For many owner-managed businesses, attention is naturally focused on how much profit the company makes. Far less time is spent reviewing how that profit is actually taken out of the business.
In practice, the way profits are extracted, through salary, dividends, pension contributions or a combination of these, can make a significant difference to personal income, tax exposure and business cash-flow. Yet many directors rely on arrangements that were put in place years ago and have never been revisited.
As profits grow, tax thresholds change and personal circumstances evolve, what once felt sensible can quietly become inefficient. In some cases, directors find themselves paying higher effective tax rates than expected. In others, dividends place unnecessary strain on business cash, or pension allowances are underused simply because no one has stepped back to review the bigger picture.
We can undertake a pre year-end profit extraction and remuneration review to address this. Rather than focusing on tax calculations after the year has ended, we may be able to look at this before 5th April. We can explore whether current arrangements still make sense, highlight any marginal tax rate issues, and identify opportunities to balance income, tax and longer-term planning more effectively.
If you would like to review how profits are being taken from your company please contact Helen, our Personal Tax Manager by contacting us.
