Do you own a small business? Are you struggling with saving taxes and making more money? Small businesses often struggle with navigating their way through the initial parts of a company’s life-cycle. Important aspects need to be kept in mind such as recruiting potential employees in selecting a suitable office space to carry out the work processes. If you are not sufficiently prepared to manage your taxes as a company, you can quickly find yourself in a lot of financial instability in order to stay afloat.
This is why we share with you a breakdown of some top tips that can prove to be handy for you when it comes to extracting cash efficiently while keeping a keen eye on your taxes throughout the year.
Dividends
If a company makes an adequate profit to cover all its expenses, it can pay dividends to any individual who has a share in the company. According to the law passed in April 2018, a shareholder can get anywhere up to £2000 before paying tax in any financial year. Any payments that come after that will be taxed according to several tax bands. It is important to remember that dividends are always added to the other income and paying dividends has multiple tax advantages for companies. The best advantage is that the company becomes exempt from NIC or the National Insurance Contributions.
Salary
If you wish to receive maximum tax efficiency, the directors of the company must receive a minimum salary. The first £12,500 for directors is free of taxes, and thereafter directors must pay 20% tax on their salary up to £50,000. Salary up to £150,000 is taxed at 40%, and if it exceeds £150,000, the tax payable is 45%. You can get the most benefits out of your salary if you keep your income above the threshold can qualify for a state pension.
This is one of the most appealing ways to extract the maximum profit from your company. Another great idea is to pay a bonus to yourself. However, this depends on whether you receive a cash bonus or a non-cash bonus. If you receive a cash bonus or any other thing like vouchers that you can exchange for cash, all this will be counted as your earnings. As a result, this income will be subject to both employers as well as employees, NICs and Pay As You Earn (PAYE). Alternatively, when it comes to non-cash bonuses, the tax amount will depend on the item that is in question.
Pension
One of the most crucial considerations of working professionals in any domain is saving money for their retirement. If you do that, you will be able to see some instant advantages from pension contributions. This is another excellent way to extract the maximum profit from your company. At the same time, you can also benefit from tax relief. The best thing about this kind of cash extraction is that the money that comes from companies or individuals as a pension fund is not treated as a benefit. Therefore, it is naturally tax efficient. It is also noteworthy that when you withdraw money from your pension, the first 25% of that money is tax-free. Thereafter, any money that you withdraw will be taxed as per the tax rate that is ongoing at that time. Paying into a pension is always an excellent manner to extract profit both in the short term and the long term when you plan for your retirement. As it helps you make the most of the income you get from a company.
Private investments
Again, private investments can be another way to extract cash from taxes efficiently. Using this tool, you can commit your money to any other business and help startups grow. When you invest in a private company, it is bound to benefit you both professionally and personally in addition to allowing you the opportunity to invest your money into a business that you feel strongly about. When you invest in a private company, you will be involved in all the initial stages of the life-cycle of a company, and hence, you will be able to make a humongous difference to its development. You will also get a lot of rewards and other great tax benefits on your investment.
How can Target Accounting Make Your Life Easy?
If you wish to explore your profit extraction options in addition to reducing your tax bills, these are a few tactics you can employ to extract the maximum cash from your tax savings. Target Accounting can also help you understand other avenues according to the nature of your business and after having a thorough look at your finances. Therefore, if you are looking for more personalised services that help you grow in a personal and professional space where your accounts are concerned, you can get in touch with Target Accounting for a free consultation.
