How best to extract profits from your company in light of S660a

A free online profit extraction calculator has been developed by PKF accountants and business advisers to help owner-managers assess the most tax-efficient way to extract profits from their businesses.

The calculator at www.pkf.co.uk/extractcalc enables owner-managers to compare the effective cost of the different profit extraction options available to them and will be updated after the Budget on 16 March to help entrepreneurs to work out how much extra tax they will have to pay in the new tax year.

Peter Penneycard, national director of tax at PKF, said: "Growing companies have found themselves under increasing pressure from tax issues over the past few years and will not be looking forward to the Budget. Although the Chancellor has been making noises about encouraging enterprise, last year's introduction of the non-corporate distribution rate of tax made it clear that the Government is keen to squeeze more money out of growing businesses.

(The non-corporate distribution rate taxes on small companies on dividends that they pay to their owners. See PKF's dividend tax calculator http://www.pkf.co.uk/divtaxcalc)

"Recent tax cases like Geoff and Diana Jones of Arctic Systems may have considerable implications for thousands of family companies. The Chancellor may choose to change the tax rules on family shareholdings just in case the taxpayers win."

(Geoff and Diana Jones narrowly lost their Section 660 case at the Special Commissioners. Section 660 - the married couple's business tax - is the Inland Revenue's attempt to use the 'settlements legislation' to clamp down on family run businesses that use dividends to remunerate spouses.)

"There are still many tax-efficient ways for owner-managers to extract profits from their companies. They should not allow themselves to be frightened away from straightforward tax planning by the increasingly aggressive approach of the tax authorities."