A rough guide to how to take profits from your business. None of this is nailed on, you need to take advice for what is most appropriate to you, other shareholders and your type of business. Think of it as ideas and not a full plan. There is tonnes of nuance to this so ask your accountant and financial planner for help.

Working 9 til 5, what a way to make a living —Dolly Parton

Well, you’re a business owner, so it’s probably 6 til 8. But, Dolly is still right, what a way to make a living! It’s awesome. But, let’s get you straight to make those hours worthwhile.

First thing, make sure you have enough money on account to provide all working capital, emergency money for when things go wrong (pandemics!) and to take advantage of opportunities. Earn the money first and worry about the rest later.

Profits up to around £50k

Many accountants will advise drawing a smaller salary, £8-£12500 and then dividends taking total income up to £50k

The smaller salary ensures you pay minimal national insurance but still get your State Pension contributions.

Drawing dividends means you would pay Corporation Tax, but then use your annual dividend allowance of £2k (so zero tax on that) then on remainder 7.5% (8.75% from April ‘22).

Alternatively, taking a larger salary up to £50k may be more appropriate, but you will pay less Corporation Tax (saving 19-25% from April 2022), more National Insurance (employers NI 15.05% from April ‘22) and also more employee national insurance.

Profits up to around £100k

If you don’t need it to live on, you could start paying more into a pension. After the first £50k, this is one of the cheapest ways of getting money out of your company. £40,000 a year, plus ability to carry forward some of that allowance from previous 3 years if you didn’t use it (provided you had a pension at those points.)

Maximise its use!

Profits over £100k

If you withdraw more than £100k then you would start to lose your personal allowance for income tax. This is the tax free amount of £12570 we are allowed to earn without pay by income tax. So, we recommend not exceeding this and if you do to take a significant amount over to make it worth paying the equivalent of 60% income tax.

If you do, don’t go over £200k as if you’re paying your employer pension payments you will start to lose annual allowance too, due to the ‘taper’.

The money from that, if you don’t need it could be invested in VCT’s or EIS. Tax advantages products that give 30% income tax refund on the amount you invest.e.g you pay £20k and get £6k income tax refund.

More profits than that?

Then it gets more specialised and you really do need a plan. But, if you follow the above it will get money out of your business and keep the amount in it to a minimum. Why do this?

• Whilst in the business the money could be lost if got sued etc. there’s a reason you set up a limited company.

• Investing within a business is not as tax efficient as you pay corporation tax on profits and have no tax efficient allowances E.g. ISA, to use

• If get too much money in a company it can affect entitlement to Entrepreneur’s Relief or Business Relief for inheritance tax.

Other things to consider

Protection - you can use your business to get tax efficient life assurance for your family. But you should also look at income protection, you’re the business owner an no one pays you sick pay if you can’t work.

In all the above, consider the level of risk you wish to take (business risk, investment risk etc) before deciding on doing anything. Tax efficient products are tax efficient for a reason - there are strings attached! Find out what they are and see if they are worth it.

What are you in business for?

Consider this. There are lots of reasons I am in business for:

• To help people

• To help colleagues

But, I originally started as I needed to earn money to live! I talk everyday to people about living a great life and enjoying themselves. You should do this.

Accumulating money in a company is no good for you, accumulating money to withdraw so you can have a great life is! That’s why you do it and you deserve to because you create jobs for other people so they can have a great life too.

Never get so busy making a living that you forget to make a life.” —Dolly Parton