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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4996
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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, I am the sole director and full-time employee of my

Resolved Question:

I am the sole director and full-time employee of my company Lakes Renewables Ltd. Over the past year I have paid myself a minimum wage of £664/month. At the end of the year my company is forecast to produce a net profit of approx £20k. What the most tax efficient way of taking this money out of the company? Many thanks, Ben
Submitted: 2 years ago.
Category: Tax
Expert: replied 2 years ago.
Hello and welcome to the site. Thank you for your question.

You are a sole director and employee of your company and draw a modest salary to cover personal allowance. You also have some rental income. These two added together cover your personal allowance.

You company is projecting a net profit of £20k.. say £16k after tax. If company cashflow permits, you could take this amount (up to £16k) as dividends paid and not pay any more tax on dividend income. Dividends carry a notional tax of 10%. As your total income after personal alloance would remain under the threshold for basic tax (£31,865).. the net dividend of £16k would not have any further tax liability in your hands.

I am aware certain lenders are happy to consider profit before tax and salary drawn as total income for mortgage purposes.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 2 years ago.

Hi thanks for your answer - please can you just clarify the dividend 'notional' tax you mention above. How does this work?

Many thanks.

Expert: replied 2 years ago.
Ben, thank you for your reply.

What you receive as dividend isnet amount after a notional tax at 10%.

So, for income and tax calculations purposes, the figure is grossed up to 100% and you are given a tax credit of 10% against your tax calculation resulting in zero impact, provided you are basic rate taxpayer.

So if you receive £9,000 in your hands it is equivalent to have received £10,000 with a tax credit of £1,000.

More information on thi scan be found here

I hope this is helpful and answers your question. and other Tax Specialists are ready to help you