Abbie’s ten tips to extract £65,000 of funds from your Ltd Company
If you are a limited company director and owner, you should prioritise working out the most tax-efficient methods to draw funds from your company.
Below are some useful tips you can use to extract profits tax efficiently from your limited company:
2019/20 Basic director salary
- Take a director salary of £8,460 to pay a small amount of national insurance to contribute towards your entitlement record for receiving the basic state pension.
- This salary will be covered by your personal allowance.
2019/20 Full director salary
- Take a director salary of £12,500 to utilise your full personal allowance.
- Pay employee national insurance of about £465.
- Benefit from claiming employment allowance to reduce the employer national insurance if there are two or more directors/employees on the PAYE scheme.
Director dividend allowance
- Utilise the £2,000 tax-free allowance for 2019/20 that is free of dividend income tax.
Spouse dividend allowance
- Utilise the £2,000 dividend allowance of your spouse by transferring the shareholdings.
- Utilise any unused personal allowance of your spouse by adding them to the PAYE scheme.
- It must be emphasised that your spouse must carry out genuine work responsibilities for the company to be able to receive remuneration, e.g. performing company secretarial duties.
- As mentioned above, benefit from claiming employment allowance by having two employees on the PAYE scheme.
Director pension contributions
- Make a pension contribution from the company’s pre-taxed income reducing taxable profits and therefore your Corporation Tax liability.
- Generally, you will be able to make a pension contribution of £40,000 each tax year, on the assumption that your threshold income (broadly speaking net income) for that tax year is below £110,000.
- You also may be able to carry forward any unused annual allowance from the previous three tax years, provided that you were the member of at least one registered pension scheme.
Spouse pension contributions
- Make a further company pension contribution from the company as part of your spouse’s remuneration package.
- Make sure their remuneration package (salary and pension contributions) reasonably reflects the amount of work they perform for the company.
- Take advantage of your trivial benefits exemption allowance of £300 (inc VAT) per tax year for each officer (director/ secretary) of the company.
- As long as the purchase meets all of the following conditions it will qualify as a trivial benefit which does not need to be reported to HMRC
The conditions are:
- The cost is £50 or less (including VAT)
- It is not cash or a cash voucher
- It isn’t a reward for work/performance
- It isn’t in the terms of your contract
- Effectively the company could make six £50 trivial benefit purchases a tax year to each officer.
- Save on your monthly mobile phone costs by expensing your mobile phone costs through the company.
- To be able to do this, ensure that the phone contract is in the company name.
- Pay for your life insurance policy through the company, rather than personally.
- Life insurance is an allowable expense so the company will receive tax relief on the cost.
- You will avoid having to pay for life cover personally out of the taxed income you have drawn from the company.
- If you feel that your personal/business protection needs are in need of review then please get in touch and we can put you in contact with our in house financial advisors.
To prove the title of this blog, our example for a director and spouse as an employee of the company is as follows:
|Director Dividend allowance||£2,000.00|
|Spouse dividend allowance||£2,000.00|
|Director Pension contributions||£40,000.00|
|Spouse pension contributions||£10,000.00|
|Trivial benefits for two officers||£600.00|
|Mobile phone @ £50 p/m||£600.00|
|Life cover @ £100 p/m||£1,200.00|
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