Accounting Advice

How to extract cash from your business

07 Sep 2015

Taking money out of your business - how, why, when and when not to

One of the most common problems faced by small business owners is knowing how and when to extract money from their business. And most importantly, how do you record personal withdrawals from your company in the most tax efficient way?

How much profit should you take annually?

The first thing to do is to make an estimate of the amount of cash your business is likely to generate in the coming year in your business plan.

A good place to start is by looking at your expected revenue, deducting your anticipated operating expenses and allowing for corporation tax. If you have any bank debt, you should also make an allowance for any interest you have to pay, and if you are a retailer or manufacturer you may also need to make an allowance for changes in inventory, trade debtors and creditors.

Once you’ve made these estimates, you should then be able to make an estimate of the amount of cash likely to be generated by your business. If you’re not sure about any of these figures, it is best to err on the side of caution, so that you don’t end up distributing more cash than you end up generating.

Dividend vs Salary

One of the most effective ways to take money out of your own business is to pay yourself a small salary and the balance as a dividend. The salary is normally set to your personal tax free allowance, which is currently £10,600 if no other adjustments have been made by HMRC. If you plan to take more than £10,600, then you can use a dividend to make up the balance.

When to take money from your business - is monthly better?

Register yourself on the company payroll in order to receive a salary. You can do this through the HMRC website online. Then work out how much you will receive each month.

If for example you decide that you would like to distribute £30,000 of cash to yourself, then it would make sense to pay yourself £883 per month as a salary (which is 1/12 of the annual tax free allowance), and then the balance of £19,400 / 12 (= )as a dividend each month.

The one thing to watch out for is that additional income tax may be due if your dividend payments exceed approximately £30k.

To keep your records in order, it is good idea to print off a dividend voucher each month. 

Take profit or dividend at end of year?

Check your annual accounts to make sure that the amount you have drawn as a dividend is still appropriate. Figures may change and you may want to increase your dividend balance each month or even stop it. You can issue a further dividend if you have excess funds to distribute. But if you are overdrawn, you may need to refund a dividend.

If you would like our help with financial forecasting including cash flow planning and extractions of payments then give us a call or get a quote for our services online now by using our instant quote tool.

Accounts and Legal are  small business accountants in London working with businesses all over the UK and abroad. We can help at every stage of your business from start up to sale and everything in between in terms of accounting and tax

Keir Wright-Whyte


Managing Director

0207 043 4000

About the author

Originally graduating with a degree in geography from Edinburgh University, Keir claims that he was then tricked into becoming an accountant by one of the UK's top 5 accountancy practices.The deception extended to the usual training in audit and associated activities.

Keir subsequently worked in a number of advisory roles with clients including in the energy trading, pharmaceuticals and financial services sectors.

He loves working at Accounts & Legal because of the variety of work and clients, the excellent team ethos and morale, the importance placed on genuinely helping and being useful for clients and because he believes what he does matters to clients and helps the firm.

Keir's primary role is to ensure that new clients with complex businesses or needs are on-boarded in the best way and he is a "trouble shooter" both for clients and where complex issues arise internally. He also helps the accounting teams strive to improve what we do for clients, whether processes or services.

When not debiting or crediting, Keir has a penchant for fixing old buildings, skiing, surfing and cycling.


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