Just because it’s there – doesn’t mean it’s yours!
You bring in the sales,
you have money in the bank,
why can’t you take it?
One of the biggest rookie mistakes is thinking sales equals profits.
Profit is what is left after ALL the expenses are deducted, including any tax due.
There are two types of costs:
Fixed costs – these are the costs that remain the same, regardless of the sales volume. Eg. Rent, loans, leases etc.
Variable costs – these are the costs that vary and not always related to sales, outsource costs, travel, stock etc.
It is important to understand your costs so you can price your service or goods accordingly, and therefore sales should lead to profit.
So how do you know what’s yours?
Take the sales
– Less all the expenses
– Less any tax
= What is left is distributable profit. Distributable profit is what is available to be taken as dividends by the shareholders, and you will pay tax on this personally.
You do not have to take all of it – some, or all of it can be left in the company to be taken at a later date or not at all – this is called retained profit.
You cannot take more than the distributable profit for the year plus any retained, this would take you into an overdrawn directors loan situation, which left overdrawn for more than 9 months after year end can attract tax at 32.5% of the balance.
Understanding your numbers and planning properly will ensure you only take out of the company what is available and avoid any additional tax. At PPF we have a number of ways we can help you with extracting money from your business – planning for it properly, and ensuring you also know all the relevant tax implications.
To find out more on how we can help you only take what’s yours, and plan accordingly, pop over to our Work With Us page to complete the quick questionnaire and book a discovery call with us. We look forward to speaking with you and helping you to plan!