Every £1 You Extract Is a Choice: HMRC or You?

Company directors work hard to generate profits. But here’s the truth most don’t stop to consider: Every pound of profit you extract is either taxed heavily… or structured wisely.

The Dividend Trap

Let’s say your company makes £40,000 profit.

• Pay 19% corporation tax = £7,600.

• Left with £32,400 for dividends.

• As a higher-rate taxpayer, dividend tax takes another £10,935.

• Final net = £21,465 in your pocket.

From £40k profit to just over £21k of personal wealth. That’s over 46% gone to HMRC.

The Smarter Route: Pensions

Now imagine you can put the same £40,000 profit into your director pension as a company contribution.

• Contribution is deductible against corporation tax.

• No corporation tax, no dividend tax, no income tax.

• The full £40,000 is working for you inside a tax-advantaged wrapper.

That’s almost double the amount building your wealth compared to dividends.

Why It Matters

One year = £18,535 difference.
Ten years = hundreds of thousands more for your future.

This isn’t just tax efficiency. It’s the difference between: Working harder just to pay more tax or building freedom and security outside the business.

Other Smart Extraction Tools

Pensions are powerful, but directors should also consider:

• Relevant Life Policies (personal cover paid via the company)

• ISAs (tax-free growth and withdrawals)

• VCT/EIS (income tax relief + IHT advantages)

• Trusts & gifting strategies (protecting family wealth)

Final Thought

Every £1 of profit you take is a choice. Give half to HMRC, or structure it into lasting financial freedom. The earlier you plan, the bigger the results.

Directors: Which side of this choice are you on?

At Caldwell Financial, we help company directors like you turn business profits into personal wealth - with clarity, control, and confidence.

Disclaimer:

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Inheritance Tax/Estate Planning and Trusts are not regulated by the Financial Conduct Authority.

Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS) invest in assets that are high risk and can be difficult to sell, such as shares in unlisted companies. The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.

Tax treatment varies according to individual circumstances and is subject to change.