The vast majority of business owners in the UK own their own companies and face the problem of profit extraction in the most tax efficient manner.

 If they pay out a salary, this is subject to employee NIC and high-income tax (45% for additional rate taxpayers) In addition, this will attract an employer’s NIC liability of 13.8%.

It is therefore much more tax efficient to pay out a dividend as this is subject to lower rates of income tax (38.1% for additional rate taxpayers) and escapes national insurance completely.

Alan Sugar is reported to have extracted profits from his company Amshold last year by paying himself a dividend of £390 million due to the success of his property business.

This led to Lord Sugar being one of the 10 highest individual taxpayers in the country last year.

By extracting profits through a dividend instead of a salary, his company saved employer’s NIC of £53.8M. In the case of unincorporated businesses, a similar savings in national insurance can be achieved through the formation of a partnership.

To use one of Lord Sugar’s catchphrases, taking profits via dividends ‘sounds like a plan’!!

If you are have a plan to do Taxation or Advanced Tax in March 2022, I recommend you purchase Tax Condensed or Advanced Tax Condensed which will allow you to learn the technical rules at lightning speed.

 #tax #business #success #alansugar