Extracting profits from a company Salary

Extracting profits from a company

Salary
National insurance contributions are expensive, but salary can be deducted from taxable profits in the company, so if profits are taxed at the marginal small companies rate (currently 27.5 per cent), there is very little difference between extracting profits by way of salary or dividend for higher rate taxpayers.

Bonus
Where annual bonuses are payable, the bonus must be due and payable before the company year end, even if the specific amount has not been decided. This is necessary to benefit from tax relief against the profits of the period. The bonus must always be paid within nine months of the year end to secure the tax deduction in the company.

Dividends
These are subject to a lower rate of income tax than other sources of income, though this is mitigated by the company not being able to claim corporation tax relief. The main advantage of payment by dividend as against salary is that no national insurance is payable on dividends.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s