How to Get Money Out of a Limited Company Without Paying Tax

How to Get Money Out of a Limited Company Without Paying Tax?

19/01/2022Dividend Allowance , Limited Company , Tax Saving Tips

Running your own company can be more tax-efficient than working through an umbrella company or sole proprietorship. Through it, you can get rewards for your work by maximising your take-home pay and taking advantage of the savings due to the number of withdrawing options available. You can extract money from your limited company through salary, dividends, pensions contribution, and director’s loans. These are great ways to save taxes while taking money out of your company. So it is important to understand the tax implications and timings before deciding the withdrawal method. Let’s find out how to get money out of a limited company without paying tax?

 

If you want a professional accountant and bookkeeper for your company, we can help you. Our bookkeepers and accountants at CruseBurke are qualified and cost-effective. We save your time, money, and stress by handling all your finances and business problems in no time. Contact us now!

 

How to Get Money Out of a Limited Company Without Paying Tax?

Typically, there are four tax-efficient ways to extract money from your limited company. Let’s explore them:

Tax efficient ways to extract money from your company

 

Salary

You can easily extract salary from your business to your personal account. Although you can’t take the majority of your income from your salary, but you can have a monthly pack packet without any tax implications. The tax-efficient way to extract money from your salary is to keep it a minimum below the personal allowance of  £12,570. You will be required to deduct all the taxes, NICs, and employers NICs to pay HMRC.

 

Dividend

Directors tend to be shareholders of the company to take dividends from the company in the form of any profits that a company makes. The company directors must declare dividends and the date of payment agreed at the board of meetings. As dividends can be tax-efficient ways to extract money from a limited company with a dividend allowance of up to £2,000.

Above this allowance, you need to pay as per your PAYE rate band. Bear in mind that the income earned from dividends can be added to any other income. The income from other sources and dividend income may push you to a higher tax band. However, with the dividend received, you don’t need to pay NICs.

 

Check out our company formation packages and our accounting services for small businesses. Contact us right now!

 

Pension Contribution

Your company can contribute to your pension pot through which you can save a significant amount NI and tax, instead of making money through a salary. Note that you can’t receive this fund until you reach the retirement age. The allowance for pension contribution is £40,000 for persons earning up to £150,000 (or is it £240,000). This allowance decreases if you crossed the higher limit. The pensions allowance must not go above your total income from all sources.

 

Director’s Loan

You can take a director’s loan from a limited company to meet your short term personal needs. Extracting money via it can be a useful interest-free and low-cost funding source. Note that this loan is taxable if exceeds £10,000 or if you make interest payments to the company below the official rate set by HMRC. You need to pay back the loan before the year-end otherwise you’d be liable to pay an additional tax charge (S455) on the due balance.

 

Quick Sum Up

Hope you have learned different ways on how to get money out of a limited company without paying tax. Many business owners find extracting money from the limited company through the mix of salary and dividend more profitable, however, it depends on different factors and your personal circumstances. Working out the most tax-efficient way to take money out of your limited company can be complicated and time taking, therefore contact our qualified accountant to do the hassle for you.

 

We save your time, money, and stress by handling all your finances and business problems in no time! Call us on 020 8686 8876 or email us today.

 

Disclaimer: The information is intended to provide general information.


Related post

Corporation Tax for A Limited Company
Corporation Tax for A Limited Company, How Much Is There To Pay?

03/09/2021Dividend Allowance , Limited Company , Tax Issues

If you are running your business as a limited company, you must pay corporation tax. Limited corporation’s tax rules are different from other corporations to some extent. Therefore, in this blog, you will know the corporation tax for a limited company, how much corporation tax needs to be paid, and what expenses you can claim capital tax allowances.   Are you looking for an accountant to help you manage your finances? Please do not hesitate to contact us! CruseBurke accountants provide tax services at a reasonable cost!   Types of Taxes to be Paid by a Limited Company? Following are the taxes that need to be paid by a limited company. Corporation Tax National Insurance Contributions (NICs) Value Added Tax (VAT) In this blog, we will cover corporation tax for a limited company.   Corporation Tax for a Limited Company If you are running a limited company, you must pay corporation tax on your company profits. The current rate of a corporation tax is 19%. Corporation Tax is levied on a company’s trading profits, the sale of taxes, and investments. When establishing your limited company, you must register yourself for corporation tax with HMRC within the first three months of trading. Late registering may result in a penalty of fees. So, registering for corporation tax must be your priority.   How much Corporation Tax to be paid by a Limited Company? The rates of corporation tax to be paid by a limited company in 2021 is as follows: The “main rate” for the companies, making profits except for ring fence profits, is 19%. The standard rate for the unit trusts and open-ended investment companies is 20%. You can check more information about the rates here!   What Expenses are Eligible for Capital Tax Allowances? When working out how much charge you owe, a few Corporation tax stipends are available for your company. When you prepare your accounts, you can deduct your business expenses from the trading profits before tax. Capital tax allowances can only be claimed on the “entirely and exclusively” expenditures incurred for business purposes. Some costs which are qualified for capital tax allowances are: Machinery & equipment Vehicles Accommodation Mileage Training Remember that these expenses must be incurred for business purposes, and you can not claim capital tax allowances for the costs used in entertaining clients.   Dividend Taxation for Limited Companies In case your local company has made a benefit after taking away trade costs and enterprise charges (corporation tax), it can give out these profits to its shareholders with something called a ‘dividend’. You’ll only pay shareholders a profit (dividend) in case you’ve got good benefits. Dividends are not charged in the UK, but the shareholders who gain them may be subject to income tax and NICs(National Insurance Contributions) depending on their personal tax allowance. However, when they complete their annual self-assessment, this will become clear. The tax rates can be changed yearly for limited companies, and it can be troublesome to decide (exactly) what your tax liabilities are. However, you can take help from the tax accounting apps to understand your tax liabilities and manage your finances.   Final Thoughts To conclude our overview of corporation tax for a limited company, we can see that limited corporations benefit from being exempt from income tax. However, there is no way to avoid corporation tax, NICs, and VAT. You need to pay the corporation tax on your trading profits. Besides this, you can claim tax reliefs on corporation tax. Many tax reliefs are available to reduce your corporation tax bill, such as Research and Development relief, Creative industry tax relief, The Patent Box, Marginal Relief, Disincorporation Relief, etc. Moreover, you can reduce the corporation tax bill if you make wise strategies about the dividend payments (that directors take from the business) and salary as you can not avoid your taxes, so it’s essential to remain up-to-date about your tax duties while remaining tax efficient.   Unable to claim corporation tax reliefs on your taxes? Let us handle this! We are qualified chartered accountants that can claim your tax relief and manage your taxes in no time!   Disclaimer: This blog contains general information about Corporation tax for a limited company.

Read more