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If an owner of small private limited company draws funds from the business as drawings, will it be taxed at dividends rates or non-savings income rates?
As its technically not a dividend because the money being drawn is not from accumulated profits/ retained earnings.
An unincorporated trader extracts funds from the business as drawings but is taxed upon the adjusted trading profit of the business not on those drawings.
An owner manager of a company is taxed on the funds extracted from the company which may be in the form of a salary or a dividend – drawings do not exist for owners of companies!
Refer to Chapter 26 on Tax Planning Style Questions – Section 3
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