One of the most common questions company owners ask their accountants is:

“What’s the best way to take money out of my company and pay the least tax?”

It used to be simple, you would pay yourself a salary up to the personal allowance (£12,570), then take the rest as dividends.

These days, it’s not so straightforward. The honest answer is: “It depends.”

If you need to show a market-rate salary (for things like getting a mortgage or making personal pension contributions), that should come first.

Beyond that, the best way to take money from your business depends on lots of things, so it’s worth doing individual calculations. Here are some of the factors that affect it:

• How much profit your company makes (which affects corporation tax)
• How many directors/shareholders there are
• How much money the company has available to distribute
• Any other income you have (which affects your personal tax)
• Your age (you don’t pay National Insurance after age 66)
• Whether your company qualifies for the £10,500 Employment Allowance (and whether it’s already being used)

Another thing to think about is how much money you actually need. Taking out all of the company’s available cash will often lead to a bigger tax bill, so it makes sense to leave some money in the business and only take what you need for your living costs. Money left in the company isn’t taxed as personal income until you take it out. You can also leave money in with a view to selling or winding up the company later, which might result in lower tax through Capital Gains Tax and Business Asset Disposal Relief.

For many company owners, the old method (salary up to £12,750 + dividends to cover living costs) is still an efficient option but as you can see, there’s much more to consider.

If you’d like help working out what’s best for you, get in touch and we’ll be happy to help.