Cash extraction

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Video transcript:

How to extract cash from a business is one the fundamental questions that a business owner asks us.

The business may be doing well, but quite often the value is tied into the business. So whilst they may be wealthy from an assets perspective, like looking at their shares, in reality they feel quite cash poor.

Taking cash out of a business can be quite a costly exercise from a tax perspective, so it’s important to think about all the options available to you, to make sure it’s as efficient as possible.

It’s easy to focus on the personal tax rate headlines that apply to things like dividends or salary, but that’s not the full picture. As the owner of a business you need to be thinking about all the taxes that a business pays, that might include for example employer’s national insurance or corporation tax. It’s your business, everything needs to be taken into account.

Each case needs to be looked at individually with a plan bespoke to the owner’s circumstances. For some, salaries might be the most costly option. But for others, say for example their in a business that does a lot of research and development, that might be the best route for them.

It’s also important to think about what the money is actually going to be used for. Do you actually need to extract it personally? If it’s just going to be invested in say property or shares, taking it out of the company for example may not be the right thing to do.

For example, take the owners of a cash generative business they might want to separate the investments from the trading activity, but they don’t necessarily need those investments personally. In those circumstances what we’d look to do is undertake a whole review of their corporate structure. There are lots of options available, it might be things like looking at who the shareholders are, it might be looking at a demerger, it might even be leaving the cash or investments in there. All of those things could potentially allow the business owner to achieve their objectives, but without an immediate tax cost.

We can ensure that you are using the most appropriate methods for extracting cash from your business. We’ve got a wealth of experience of working with entrepreneurs, business owners, individuals and their families, so if you want to explore how you could improve your strategy for cash extraction, please contact us at RSM.