Changes to profit extraction: What they mean for you
Recent changes in tax rules could mean that your current profit extraction strategy – how you currently take money out of your business – isn’t as effective as it once was. With a few small adjustments, you could increase both your take-home income and your business’s overall profitability.
We’ve compiled a summary of the latest updates and what they could mean for you, along with a few practical ideas worth considering.
What has changed?
Until recently, the most tax-efficient way of profit extraction (in most cases) involved drawing a salary high enough to qualify for National Insurance credits without triggering actual liabilities. This worked well thanks to corporation tax relief and lower tax rates on dividends.
However, evolving tax rates and allowances mean there’s no longer a one-size-fits-all approach. For instance, it may now be more efficient to draw a salary of up to £50,270. But salary decisions shouldn’t be made on tax implications alone. Consider factors such as:
• Your personal finance needs
• Any bank covenants
• Your levels of profit
Some key changes that could impact you and your business are:
• Increases to National Minimum Wage
• Employers National Insurance has increased to 15% (note, this is also on any benefits you declare on a P11D or payroll),
• Employment Allowance has increased to £10,500. This applies if most of your work isn’t within the public sector. As well as the increase in the allowance, the previous conditions for capping who is eligible has been lifted meaning more businesses can access this.
How to optimise your profit extraction now
It’s essential to plan carefully. That means considering your:
• Personal income requirements
• Household expenses
• Current and projected business profits
• Long-term financial goals and plans for the future
Not sure where to begin? We can create a tailored remuneration and profit extraction strategy to support both your personal and business plans.
An immediate starting point is to address whether your salary is at the best level to maximise the extraction of profit.
Other key points to review
Tax codes: You may be overpaying if your tax code changed. Let us check it.
Overseas work: Always speak to us before paying non-UK resident employees or directors.
Capital gains planning: Selling a business asset soon? Any upcoming sales of assets that might trigger a capital gain should be planned. Let us know if this is something you are expecting to happen to see if there is a way to manage the tax impact.
Payrolling benefits: HMRC has delayed mandatory reporting. You can find full details in our Summer 2025 newsletter.
Let’s talk
If you’d like to review your current strategy or if you have questions about your wider tax position – are tax team are here to help you get the most from your business and plan confidently for the future.
Click here to get in touch with one of our experienced tax specialists.