To ask why people think directors that take dividends are tax avoiders?

[Milo2]

Small Ltd companies are currently left out of the UK government funding. Why? The directors still have families to feed and bills to pay.

I’ve seen a few people on here rubbing their hands with glee. Saying things like ‘good it serves them right for taking dividends’.

Some have compared directors to those that avoid paying tax and it’s completely unjustified.

Am I being unreasonable to ask why there is so much hate for these directors?

Also would you be upset if you had no hot water or heating to find that your local heating engineer had gone bankrupt and couldn’t help you? If so, why would you hate them so much when all they do is work hard and pay their taxes just like everyone else?

[LettyBriggs]

It’s all about tax. Dividends are taxed at 20%. If a director paid herself £200k dividend it’s subject to tax @20%. As a salary it would be taxed at the usual rate of in this example, no tax free allowance, 20% on the first £40k ish, 40% above £40k ish and below £150k and 45% above.

[Coffeeisnecessary]

I don't understand either, accountants push you to take dividends as it is much more flexible, the differences in tax is not that big anymore, not like it used to be, we still pay a tonne of tax every year and always have, we've never tried to hide earnings or not put things through the books but will get nothing in this situation, it's shit but I'm glad our staff will be OK.

[Coffeeisnecessary]

@LettyBriggs ah OK that makes sense, bit unfortunate when your dividends taken still keep you in the lower tax bracket!

[RufustheLanglovingreindeer]

It doesn’t serve them right

But for some people it is a form of tax avoidance...perfectly legal

[KatnissMellark]

I know many people who pay themselves a salary equivalent to the personal allowance and then draw the rest of what they want to pay themselves in dividends, to minimise their tax bill. It's a clear example of tax avoidance (finding a legal way to minimise tax paid). Not the same as evasion (which is illegal). But it is tax avoidance.

[BlueBirdGreenFence]

I'm not rubbing my hands in glee but am I sad that people who decided to contribute the bare minimum to the state are now getting the bare minimum back? No, I'm not. I think it's fair.

[GoatyGoatyMingeMinge]

I think you are confusing tax avoidance (legitimately arranging your affairs in the most tax-efficient way within the law) and tax evasion (lying or fraudulently dodging tax). Directors taking dividends is tax avoidance and is perfectly lawful. We pretty much all avoid tax, I hope.

[KatnissMellark]

the differences in tax is not that big anymore

Completely incorrect. After a certain point tax paid on salary (plus national insurance) is more than double that paid on dividends.

[PutYourBackIntoit]

You will get something if you pay yourself the PA in salary, you just don't get 80pc of the dividends too.

[OldGranvilleHouse]

Just what @LettyBriggs said.

[Random63638]

Because for years the system was very skewed with dividend tax being considerably more favourable than salary tax. There have been a lot of adjustments in recent years to redress the balance but it is marginally more cash in a director's pocket to take dividends plus a minimal salary. If the director is genuinely growing the business and can't commit to a large salary then dividend payments make sense, but I bet a lot of people use it as a loophole.

You reap what you sow I guess.

[islerunner]

@LettyBriggs That's not actually correct the dividend tax rate does change depending on how much you take and starts at only 7.5%

[Escapeistheonlyoption]

It isn't about tax at all. There used to be a tax advantage but really not now. You pay less NI as dividends are not subject to NI but then there are costs to running a limited company. Corporation tax is 19% and dividend tax starts at 7.5% after the first £2K- so not that different to PAYE tax. For high rate tax payers it is 32.5% on income at that rate and 19% corp tax.

Partly it is irregular income. I work for up to 5 clients at a time (on a single day sometimes) - my income varies massively across the year . It is probably different if you contract to 1 company and have a stable income.

[Powerlessstepmum]

I know many people who pay themselves a salary equivalent to the personal allowance and then draw the rest of what they want to pay themselves in dividends, to minimise their tax bill.
I'm an accountant who does exactly that. I have a lot of clients who do the same and feel they've been abandoned by the government. I finally pointed out to one of them that they'd put less in the pot so now they'll get less out of it and they did reluctantly agree. I'm afraid I just made sympathetic noises to the others. Over the years I've sadly come to the conclusion that most be are inherently self-centred. True generosity is rare, and gets rarer the richer people get.

[RickSanchez]

people who decided to contribute the bare minimum to the state

Errr.... I might make my salary up with dividends but I certainly don't contribute the bare minimum. I pay a fuck tonne of corporation tax, have a massive quarterly VAT bill and pay my self assessment. I pay plenty of tax thanks.

