Sarah Bradford explains how to determine the optimal salary level for 2021/22 for personal and family companies seeking to extract profits in a tax-efficient manner.
Where a business is run as a family or personal company, the company is separate from the shareholders and those who run it. This means that where funds are required outside the company to meet personal bills and suchlike, they have to be extracted from the company.
There are tax implications for both the company and the individual recipients. Not all extraction routes are equal, and the tax and National Insurance contributions (NICs) consequences depend on the route taken.
A popular strategy: Small salary plus dividends
A popular profit extraction strategy is to take a small salary and extract further profits as dividends.