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Can the CMA make my self-employed ExH pay according to what he earns and not what he draws as a salary/dividends?

(48 Posts)
Namechanger2015 Thu 21-Jan-16 06:54:40

I've just applied for CMA, and have been told that my self employed ExH (he works under a limited company) will only have to pay according to how much salary and dividends he draws from his company and not according to his actual income.

He invoices approx 70-80k per annum. This money goes straight into his business account. He then withdraws 9k salary and approx 20-30k as dividends.

The CMS calculator suggests I am entitled to around £950/month if his salary is 70k, but just £400/month if his salary plus dividends is 30k/month.

This is obviously a massive drop, but the lady from CMA said there is nothing they can do. It seems like a ludicrous loophole to me?

I am going through a divorce and Form E is due to be exchanged tomorrow. CMA will take another 4-5weeks to process before it comes into action.

Can I do anything about forcing payment based on his full income?

I am actually devastated at this potential shortfall in income, ExH does not provide for DC at all, sees them once every 6 weeks, and has had 5 solicitors letters requesting he pay CM, all of which he has ignored.

Namechanger2015 Thu 21-Jan-16 06:55:18

Oh he actually earns more than that as he has rental properties too, but I have no idea how much that is.

LaurieFairyCake Thu 21-Jan-16 07:01:04

When you get divorced there will be a full financial statement - maybe it will be appropriate for you to get more assets like the rental properties rather than relying on maintenance?

Namechanger2015 Thu 21-Jan-16 07:41:02

Hi Laurie, thanks for your comment. I will be getting some assets but he has moved things around a lot - eg selling rental flat to his dad hmm which will come out in the disclosures hopefully.

I just need some day to day cash to keep us going at the moment, and was hoping to get more based on his true income. I can't believe it's so easy for all contracted to pay artificially lower amounts so easily.

redhat Thu 21-Jan-16 07:51:11

He is not a limited company. The company is a separate legal entity. he might be the sole shareholder of that company (and therefore own it) but it is not the same as him.

If the company invoices 70-80k, 20 percent of that will be corporation tax and so you're already down to 56-64k. That's assuming there are no running costs (which is unlikely), and so the running costs of the business will also come out.

If the company makes a profit he is entitled to take dividends but the amount is up to him as director. Its efficient tax planning to take it out gradually and he's entitled to do this.

The company could be making a million pounds a year profit but that is not his. He only earns what the business pays him by way of salary and/or dividends. If he only takes out £20k then that is what he takes out.

The £20k is actually his income because he can't spend the rest. It isn't his. Granted he could take out directors loans and borrow the money from the company but then he would have to pay that back (generally through declaring a dividend). So if he took a £20k directors loan then at a later point he will need to declare a dividend to cover that (which would then be treated as income). In this case there would be a time delay on him having the money but he would be deemed to have had the income eventually.

The long and short of it is that he can't be made to hand over what he hasn't yet received in income. The divorce settlement is another matter altogether though.

Namechanger2015 Thu 21-Jan-16 10:10:00

Ugh sad.

Thank you for your reply, its really useful, although very frustrating to hear that is the case.

He is 50% director, and has recently added his friend in (who also is a contractor) as a 50% shareholder, presumably to minimise his own interest in the company.

There are no running costs as he works as a contractor onsite with his one, full time client.

When we were married, he would withdraw dividends from the company under my name, and pay these into his own bank account, and spend. So I would be withdrawing £18k dividends a year and he would withdraw £18K + £20k (under his name) + £20k (under my name). So he has been eating away at my money even during our marriage. It's pretty galling to think he can now get away with paying maintenance on a £9,000 salary when he is earning nearly ten times that in reality.

I also believe he will pay out his dividends via his newly acquired shareholder, to avoid paying me, as it would be in line with his actions to date.

I'm basically screwed when it comes to CMS payments aren't I?

I agree the divorce is a different matter, but was really hoping for regular monthly payments so I can afford to work and pay childcare costs and bring up our 3 children. One salary alone plus zero contributions really does not bring in enough of us all. Am angry at the system. sad

redhat Thu 21-Jan-16 10:16:40

If he was paying you dividends then you must be a shareholder. Otherwise there are potentially fraud issues/ tax avoidance here..

