When it comes to saving for retirement, you could see some immediate benefit from pension contributions – as this is one way to extract profit from your company while still benefiting from tax relief. Whether it’s an individual or the company itself who pays into the pension fund, this money isn’t treated as a benefit, meaning that it’s very tax efficient.
Dividends can be paid to anyone who owns shares in a company, as long as the company is making sufficient profit to cover these costs. Starting in the new tax year this April, a shareholder can receive up to £2,000 in any tax year (6th April to 5th April) before paying tax – after this, any further payments will be taxed based on the tax bands. The tax advantages of being paid dividends are twofold: firstly, they’re exempt from National Insurance Contributions and secondly, they’re discretionary. This means they can be tailored to individual needs, subject to the company being able to afford to pay them.
Salary and bonuses
In order to achieve maximum tax efficiency, it’s wise for directors to take a minimum salary. Income up to the basic personal allowance for the year is tax-free. From there, you’ll pay 20 per cent on any salary up to the current basic rate band, 40 per cent on any salary up to the higher rate band, and 45 per cent on any salary that exceeds this. By keeping your salary just above the threshold of qualifying for a state pension, while keeping within a minimum tax bracket, you can get the most benefit from your wage. One of the most obvious and appealing ways to extract profit from your company is to pay yourself a bonus. In terms of benefits, this will largely depend on whether you’re receiving a cash or non-cash bonus.
Private investments are a chance to commit your money to another business, helping early-stage companies to reach their next stage of growth. With opportunities to invest your money in a private company that interests you both personally and professionally, you can invest your profits into the right business for you. Investing in a private company means you can be involved from the early stages of a company’s life and make a tangible difference to its development. With the potential for EIS or SEIS eligibility, you may also be able to reap the rewards of great tax savings.