Believe it or not, there are more than 4.7 million limited companies registered in the UK, including the 810,316 incorporations that signed up in 2020/21.
Only around 2m are actively trading, but the number of new companies formed during the previous tax year was a 22% year-on-year increase.
Unsurprisingly, that percentage represented the highest number of incorporations on record. Surprisingly, this record high was reached during COVID-19.
As well as starting a company in the middle of a pandemic, company directors also need to work out the most tax-efficient ways to pay themselves.
Once you’ve set up an incorporated business and become a director, you have to be smart about how you extract profit to avoid paying more tax than you need to.
There are three main routes for a director to extract profits from their own limited company – salary, dividends and pension contributions. Usually, combining these three methods is the most tax-efficient approach to minimise your tax bill.
With corporation tax applying (at 19% in 2021/22) on any of your company’s taxable profits from its accounting period, the money you take out of the profits to pay yourself can potentially reduce your company’s corporation tax liability.