If you are an owner director of a company there are various ways to extract money from a limited company efficiently. Sensible planning of how you are going to take out money and a little tax planning is essential to find the best mix for you.
Main ways to take money out
The following are the four main ways to take out money from your business.
Assuming you have no other source of income it is sensible for the company to pay an owner director a salary. If the director has an employment contract with the company, the national minimum wage (NMW) should be paid. However, if there is no contract in place the owner director may prefer to receive a smaller salary up to the NI threshold or to include all his/her personal allowance. For the year 2012/13 £624 can be paid per month before NI kicks in.
The advantage of paying a salary is that it uses personal tax allowances so potentially no tax payable by the owner director and is fully deductible for corporation tax.