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Extract surplus cash from your company without being clobbered for tax

You are looking to take out money from your business without incurring a hefty tax bill. Wealth management specialist Tony Byrne (and a friend) offers a solution.


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ARE YOU a victim of your own success? Do you have a large amount of money on deposit which you want to pay yourself but you do not want to be clobbered for tax? Are you looking for ways to take the money out of the company tax efficiently? If so, read on.

In previous articles I have written about the benefits of our cash management service for businesses, investing in shares and company pension schemes, especially Small Self Administered Schemes which are ideal for owner-managed small and medium-sized enterprises.  

I was recently asked by a friend of mine how to extract £400,000 from his company tax-efficiently. He was considering winding up the company and going off travelling for a while. He is in his mid-40s, married with a son in the sixth form. Sounds like the proverbial mid-life crisis, right?  

I teased him about it and he agreed it probably was indeed a mid-life crisis. Nonetheless I am sure all of us feel this way at times, especially at that age.

The irony is that he has an excellent, profitable business making a profit of £200,000 a year which he runs from home. He could easily employ someone to run it for him and go off travelling. It would still be there for him when he got back.

I asked an accountant I know for his suggestions. This was his answer:

1 Liquidate and walk away while we still have entrepreneurial relief (CGT at 10% instead of 20%);

2 Carry on and draw an income from the £400,000;

3 Sell the company to the staff via an Employee Ownership Trust. Whack a bit on for goodwill and sell it for £750,000, with £350,000 up front, leaving them a buffer and the rest deferred over four years at £100,000 per annum. 

0% tax but the team would have to be up to the task of running it to make sure he gets all the cash out, plus the upfront legal fees are heavy for setting up the trust etc.

I have another client who did this for 0% tax plus the prospect of getting more than the £400,000 in the bank versus the risk of the team making a mess of it;

4 Share buyback. But you would need another shareholder to take it over for that to work.

For advice on how to extract surplus cash from your company without being clobbered for tax, join us for a one-hour Discovery Meeting either at our offices or by video conference call at our expense worth £270 to each of the first three readers who contact us before November 30 2020. You know it makes sense. We offer a great cup of coffee too.

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