Chris Thorpe looks at issues with extracting profits from a limited company.
With limited companies, business profits belong to that company as a separate legal person and are subject to corporation tax on them; the company’s owner will generally be subject to income tax and National Insurance contributions (NICs) on whatever they withdraw. It is different from a sole trader or partner, who is taxed on their profit (or profit share) irrespective of their drawings.
Shareholders and directors can therefore plan the extent of their withdrawals in an attempt to mitigate their personal tax liability.
Who can take profits from a company?
Shareholders own the company and take distributable reserves in the form of dividends. These are taxed more favourably than other types of income – they are subject to lower rates of income tax and are exempt
