What Are The Best Ways To Extract Cash From Your Business?

As a business owner, from time to time you may want to unlock more cash out of your company for personal and family needs but may be unsure of the tax implications of doing this, and therefore what the most tax-efficient routes are.

Did you know that these extra drawings could cost you over 50% in personal tax? 

Being tax-efficient when extracting cash from your company for personal use is crucial for several reasons. It helps you minimise the tax burden on both your business and personal finances. By strategically planning your withdrawals, taking advantage of tax allowances, and understanding the tax implications of different income sources, you can optimise your overall tax position. This approach allows you to retain more of your hard-earned money and allocate it effectively for personal expenses or investments, such as supporting your children, reducing the cost of funding school fees, or planning for retirement. 

There are various tax strategies that you can take advantage of to extract profit from your business tax efficiently. Not all the options may be suitable for you, so it’s important to speak to a tax professional to ensure you are using the best routes for your business. 

So, here are some basic ways to extract cash from your company: 

Salary and Dividends: Determine the optimal mix of salary and dividends for the directors and shareholders, that effectively utilises available tax allowances.  This will typically involve a low salary and dividends, but it’s important to ensure you are utilising all of your lower tax bands each year, to avoid losing these.  Any of this income you don’t need to draw will simply accumulate in your loan account for future years. For more information on salary vs dividends, please see our recent article here.

Pension Contributions: Pension contributions are a very tax-efficient longer-term profit extraction strategy. Pension contributions from the company reduce the business’s overall profit, which means the company saves up to 25% corporation tax on any pension contributions made. This not only reduces the company's taxable profits but also contributes to long-term retirement planning.  It is important to note that the recent Budget changes have not affected the income tax and corporation tax reliefs. 

Interest on loan accounts: A positive director’s loan account is an opportunity to charge interest to the company, which is another way to access and utilise low personal tax rates.  Rates of interest must be commercial and a loan agreement should be entered into between the director and the company, to evidence the obligation to pay interest. 

Licence fees: If you have registered intellectual property (IP) held in your name such as a registered trade mark, you may charge a licence fee to the company for its use.  Licence fees are deductible against company profits for corporation tax, and subject to income tax, but free of National Insurance Contributions (NICs) in your hands.  It is important to have a suitable licence agreement in place and to ensure any licence fees charged are at commercial rates.

Sometimes, there may be other events such as succession or property transactions which provide a one-off opportunity to release substantial capital sums out of the company at attractive tax rates. To explore this in more detail, please arrange a call with us and we will discuss your situation in more detail.  

It is important to consult with tax professionals or financial advisors who specialise in SMEs. They can provide tailored advice based on your specific business structure and financial goals. Our tax consultants are extremely experienced and knowledgeable in this field, with over 45 years of experience in taxation and working with top legal specialists. Our approach to profit extraction is specifically developed and designed with business owners in mind. 
 

To speak to one of our advisers to discuss the most efficient ways of profit extraction, please fill out the below form:

Tax affairs are complicated, and we would always advise you to speak with your advisers before making any changes.  For more information on how we can help you and your business please contact us via email or call and we will be happy to advise on the best solutions for your business.

Please note: This article is provided for information only and was correct as at the time of writing (16/04/25). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.