Are you taking out money from your company in the most tax efficient way?
Author: Russell SmithJune 14, 2012
I’m doing my quarterly new client success training event – ‘everything you need to know about your accounts and tax in 2 hours’ on 3 July, for all our new clients. I really enjoy doing this training because it gives me a chance to answer lots and lots of questions and to test my speed of answers (usually set to ‘very fast’!!!).
Most of the questions at these events are remarkably similar and one of the most common is how do I take out money from my company tax efficiently?
This is just for limited companies (not sole traders) and whilst being limited has many advantages (see previous blog post a couple of days ago), the one disadvantage is that it can be difficult to get one’s head around the following:
a) it is likely that you now have two year ends to pay attention to, your company year end and your personal year end – 5 April
b) you have entered into a battle with two taxes – corporation tax on the company and personal tax on the money you take out of the company.
Here’s some important points….
If you earn below £40,000, it should be a relatively simple procedure to completely avoid income tax. If you earn above this, without decent tax planning in all liklihood you will get an income tax bill. This can come as a surprise considering you may have just paid a corporation tax bill so its worth speaking if this has happened to you or you think you are about to earn over £40,000.
Because there is such a high margin of error, it is worth speaking to your accountant much more than maybe you are used to. Any drawings, without the advice of the accountant, over £40,000, could result in a dreaded income tax bill. Not good, especially if it could have been avoided.