Transcription
Hi guys, welcome back to the YouTube channel. In this video, I'm going to show you how you, as a limited company owner director, how you can take almost £20,000 a year from your limited company completely tax-free by utilizing all of your personal allowances and some of the other reliefs that are available.
So, what we've got here is basically a mock tax computation, uh, for a client and kind of what our software pulls out for the current tax year. And this is how you can see there's absolutely zero income tax due here. And the way we do this is, first off, we've got pay from Employments, the £12,570. I'm sure everybody watching this channel is very familiar with that amount now, simply because the government have frozen it. So it's not changing anytime soon. That's actually locked in up until 2028. Of course, when Labour get in, things might change. But that £12,570 is a salary that you can take from your limited company, and that's completely tax-free.
Um, better yet, if, of course, over the £9,100, you might have to pay some employers' National Insurance. But usually, there's more than one person on the payroll, and as a result, you can claim the employment allowance. So that's £12,570 is completely tax-free. That's tax-deductible in your company as well, so that's going to reduce your corporation tax, and you can actually take it out with zero income tax as well.
The next is interest, and this is where you've loaned money to your company. So quite often, when setting up a limited company, you probably put money in to fund it, to buy properties, whatever it might be. And actually, you can charge yourself a commercial, arms-length interest rate on this. So typically, where we are with the economy, it could be 10%, 15%, 25%. We've seen a wide range. And basically, what we do is before we lock in an interest rate, basically get some kind of comparable market rates and keep them on file so that if HMRC do have a ask or inquire, you can show them actually, you know, we got a, we got a quote from Funding Circle, whatever it might be, and they were going to give us 25% APR. So that's why we charge 24% on our director's loan because it's essentially a market rate.
So when your director's loan, if you've got, to say, for instance, £100,000, but you wanted to engineer, you only take £6,000 worth of interest out, you can actually charge a 6% interest rate. And then what that would do is, as a basic rate taxpayer or new rate taxpayer here, you actually get £1,000 per year tax-free as your personal savings allowance. Then also, where interest income falls within your first £5,000 of taxable income, as it does in this case here, well, actually, you get a £5,000 tax-free as well of interest income.
And then, of course, for this tax year, the dividend allowance has been slashed to just £500, unfortunately, down from £1,000 last year. But as you can see, by using all of these reliefs and allowances, you can actually take £9,070 from your business completely tax-free. You know, it's not big money, but it's actually not bad overall because if you've got a husband and wife, a business partner, um, however you set this up, that's actually almost £40,000 that you could take out from your limited company, which is, you know, um, it's, it's not a crazy lifestyle but it's a decent lifestyle, um, for most people, and that's without paying any tax at all.
So there we have it, guys. You can take about £20,000 a year out by taking the full £12,570 a salary, £6,000 worth of interest, £500 of dividends from your company. And the best thing is, even if you do take more dividends, those amounts there will still be tax-free as well. If you want to find out how to take more from your business and pay less in tax, check out the other videos on the YouTube channel. Bye for now, guys.