Peter Rayney reviews the tax costs of taking bonuses and dividends from 6 April 2023.
Family and owner-managed companies can freely decide how much of their profits should be returned to the shareholders or retained within the business.
Most discussions about profit extraction usually start by focusing on the amount available to be paid out to the owner-managers. This is generally influenced by one or more of the following factors:
- the amount required for future retention in the business (to satisfy future working capital or capital investment purposes);
- the level of the company’s distributable reserves and ‘free’ cash flow;
- any provisions or restrictions laid down in Shareholder Agreements or a company’s Articles, particularly where venture capital finance has been used; and
- the shareholders’ personal ‘income’
