Continuing with our discussion on the most tax-efficient strategies for profit extraction from a company, it's important to understand the blend of salary and dividends.
Generally the most tax-efficient method of extracting profits from an owner-managed business is to pay a low level of salary up to £9,100 for 2024/25 (the NIC thresholds) or £12,570 for 2024/25 (the personal allowance) and then pay the remainder of the remuneration in the form of dividends. The optimum salary level depends on whether the company can claim the employment allowance of £5,000 or not.
The employment allowance cannot be claimed by company where there is only one employee who is the director; however, it can be claimed where there are two or more employees, for example, a couple who own the business are the employees.
However, financial planning isn't as straightforward as before, with changes in NI rates and an increase in corporation tax. There are also other considerations, such as mortgage requirements or maintaining adequate reserves. This is where our professional advice can help determine the most suitable strategy for your situation
Stay tuned for more practical tips on effectively managing your company's finances!
