Tax-free profit extractionIt becomes quite interesting (to put it mildly) to consider ways of taking money out, not just tax-efficiently, but even tax-free. What follows is a selection of some of the most effective tax-free profit extraction techniques. Share capital reductionsIf you have a private company with another than a trivial amount of share capital, repaying some of the company’s shares at par is not just much easier, but it can also be a way of taking money out of the company without an income tax, in the same way as repayment of loans previously made to the company. That’s entertainment! As a matter of informal practise or as part of a deliberate policy by HMRC, where the main purpose of the business entertaining is to promote the company’s business, and the entertaining is genuine of a useful contact, supplier or customer, the fact that you as the company directors are entertained and perhaps have a very nice time is not counted against you in tax terms. So, although this is the value taken from the company, in a sense for your personal benefit, and although the whole practice of entertaining is frowned on by our tax system, this is effectively equivalent to a dividend-in-kind, which is not charged to tax. Provision for a brighter futurePension contributions to approved schemes are a well-known way of taking value out of the company tax-free. Of course, not everyone is a big fan of approved pension schemes. But there are situations (for example) when the individual is nearing or has passed retirement age when money can go into a pension scheme without a tax charge on the individual, but with tax relief in the company, and can then be paid out to the individual as a tax-free lump sum using the facility to pay 25% of the funds over in this way. It can simply be a case of using a little lateral thinking. ‘Parallel investment’ LLPsA parallel investment limited liability partnership (LLP) can provide a way of investing post-corporation tax profits from the trade of the company in an entirely separate asset and the environment – but without losing a proportion of this in income tax. (Ex: Property through LLP) Selling assets to the company If you don’t have a director’s loan account credit balance that you can draw on tax-free, why not look at seeing whether you can create some such credit? This can be done by transferring an asset into the company.
Please note, not all such transfers are tax-free, of course. If you transfer an investment or a property that is worth more than it cost you, a capital gain will arise. | 
