Part 7 - Company cars

Section 1: Method

What is meant by a company car?

How should the company car be provided?

Does it matter what type of car you have?

Section 2: Your company

Is the cost of the car tax deductible?

What is the position with leased cars?

What is the NI cost?

Should the company deduct tax?

What about running costs?

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

Section 3: You

Should a company car be shown on your tax return?

Can you deduct any expenses?

What is the NI cost?

At what rate will you be taxed?

Is any tax payable in advance?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of a company car

Disadvantages of a company car

Part 8 - Mileage claims

Section 1: Method

What is a mileage allowance?

How do you withdraw a mileage allowance?

How much mileage allowance can you withdraw?


Section 2: Your company

Is a mileage allowance tax deductible?

Which mileage rates should be used?

What about NI?

What if the company pays too much?

Section 3: You

Should this be shown on your tax return?

Can you deduct any expenses for unpaid mileage?

At what rate is excess mileage taxed?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of a mileage allowance

Disadvantages of a mileage allowance

Part 9 - Personal pensions

Section 1: Method

What is a personal pension contribution?

How should the contribution be paid?

What is the maximum contribution that can be paid?

Section 2: Your company

Tax deductible for the company?

What is the NI cost?

How much can be paid?

Section 3: You

Should the pension contribution be shown on your tax return?

What is the NI cost?

At what rate will a pension contribution finally be taxed?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of a personal pension contribution

Disadvantages of a personal pension contribution

Part 10 - Using company assets

Section 1: Method

What is meant by using company assets?

What needs to happen?

Does it matter how much the asset is worth?

Section 2: Your company

Is the provision of assets tax deductible for the company?

What is the NI cost?

How do you calculate the benefit in kind?

Section 3: You

Should this be shown on your tax return?

Can you deduct any expenses?

What is the NI cost to you?

At what rate will you finally be taxed?

Should any tax be paid in advance?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of using company assets

Disadvantages of using company assets

Part 11 - Free accommodation

Section 1: Method

What is meant by free accommodation?

How should the accommodation be provided?

Does it matter how much the property is worth?

Section 2: Your company

Is providing accommodation tax deductible for the company?

How do you calculate the value of free accommodation?

What is the NI cost?

Section 3: You

Should this be shown on your tax return?

Can you deduct any expenses?

What is the NI cost?

At what rate will this finally be taxed?

Is any tax payable immediately?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of free accommodation

Disadvantages of free accommodation

Part 12 - Childcare

Section 1: Method

What is meant by the provision of childcare?

How should the childcare be provided?

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

Conditions for tax exemption

Section 2: Your company

Is this tax deductible for the company?

What is the NI cost?

What does the company have to tell HMRC?

Does it matter how much the company spends?

Section 3: You

Should childcare be shown on your tax return?

Can you deduct any expenses from this?

What is the NI cost?

At what rate will the provision of childcare finally be taxed?

Is any tax payable upfront?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of company-provided childcare

Disadvantages of company-provided childcare

Part 13 - Medical expenses

Section 1: Method

What is meant by medical expenses?

How should you withdraw the cost of medical expenses?

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

Is there a maximum that can be spent this way?

Section 2: Your company

Are medical expenses tax deductible?

What is the NI cost?

Is it important how much the company spends?

Section 3: You

Should the medical expenses be shown on your tax return?

Can you deduct any expenses from this benefit in kind?

What is the NI cost?

At what rate will medical expenses finally be taxed?

When will you be taxed on medical expenses?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of the company paying medical expenses

Disadvantages of the company paying medical expenses

Part 14 - Family dividend

Section 1: Method

What is a family dividend?

How do you set up a family dividend?

Section 2: Your company

Is the family dividend tax deductible for the company?

What is the NI cost?

Should the company deduct tax when paying the family dividend?

Any restrictions on paying a dividend?

Section 3: You

Should the family dividend be shown on your tax return?

Can you deduct any expenses from the family dividend?

