Extract the fruits of your labour

Trading as a limited company for your private practice has been a popular choice for many years and increasingly so following the introduction of the tapering of the pension annual allowance. Ian Tongue explores options to extract the funds from your company in a tax-efficient manner.

An important factor to understand when trading as a company is that it is a separate legal entity from you personally. 

This means that the company has to produce accounts separately from you, file a tax return and pay corporate taxes. You will have two relationships with your company: firstly as an owner (shareholder) and secondly as a director (officer).  

One of the key advantages of trading as a company is the flexibility that it offers for the extraction of profits. 

It is the control over the extraction of the profits which allows you to decide how much taxable income you have to declare on your personal tax return.

Accessing the funds for your day-to-day needs and ensuring that this is tax-efficient are key considerations. Your circumstances will be different to others and therefore a tailored strategy is the best option. Your accountant should discuss this with you and make sure that you keep them updated on your personal circumstances.   

Salary

As a director of the company, you can receive a salary for your services. A salary is treated as an expense of the company and is tax-deductible.

Most consultants do not pay a salary due to already having an NHS salary, but, for those who are fully private, it is important to be paying a salary at a level at or above the National Insurance threshold to ensure that you continue to accrue years for your state pension.

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