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Company tax and efficient extraction of profits

Paul Finch

Business owners can take advantage of tax relief on a smaller company investment



What can you say to a client who has money tied up in their business but knows they can’t take it as a dividend without paying tax of up to 25% on it?

A smart solution to their dilemma could be to invest profits from the business in smaller UK companies through either a Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS). The government rewards investors for taking the risks involved in backing small companies by offering a range of attractive tax benefits.

These include the 30% upfront tax relief, which could be more than enough to take care of the extra tax bill.

– If they take a £50,000 dividend from their business, it could create a £12,500 tax liability, at a rate of 25%.

– The 30% tax relief on the VCTs or EIS will come to £15,000, leaving a surplus of £2,500 for your client to invest or spend.

– With a range of VCTs and EIS to choose from, depending on whether their investment goal is long-term growth or capital preservation, this could be a solution to discuss.

Risk profiles on these types of investments have changed over the years; the investment risk can be quantified, the tax risk is minimal!

Paul Finch – Finch Financial Services LLP 

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