Sarah Bradford explores the optimal salary level for tax-efficient profit extraction from family and owner-managed companies in 2022/23.
Family and personal companies are in the position of being able to decide what to pay themselves and what to take out of the company in the form of dividends.
When formulating a profit extraction strategy, consideration should be given to both the funds required outside the company to meet personal living costs and how those funds can be extracted in a tax-efficient manner.
A popular and tax-efficient profit extraction strategy involves taking a small salary and, subject to the availability of sufficient retained profits, extracting any further funds required in the form of a dividend. The optimal salary level will depend on the recipient’s personal tax circumstances.
Unlike dividends, the company does not need sufficient profits to pay a salary; a salary
