Salary payment still best option for business owners
Tax experts say small business owners have three options; a salary, dividends paid from after-tax profits and borrowing from the company
Many people are under the impression that owning a business makes life easier. The harsh reality they tend to forget is that bosses have to finance themselves and everyone else working for them. The decision on how to reward a business owner can be quite tricky, mainly because of the tax implications if the wrong choice is made. It could affect not only the bosses, but also those who are dependent on them for a living. Tax experts say small business owners have three options; a salary, dividends paid from after-tax profits and borrowing from the company. Chris Herbst, team leader at CH Consulting, says the option of using a loan account without paying a salary or a dividend "is almost never a good option. Some directors are under the impression that this option does not attract tax. They are wrong." The first factor to consider is the interest rate the company charges for the loan. In most cases, the company does not charge any interest. Herbst says this implies that the owner is re...