Small business corporate tax.... will I pay twice?

I have a very small business that I run part time. The purpose of this isn't to take an income but rather to accumulate funds for our retirement.

However, I'm wondering if we'll end up paying tax on the same monies twice if we don't take a chunk out every year i.e. if we take no income from the business we'll have an estimated profit of 拢20k and so will pay about 拢4k corporate tax. However, if we then took the remaining 拢16k out as income/dividends in a future year, would we then pay personal tax on that amount e.g. another 拢3k+? Total 拢7k paid.

Would it be better to pay ourselves 拢16k this year, pay personal tax on it (拢3k+) and then only pay 拢800 corporate tax on the remaining 拢4k left in the business? Total 拢3.8k.

Or doesn't it work like that?

Hubby and I are already higer rate tax payer in our 'day jobs' so we have no allowances

ok, heres a few bits to get ya mind going.

assuming its a limited company and not a sole trader.

what you need to do, is take a minimum salary to use up your personal allowance, so if you are under 65, take a salary each of 拢5225 a year, over 65 is 拢7280. this way you will pay no tax and national insurance will probably be a few quid a year.

this will wipe out 拢10450 of your company profit if you pay yourself and your wife and your basically taking that money out, without paying tax on it and the company will only have to pay tax on the 拢9550 profit left, not too sure of the calcs as a bit out of touch with company tax these days

you can then take the remaining balance out as a dividend, now dividends have a notional tax of 10%, so the net amount of 拢9550 is 拢8595

so in total you could potentially take out 拢19045 tax free for yourself and your wife.

no additional tax is payable on the dividend because you income will be in the basic rate tax band and this is 10% for dividends, 22% for earnt income ie a salary but as your salary will be using your personal allowance which is tax free. you wont be liable for any tax on this either.

to be honest. its best to speak to an accountant who is up to speed on company tax as the dividend available to pay maybe after corp tax has been paid on the remaing profit after you have taken the salary ie 拢9550 profit. an accountant can forward plan for a small fee, and once they have done the first year, you can then estimate what it will be for the furture years.

this is by far the most tax efficient way to do it, but you may need more help with the exact figures for the dividends. Also if you have other sources of income, then this may not be the best way and you may wish to take it all out by dividends subject to your personal circumstances, ie if other income uses up your personal allowance.

you can then invest the money you take out to make even more money, such as peps, isa, etc...

if you are a sole trader, then its totally different. if you can give more details, I could give you more advice.

how this gives you a general idea of what to do.

Yes you are right, the second option is better.
Any profit the company makes you will pay corperation tax on it. The following yoear you only pay Corporation tax on the additional profit not combined. But yes if you then pay yourself a wage out of this you are paying tax twice.
You would be better off paying yourself first and taking out any expenses you are entitled to.