SMEs in profit at 2007 levels

01 April 2015

The number of small businesses that reported profits over the last 12 months has returned to 2007 levels, according to the government's Small Business Survey.

The annual survey conducted by the Department for Business, Innovation and Skills showed that 78% of businesses reported making a profit or surplus this year, with 40% saying their turnover is greater now than 12 months ago.

This is the highest level of profitable firms since the financial crisis hit in 2007.

Almost a fifth of firms sought external finance to bolster working capital or cashflow in 2014, down from 24% in 2012. A third of employers expect to increase their staff in the next year.

Extracting your company profits

There are a number of strategies available for businesses that want to efficiently extract their company profits:

Directors' salaries and bonuses

Paying yourself less than £8,060 (for 2015/16) will ensure that you avoid 13.8% employer national insurance contributions (NICs), while paying more than £5,965 will allow you to qualify for the state pension. Taking a salary between these figures will also ensure that you remain within your personal allowance.

Dividends

A dividend is a payment that can be made to a company's shareholders in order to distribute a proportion of the profits. NICs are not payable on dividends which can save a company a large expense. They do however attract corporation tax and negate your personal allowance.

Reinvesting

Choosing to reinvest your profits back into the company can be used to reduce your corporation tax bill. Reinvesting the proceeds of any asset sale and using the 'rollover relief' can also reduce capital gains.

Get in touch today to discuss extracting profit from your business.