(See the previous two blog posts for more information on withdrawing cash from your company)

The final way of withdrawing money from your company in a tax efficient manner is by paying yourself dividends as compensation rather than drawing a substantial salary.  Ideally, you will begin to draw dividends once you’ve paid yourself a salary equal to the personal allowance.


Beyond the personal allowance limit (£10,000 in 2014/15) you begin to be taxed at 20% on salary income, while the Dividend tax rate is merely 10%, paid by the company.  This increases to 40% and 32.5% for the two respectively once you reach the Higher rate income band of £32,011.  Of course, there are a number of issues that you will have to consider when issuing dividends to your company.  One is that Dividends are paid to all shareholders as a proportion of the shares they hold, so if your business has more than one shareholder, other shareholders are equally entitled to a share of the Dividends.


The second and more relevant one for the majority of very small businesses is that the amount you can issue as a Dividend is limited based on the realised profits your business has made.  In general this will be your profits excluding profits arising from things like revaluations of your assets.


There are some further legal technicalities around the issuing of dividends, but in most small businesses these are essentially a formality in case the issuing of your dividends is ever questioned by HMRC for any reason.