We’ve all had that revelation of what paying tax actually means. Often, at first in our working life it is upon receipt of our very first wage slips. “Yes, look how much money I’ve got!” which is closely followed by “I lost HOW MUCH of that in tax!?”
And when you’re running your own business, the cost of taxes is an even greater pain.
We can hate the taxman all we like, but we know some taxes are just a way of life, and of doing business.
But that doesn’t mean you have to give him all your money.
After all, you’re aware that it’s right for you to be keeping as much of the money you’ve earned as possible. And that some of the wealthiest people in the UK pay very little tax. So, why shouldn’t you be one of them?
Here’s how to get money of out your business, the right way. Because trust us, there are lots of wrong ways.
The Worst Case Scenario
There are quite a few terrible ways to deal with tax most of which are difficult to stomach, and some of which could cause you significant financial discomfort. Too many to go into detail on. The last thing you want to be doing is paying tax twice on the same thing, like paying a tax on profits and then on your salary.
And of course, you don’t want to just take money out of your business, have an amazing time spending it, and then get hit with some humongous fines following an audit. That’s very bad news.
The first thing to do then:
Get Your Salary Right
You’re working for your own company, so you’re entitled to pay yourself a salary. Since you get a personal tax free allowance, why aren’t you making the most of that? You might have to pay a small amount of National Insurance, but you’ll be reducing the overall company profit, and thus, requiring less tax to be paid!
Consider Dividends
After taking a salary, withdrawing money from your business as dividends from shares may be the next best option to keep taxation low. If you’re not in the higher tax rate band, dividends are taxed at just 10%, less than the tax you’d pay on salary. It’s simple maths then, to pay yourself less salary and more dividends. Plus, it’s taxed at source by the company (not you personally) and doesn’t have National Insurance requirements…which means more money in your back pocket.
Take Advantage
The next step to getting money out of your business and paying less tax is a simple one. Take advantage of every legal opportunity you can, including extra allowances, loan options, employee benefits and other such options.
Track every business expense possible. If you’re paying tax on expenses you should be claiming back through the company, then you might as well just light a match and burn your wallet. Business mileage meeting clients and all that stationary you just bought to help the office get creative, it all mounts up and reduces your company profit, and once again, that tax you need to pay.
We know of this really handy tool which can help you track expenses…Xero…have we mentioned it before?
Directors’ loans are another option to withdraw money from your business. If you put personal money into the company to start it up, you’re entitled to it back, tax free. If it’s up for the taking, what are you waiting for?
You could also choose to pay into a pension fund for yourself and your employees. This will offer company tax relief’s, and set yourself up some funds for the future, which you should be able to extract in a tax efficient way.
Or perhaps your company would benefit from government schemes and initiatives? There’s a lot of different opportunities out there, if your company fits the bill.
Speak to Someone Who Just Gets It
At the end of the day, as you’ve no doubt read in stories about the rich and famous dodging tax here, there and everywhere, there are lots of ways to take money of out your company for yourself, in a way which won’t result in you paying shed loads of cash to the tax man.
Have a look at some of the options above, but you’re probably going to need to talk to someone who understands the minefield of allowances, incentives and benefits, so that you really can get as much money as you deserve, without the tax consequences.
This is where we bow ourselves in (with great humility, of course) and offer to help.
Because we can give you all the tips we can, but at the end of the day you’ll need to review how tax brackets and company structures and profits and dividends apply to you, personally – and to your business.
That’s exactly what we’re here for, when you’re ready for a chat.
