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Dividends versus salary: Which is best?

By Chris Thorpe, February 2021

Chris Thorpe looks at tax-efficient ways of extracting profits from a limited company.

Upon incorporating a business, probably the most important issue for the director/shareholder and their tax adviser is how to extract the subsequent profits. 

Before this time, the same individual would have simply taken some cash out of the ATM on the Friday evening and thought nothing of it; he has been taxed on the profits, he and business are one and the same, and that’s all there is to it. However, following incorporation that same money is the property of another person (i.e. the limited company), although that legal distinction is unlikely to be appreciated so early on (if at all!). Therefore, the money needs to go to our shareholder/director through the proper channels, and the most common two are those of the salary and the dividend. The issue has always been; how much of each?

How much in?

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