He isn't really earning ten times what he is taking as income. The dividends will count towards his income. Plus he can't actually get at the other money unless he declares a dividend/takes a salary.

Toughasoldboots Thu 21-Jan-16 10:18:58

Did you say that he works for just one company? If he does, he can get in trouble for that as it will be seen to be set up as contracting for tax purposes. He would be an employee in all other respects.

Toughasoldboots Thu 21-Jan-16 10:24:23

Many contractors legitimately bill their employers through their personal company. By paying corporation tax at 20pc and taking a modest wage plus dividends from the company, they save on income tax and National Insurance contributions. Some are also able to keep child benefits because their “wage” is under the threshold.

But a large proportion are not technically contractors at all and are doing the job of a normal employee, meaning they are in breach of a tax avoidance rule, called IR35, that says people cannot be “disguised employees” by paying themselves through companies.

littlewoollypervert Thu 21-Jan-16 10:33:07

Not sure if this applies for the UK but would the limited company share that he owns be counted as part of the assets of the marriage?
So if he owns 50% would you be entitled to 25%? (and if he was drawing dividends under your name you would have to have had a shareholding, which you might still own?)

Even if the company is worth nothing on paper, it might be worth a few ££ to him NOT to have you continue as a significant shareholder - i.e. for him to give you other (decent) assets in the financial settlement in place of your shareholding. After all if you held 25% of the shares in the company, you'd have to go to board meetings, sign off accounts, and you could potentially disagree with every decision, and basically cause ructions.

If he is going to cause difficulties with regular maintenance payments, it might be handier for you to get hold of some of his rental properties instead - a tenant could be easier to manage than an ex!

All the above is guesswork on my part though - get a SHL (shit hot solicitor)!

redhat Thu 21-Jan-16 10:40:04

Actually you may well find that he changes his arrangements and operates as a self employed contractor or an employee anyway. The financial advantages to operating as a company have been removed with the new rules on dividend taxation.

Namechanger2015 Thu 21-Jan-16 10:45:11

Hi redhat, sorry, I have not been clear.

When we were married we ran Company 1 - both 50% shareholders

During this time, he was paying out dividends to himself under my name etc, so yes, tax avoidance and fraud.

I only found out about it this week, as he was refusing to let me access the joint account, refused to share internet login details and wouldn't add my name to the bank account. Financially abusive.

He assaulted me, I left, he then opened company 2 - him and his friend are now both 50% shareholders.

And now he will claim to be earning £9,000 so he can avoid paying towards his 3, 6 and 8 year old daughters.

He is a shitbag, and a very rich one at that.

drspouse Thu 21-Jan-16 10:50:32

Rental income will have to be declared through self-assessment so HMRC will have a record of that. If he's fiddling that too and you have information to show that I bet they'd be interested.

redhat Thu 21-Jan-16 10:51:55

If there are fraud issues then that's a separate matter and you need to discuss these with your solicitor. Potentially there is money left in company 1. You are a 50 percent shareholder (i.e. owner) of that.

But. If he is only taking £9k from the new company then he will only be able to spend £9k. The rest of the money will not be (legally) accessible to him (unless he takes it as a directors loan). As a result I suspect he'll end up taking more than this out of the business (in a combination of salary and benefits).

The upshot of all this is that its a situation which is very particular to you/him and therefore nobody on here can help you. You need to take legal advice.

Namechanger2015 Thu 21-Jan-16 10:52:30

Even has a co-director and shareholder on company 1, we didn't have any board meetings, and all decisions were made by him alone.

When I left him, he transferred the company accounts from our regular accountant (who I had never met, but had email address for), and he transferred to a new accountant (his friend's BIL).

I've contacted the new accountant (found his details on Companies House), and kicked up a fuss, but he reckons he has complied with all client care procedures, etc. Basically I have never signed any paperwork for my company, exH has done whatever he wanted with the account/money, without any consent.

