Going from shareholder to PAYE

[Rafting2022]

I don’t want to give too much detail in the way of specific circumstances but I’m having to go from shareholder to PAYE status which of course means I lose the significant tax benefit. Can someone help me with tips on how to negotiate the best possible salary to make up as much of the shortfall please.

Do you mean taking dividends vs being on payroll?

Shareholder to PAYE doesn’t quite make sense. A shareholder can be on PAYE, the two are not really related.

If this is the case then you need to work out what the difference in net pay is, and the employer NI payments etc.

Presumably something to do with your employment going from being paid only dividends to now moving to a salary? Probably because it helps the employer reduce their profit for corporation tax as dividends are not tax deductible. ‘How’ to negotiate depends a lot on what your contract says, that we aren’t privy to. Also on how much you are paid now. You need to work out your current gross/net vs what it will be as a gross salary with income tax and NI contributions but don’t forget that the employer will also be having to pay employer NI contributions for you now so may not be willing to actually get you to a position where you are taking home the same as before. Also don’t forget that dividend tax is increasing in the coming tax year, so you would have been taking home less net anyway. You’ll need solid figures worked out first before you try negotiating.

Apologies I wasn’t clearer - the old company was wound up and everyone moved onto the new company. As part of this the old company and shares therefore no longer exist.

Thanks

I’ve got all the figures, I was just wanting advice on putting forward a case to make up the shortfall to bring my take home salary as close as possible to the previous amount.

When you say wound up, do you mean it went into liquidation?

You need to show the calculation of your previous arrangement - gross pay, tax paid then the total ‘take home’

Then, you can use one of the many online calculators to work out what the gross annual salary would be to achieve the same take home.

Is that what you mean?

Do you know what your previous take home was?

Everyone moved on to the new company? Doing the same business and run by the same directors who wound up the previous one? What happened to the previous company's assets? How much were your shares worth, that you were able to earn sufficient from your dividents to need no salary, and how did they become worthless? Who owns the shares in the new company?

Something's not right somewhere. 🤔

I didn’t really want to get into a discussion on the background of what happened so as not to be outing.

I just wanted advice as I now have a few hundred pounds a month gap between my previous salary where I didn’t pay much tax and my new salary where I am on PAYE.

And how to broach this conversation.

I would ask for a meeting with HR / your line manager “to discuss bringing my new package in line with my previous remuneration”

Then you just explain what you’ve said here with the figures and then your suggested gross salary amount “I have calculated that to match my previous package my new salary should be XXX can you confirm that will be backdated to the first new pay day and from now on?”

Then get it all in writing.

Well, your ‘case’ is simple surely? “I can’t afford to do this job for less take home than I was doing it for before”. Whether they agree to pay what it takes to get you to that point is up to them. And therefore whether you agree to stay there is up to you 🤷‍♀️

Probably just another LTD company that’s gone ‘bust’ owing creditors but with no restrictions on the directors starting all over again from scratch. The shares would become worthless if they’ve gone down the pan. Originally the shares are worth whatever the directors running company say they’re worth, and just paying dividends saves them (and the employee) NI at the very least. Maybe their new incarnation has to pay salaries because they’ve realised (as I said before) that not being able to make the money paid to employees tax deductible wasn’t as cost effective to them vs the amount lost in NI contributions.

@ZookeeperSE Something along those lines yes except the directors found investors so we’re now part of a larger company, although still with a lot of autonomy at the moment.

For my new contract I’ve been offered the equivalent salary which I’ll now pay tax on. They are unlikely to just match my old one as that would put me on loads more than anyone else.

I appreciate I was fortunate to be a shareholder and have this benefit for all those years but it stings that I’m the longest serving member of staff and that no-one else has lost out financially due to the company re-structure.

I would like to go to them with a proposal of a higher basic salary than they’ve currently offered and a suggestion for performance targets that could help me make up the difference.

I would prefer to stay with this company and hope we can reach a successful compromise.

If the directors found investors to buy out the old company, what did they pay for it? They were basically buying 100% of the shares in the old company by investing in a new one. So how come you never received any recompense for your shares in the old company that were bought by them?

Seems to me you've been royally shafted.

And yes, my profession does involve spending a lot of time on Companies House looking at this sort of thing.

I’ve received settlement for the shares but I didn’t start the thread to discuss that. It was to ask for salary negotiation advice. I’m not sure why it’s got sidetracked.

Oh well pardon me for trying to help. I was only asking for background information before suggesting options for the way forward for you.

But you seem quite forthright, so I'm sure you'll manage.

Unless you are completely irreplaceable, you need to focus on why you’re worth the higher sum, not why they should put you into the same post tax position as previously. Look at what similar roles are advertised at, go over what you’ve brought to the business both in terms of results and things done outside your job description. You’ve need to persuade them that your market value is X, not that they should pay you X because your tax bill has increased.

That’s the case even if you genuinely can’t afford to do the role as an employee, because if market rate for the job is only Y the can find someone else who is willing to do it for that. It’s the same as any salary negotiation.

Apologies - I didn’t want the background to be outing. It didn’t seem relevant to the way forward.

I think it's perfectly reasonable to be in the same position post-tax as you were for doing the same job. I'd be annoyed if I had to renegotiate the same money for the same job. They should just do it and that's what I would say.

And this is the part I can’t get past - why should I be penalised for something that wasn’t my fault.