who can take profits?

Shareholders, who own the company, typically receive dividends from distributable reserves, which are post-tax profits. Dividends are advantageous as they face lower income tax rates and are exempt from National Insurance Contributions (NICs), making them a primary form of remuneration for small company owners.

In small companies, shareholders often serve as directors, responsible for day-to-day management. For tax purposes, directors are treated as company employees and receive salaries subject to PAYE income tax and NICs. Salaries are based on individual duties, ensuring eligibility for tax deductions. Directors may also receive officer’s fees and pension contributions, often below the NICs threshold, to maintain state pension eligibility.

Employer pension contributions are tax-free benefits for directors or employees. While salaries are subject to income tax and NICs but are deductible for the company. Dividends, however, face double taxation, being drawn from post-corporation tax profits.

Dividends and salaries/bonuses are primary methods for shareholders to withdraw profits. Additionally, companies can pay rent for shareholder-owned properties or interest on loans, all deductible for the company. While the recipient pays income tax, NICs are not applicable.

When a company ceases trading, profits can be withdrawn via liquidation, taxed as capital gains with benefits like business asset disposal relief. Alternatively, a more informal “strike-off” without a liquidator may occur, but taxation varies based on the company’s funds, with amounts over £25,000 subject to different tax treatment.