Chris Thorpe looks at some less commonly used methods of extracting profits from a limited company.
One of the old chestnuts which accountants are often asked is whether a sole trader/partnership should incorporate into a limited company. There’s no one deciding factor; profit levels, nature of the business, risks inherent are amongst the factors to consider, but another is profit extraction.
Clearly, the owner of a limited company will want to extract enough profit to live; so what’s the best way of going about it?
The ‘usual’ ways
Generally, receiving profits largely through dividends is the most tax-efficient method. With the dividend allowance of £2,000 and income tax rates of 7.5%, 32.5% and 38.1% (for basic, higher and additional rate