Smart strategies for taking profits from your business

Running a limited company brings freedom and flexibility, but it also means taking full responsibility for financial planning.

Whether you’re a contractor, consultant or company director, how you take profits and protect your income can make a significant difference to your long-term security.

Many directors rely on dividends and salary while they are working but can neglect their future income needs for when they are retired.

Similarly, directors are often the sole earners in their household and have nothing in place to protect their family and household income if they couldn’t work.

Using the limited company, through a combination of pensions and protection planning, it’s possible to reduce tax, build wealth and provide peace of mind for both you and your family.

Pensions – A smarter way to take profits

Paying into a pension directly from your company is one of the most tax-efficient ways to extract profits:

Corporation Tax relief – Employer contributions are treated as an allowable business expense, cutting your company’s Corporation Tax bill
No National Insurance – Unlike salaries, pension contributions aren’t subject to National Insurance
No Dividend Tax – Pension contributions avoid Dividend Tax, which has steadily increased in recent years
Tax-free growth – Pension investments grow free from capital gains and Income Tax, helping retirement savings compound faster.

For example, a £60,000 employer pension contribution could save a company £15,000 in Corporation Tax, with no National Insurance or Dividend Tax to pay.

That’s money staying in the business owner’s pocket and working harder for the future.

Reviewing and consolidating pensions

Many business owners will have accumulated multiple pensions from previous roles. Reviewing and consolidating these can help ensure the funds are invested efficiently and aligned with your retirement goals.

For some, particularly those approaching the latter part of their working career, the focus shifts to assessing whether existing arrangements are truly fit for purpose – evaluating efficiency, reducing duplication and considering how pensions can best support income needs in retirement.

Life cover and Income Protection– Protecting your income and your family

While pensions build future wealth, life cover and income protection cover provides protection today.

Contractors and directors don’t always have the same benefits that employees enjoy, so arranging cover through the business can be particularly valuable.

Life Cover – A lump sum payout on death provides security for loved ones
Income Protection Cover – A monthly payout if one is unable to work due to injury or illness to ensure there is always money coming into the household
Business efficiency – Relevant Life Cover and Executive Income Protection can be arranged through the company. Premiums are tax-deductible, with no benefit-in-kind for the employee.
Tax savings – Compared to paying for personal protection out of post-tax income, company-funded policies can be significantly more cost-effective.

Balancing profit, protection and planning

Good planning for contractors and directors goes beyond immediate profit extraction. It’s about striking the right balance and using pensions to reduce tax and grow wealth for the future, while also putting cover in place to protect what matters most today.

We can recommend you to a firm of Independent Financial Advisers to help you maximise tax efficiencies.

We have developed a close relationship with Finli so that you can draw on their experience and expertise to work together to understand and meet your retirement goals.

Please contact Jeremy – jeremy@cogentaccountants.co.uk – for further details.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

Financial advice given by Finli is regulated and authorised by the Financial Conduct Authority.