I have a SHL sorting out divorce, but I am trying to understand wtf I am entitled to and how on earth to sort this all out myself the best I can, as I am really worried he will walk away with loads, whilst me and our daughters will end up struggling.

I assume I can just contest the CMA amount in court? Haven't done this before and I have no idea how to proceed. SHL is great but very expensive, so I need to have some understanding of it all.

But a large proportion are not technically contractors at all and are doing the job of a normal employee, meaning they are in breach of a tax avoidance rule, called IR35, that says people cannot be “disguised employees” by paying themselves through companies.

I am not sure if he is a 'normal employee' as he has a particular skill that he has been hired for. But it's definitely only one company he works for. I would have thought accountants would have flagged any IR35 issue with him?

redhat Thu 21-Jan-16 10:53:01

"benefits" should have said "dividends"

Namechanger2015 Thu 21-Jan-16 10:56:16

drspouse he is definitely fiddling rental income, but I have no proof of that, I left the marital home, and so all the paperwork is with him. But I guess SHL will know what to do about that.

redhat thank you. It's all very complicated and I and basically trying to predict the future outcome I guess. I should probably stop panicking over it all and trust my SHL.

I'm not even a money-grabbing sort, I can't believe he won't support our children, but claims to love them etc, and yet is quite happy to see them go without. There are so many emotions tied up with finances in divorce.

Namechanger2015 Thu 21-Jan-16 10:57:29

redhat he took out a directors loan without my knowledge, to buy himself a 45K 2-seater sports car. He is that much of an abusive cliche.

redhat Thu 21-Jan-16 10:58:35

Yes but he has to pay that back within 18 months. So he'll have to declare a dividend to cover it. That dividend then becomes taxable income.

redhat Thu 21-Jan-16 11:01:44

Actually just checked and its nine months

Namechanger2015 Thu 21-Jan-16 11:14:15

Thanks redhat, thats really useful to know. I was thinking he will ask his friend to withdraw dividends/loans on his behalf, but I doubt that is a tax efficient way to work.

The salary vs limited company funds seems like a very, very easy way for contractors to withhold funds. I guess they have to be paid out eventually.

Do the CMA then keep track of the HMRC filings? Or is it just taken at face value that he will be honest with his income each year?

redhat Thu 21-Jan-16 11:17:44

Its perfectly legitimate to take a very low salary and the rest through dividends. I take £7500. But then if he wants any other income it has to be done via dividends (income) or else directors loans which are a short term fix.

Hi colleague won't take dividends "on his behalf" because then his colleague would have a massively increased income.

You really need to discuss all this with your lawyer.

DeoGratias Thu 21-Jan-16 21:38:14

Some of the comments about things being illegal are not necessarily correct.

The bottom line is if you rely on men for money it rarely works out - pity you don't earn more and he is trying to get money from you. I think you are saying he has a limited company in which he owns half the shares and he used to own 100% of them. Did you ever own shares in this company?

He will probably find it very easy to avoid paying much to the children. In that case could you suggest he pays some sums direct eg for your child care provider or specific things for the children as he might feel psychologically happier to do that than just pay all sums directly to you.

DeoGratias Thu 21-Jan-16 21:38:57

Also if he has a limited company have you looked at the companieshouse website to check things like declared turnover and shareholdings?

foragogo Thu 21-Jan-16 21:49:43

I think you are falling for the perception that contractors earn 100K a year because that's what their ltd companies invoice. As redhat said, 20% goes on corporation tax, then there's expenses and running costs. So as an employee of that company he actually only has at his disposable the small salary and whatever he takes as dividends. Which is declared, and is what I would hope the CMA base their calculations on (I know schools do for bursaries). As a self employed contractor you only earn what the company pays out to you as dividends and that is heavily taxed. You can't touch the rest of the money without being taxed on it so most people leave the bulk of it in the company.

redhat, what did you mean by: "Actually you may well find that he changes his arrangements and operates as a self employed contractor or an employee anyway. The financial advantages to operating as a company have been removed with the new rules on dividend taxation".

I know about the change to divident taxation but what does "operates as a self employed contractor or an employee anyway" actually mean - do you mean by using an umbrella company?

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