Chris Thorpe looks at some considerations when extracting profits out of limited companies.
Once a sole trader or partnership has incorporated, the owner or partners can no longer help themselves to the business’s profits at will; such individuals were previously subject to income tax and National Insurance contributions (NICs) based on those profits, irrespective of how much they took from the business.
However, with limited companies, those profits belong to the company as a separate legal person and are subject to corporation tax on their business’s profits; the company’s owner will only be subject to income tax and NICs on whatever they withdraw. Owners can therefore plan the extent of their withdrawals with a view to mitigating their personal tax liability.
Who can take profits from a company?
Shareholders own the company and