What is the NI cost?

At what rate will the family dividend finally be taxed?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of paying a family dividend

Disadvantages of paying a family dividend

Part 15 - Family salary

Section 1: Method

What is meant by family salary?

How should you withdraw family salary?

How much can you actually pay?

Section 2: Your company

Is the family salary tax deductible for the company?

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

What is the NI cost?

Does it matter how much family salary is paid?

Section 3: You

Should the family salary be shown on your tax return?

Can any expenses be deducted from the family salary?

What is the NI cost?

At what rate will family salary finally be taxed?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of a family salary

Disadvantages of a family salary

Part 16 - Selling to the company

Section 1: Method

What is meant by selling to the company?

How should you withdraw the sale proceeds?

Does it matter what price you charge?

Section 2: Your company

Is the payment tax deductible for the company?

What is the NI cost?

Should the company deduct tax when paying you?

Does it matter how much the company pays you?

Section 3: You

Should the sales income be shown on your tax return?

What is the NI cost?

Can you deduct any expenses from the sales income?

At what rate will the sales income finally be taxed?

Section 4: VAT

Section 5: Example

Example 1

Example 2

Section 6: Pros & cons

Advantages of selling to the company

Disadvantages of selling to the company

Part 17 - Using a company pension fund

Section 1: Method

What is a company pension fund?

How should you withdraw company pension contributions?

Is there a maximum that can be paid?

Section 2: Your company

Is a pension contribution tax deductible for the company?

What is the NI cost?

Does it matter how much is paid in one year?

Section 3: You

Should contributions be shown on your tax return?

Can you deduct any expenses from a pension contribution?

What is the NI cost?

At what rate will you be taxed?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Your tax position

Section 6: Pros & cons

Advantages of a company pension scheme (SSAS)

Disadvantage of a company pension scheme (SSAS)

Part 18 - Flexible dividends

Section 1: Method

What do we mean by a flexible dividend?

How do you set up a flexible dividend?

How much dividend can you take this way?

Section 2: Your company

Is a flexible dividend tax deductible for the company?

What is the NI cost?

Should the company deduct tax when paying a flexible dividend?

Any restrictions on paying a flexible dividend?

Section 3: You

Should a flexible dividend be shown on your tax return?

Can you deduct any expenses from a flexible dividend?

What is the NI cost?

At what rate will a flexible dividend be taxed?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of flexible dividends

Disadvantages of flexible dividends

Part 19 - Royalties and licence fees

Section 1: Method

What do we mean by royalties and licence fees?

How do you set up such an arrangement?

How much can you withdraw with this method?

Section 2: Your company

Are these payments tax deductible for the company?

What is the NI cost?

Should the company deduct income tax from these payments?

Does it matter how much is paid?

Section 3: You

Should this income be shown on your tax return?

Can you deduct expenses from this income?

What is the NI cost?

At what rate will this income finally be taxed?

Has tax already been paid on this income?

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Section 6: Pros & cons

Advantages of royalties and licence fees

Disadvantages of royalties and licence fees

Part 20 - Timing

Section 1: Method

What do we mean by timing?

Section 2: Your company

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

When will your company get a tax deduction?

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

When will any employers’ NI be payable?

When can the company pay a dividend?

Section 3: You

Will the profit extraction method result in a tax bill for you?

When do you have to notify HMRC?

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

Section 4: VAT

Are there any consequences for VAT?

Section 5: Example

Monthly

Before your company’s year end

Before the accounts are finalised

Before the nine-month deadline

Before the end of the tax year

Section 6: Pros & cons

Advantages of timing

Disadvantages of timing

Part 21 - Conclusion

Section 1: Summary of numbers

How can the various methods be compared?

How much does £10,000 cost for 2018/19?

Section 2: Summary of the text

Section 3: Selection process

Section 4: Examples

Example 1 - Making more of what you’ve got

Example 2 - Taking just a little bit more

Part 22 - Appendix

Appendix - Scottish tax rates