Chris Thorpe gives an overview of whether it is best for a company to distribute or accumulate its profits.
With a sole trade or a partnership, whether to accumulate or withdraw profits is an irrelevant question – the profits are already the owner-partner’s; they are subject to income tax on those profits whatever happens to them.
By contrast, a limited company is a separate entity – the profits are the company’s and it is a matter of choice whether the taxed profits stay in the company or are distributed to the company’s owners – but the tax implications vary.
Keep it in the company
By keeping profits within the company and not declaring any dividends or paying any salaries, there are no further tax implications – corporation tax is paid on the company’s profits in a year and that’s it. ;
