VAT - Is my supply taxable?
We go back to basics and explore what tests are considered when deciding if supply is VAT taxable
How do I extract money from my business?
The efficient ways to draw money
Success brings a new question
Full order books, growing revenue, a business that’s clearly working, and yet one question keeps coming up: what’s the smartest way to actually take money out of it? Success on paper doesn’t always translate into cash in your pocket, particularly once you start thinking about tax.
You’ll usually find yourself asking this when:
- Profits are building up in the business faster than you’re drawing from them.
- You’re paying yourself a salary without considering whether it’s the most efficient route.
- You’ve never reviewed how dividends, expenses, or pension contributions could work together.
- Cash flow is strong enough that you’re wondering whether a director’s loan makes sense.
- You want to plan withdrawals rather than take money out reactively.
Why the wrong approach costs more than it should
Drawing money without a plan rarely causes an immediate problem, but it quietly erodes value over time. Paying yourself entirely through salary, for instance, means both you and the business absorb more tax than necessary, while unclaimed expenses or unused pension allowances represent savings left on the table.
Get it wrong for long enough and the gap between what the business earns and what you actually keep starts to widen. Tax-efficient extraction isn’t about finding a loophole, it’s about using the legitimate options available in the right combination for your circumstances.
The main routes for extracting money
There isn’t a single right answer, more a set of tools that work differently depending on your situation. Here’s how each one functions:
- Director’s loan: If you funded the business in its early days, repayments on that loan come back to you free of personal tax, just like repaying any other loan. Alternatively, you can borrow money from the company with tax consequences.
- Salary: You can pay yourself as an employee, though many directors keep this element modest since other income routes can be more tax-efficient. The upside is that salary counts as a deductible cost for the business.
- Reimbursable expenses: Genuine business costs can be claimed back, including mileage at up to 55p per mile for the first 10,000 miles when using your own car, free of income tax and deductible against corporation tax.
- Pension contributions: Both you and the business can pay into a pension scheme, reducing personal tax and saving corporation tax, though the funds stay locked away until retirement, worth weighing if cash flow is tight.
- Dividends: Paid from post-tax profits to shareholders, dividends let you keep salary low and reward yourself once the business has genuinely earned it, historically the most tax-efficient route for owners, but the tide is changing.
Getting the balance right
Every option above carries trade-offs, and the right mix depends on your income needs, the business’s cash position, and your long-term plans rather than a one-size-fits-all formula. Combining methods, rather than relying on just one, is usually where the real efficiency comes from.
How Price Bailey can help
Deciding how to draw money from your business shouldn’t be guesswork, and the right structure now can make a meaningful difference to what you keep over time.
We can talk you through how salary, dividends, pensions, and expenses could work together for your specific circumstances.
Beyond how you extract profit
Getting withdrawals right often raises a bigger question: is the business structured to support your long-term goals in the first place?
If that’s on your mind, our strategic planning support can help ensure your business keeps growing while you continue to benefit from it.
We can help
Contact us today to find out more about how we can help you
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