I don't do cash in hand jobs or fiddle the books and I contribute to the economy by employing a number of others who are also paying tax.

Maybe save your distain for people who are fiddling the system, taking cash in hand or declaring very little, or the big corporations who are paying sweet fuck all.

[Random63638]

And to clarify I'm talking about being in the lowest tax bracket. I'm self employed so vaguely know about these things as considered being limited. PPs suggest it's more lucrative the more you make, so basically tough luck to anyone who was tax avoiding.

[Milo2]

If there were no directors setting up companies and working their butts off day in, day out, there would be no jobs for the employees! Let me just put this into perspective - if companies go under due to the Coronavirus and the lack of funding for directors - people will lose their jobs!

Some very misguided comments considering how much tax a company really pays!!

[howells]

I think a lot of people don’t appreciate the fact that dividends are paid out of taxed profits. So there is corporation tax paid at 19% and then dividend tax on top (on amounts over £2,000). Yes, it is more tax efficient but hardly untaxed!

[Ladymuck]

At the end of the day, HMRC had to make a call on how to get money out fairly to as many people affected as quickly as possible. For those on PAYE, it is relatively straightforward to calculate how much is due (though zero hour contracts, SSP/SMP etc still means it isn't easy). And if you are self-employed then again you declare trading profits on your return. So HMRC can calculate from your tax returns what is due. In both of these cases HMRC know what your earnings are, and this speeds up the process overall.

Where people pay themselves a small salary and either leave profits in the company or pay dividends, well, HMRC don't record this on your return - there is no such thing as "self employed" dividend or "passive income" dividend. It all counts as savings income, not trading.

I don't think people hate owner managers. It certainly isn't targeted at them. It is far more about "how can we get some form of relief fairly to as many people adversely affected as quickly as possible". If you have paid enough salary so as to pay National Insurance, you will get something. But National Insurance has typically always been the way to access income related benefits. If you're not paying National insurance, then you need to ask your accountant why not.

[sirfredfredgeorge]

The company owner chooses to take the risk of running their own business, the potential better rewards is one of the good reasons for doing this, however losses in any business should not be subsidised by the state, the employees should be helped.

The company chose the risk of paying its staff minimum wage (or a little above) seemed like a very safe risk when the employee was also the owner, but in these times that risk has spectacularly failed. It was simply a risk of doing business though.

The person who lost their job should be protected just as much as anyone else who's lost their job, but that does not mean that the business itself should be saved or anything else. Protect people not capital, the same way you don't bail out the owners of an airline or a bank without the government taking an ownership stake, you don't bail out small businesses for their decisions either.

There's nothing wrong with avoiding tax, but it's a risk, like many things when running a business - a pretty unprecedented one to be caught by, but that doesn't change it.

Many people have lost their livelihoods, there's sadly nothing special about a ltd. company, although they have had the benefit of lower tax rates in recent years which could have enabled them to save more.

[20Newnames]

The ignorance is astounding. @LettyBriggs you are completely wrong!!

Dividends are taxed at 7.5% or 32.5%. And those profits available to declare as dividends have also already been taxed via 19% corporation tax. And completely legal and within the rules!!

If only there was a way to stop people posting utter shite 🙄🙄🙄

[maddy68]

It baffles me too. I think they don't understand that directors have a wage and a dividend. The dividend is usually the larger payment but only if the business makes a profit. It's the way businesses are set up to ensure the business can afford to run

[Milo2]

What @RickSanchez said!!!!

Thanks for everyone’s comments. They are all appreciated. However, I wasn’t asking for how it all works. I know.

In case you haven’t guessed we have a small Ltd company and thanks to the lack of funding it could go bankrupt.

Thanks to people’s lack of education there’s a misconception that all directors are avoiding tax.

Please educate yourselves, save the jobs of your friends and family and go and sign the petition I’ve just posted on the petitions thread!

This lack of funding will effect people you know. Probably even your is self and all you can do is hate on directors?

[WeAllHaveWings]

You get your salary covered by the government, dividends are not salary they are profits from investments. Are you really expecting the government to cover investment profits too?

Choosing to have a low salary in favour of more tax efficient dividends has always had risks associated with it.

[Milo2]

Your own self! Please don’t complain that you’ve lost your job if you are someone that thinks it’s good that directors aren’t getting any funding. That could get the reason you are losing your job!!! The reason your employer is going under. Think about it!!!