AIBU to expect DP to cover the extra personal tax I'm liable for after become a 'director' of his company??

[bedknobs72]

I'm a SAHM.
DP gives me £300 a month for personal expenses and I get a little income from my old flat that I rent out. DP has a small business and has made me a co director as he said it would be more tax efficient. There is a joint account for big family expenses

I always do a Self-Assessment because of the rental income. However, now that DP has made me a director of his company I have to declare my 'earnings' and the dividends that I 'get' from his business. This means my tax bill is twice as much. I'm happy to pay the tax owed for the flat income as I had factored that in and put it aside from the flat income. But I sort of think DP should be paying the excess that I am now due because I've been put down as a director of his business? AIBU? DP certainly things so. He hit the roof when I suggested it seemed unfair and said that if 'he' paid for it I would be getting more money than him as he also only has a about £300 a month left over for personal expenses.

Still seems not quite right to me though. I agreed to being Director as I thought it would bring the overall tax bill for the business/him down. I didn't think I would start having to pay tax on the money I was suddenly 'earning' . I have had no change in the monthly money I get and I don't have any more for the increased tax bill.

I said to DP that if he had a job rather than owned a business ( and brought in the equivalent amount of money) he wouldn't be expecting me to give him half of his PAYE tax figure.

DP is getting very angry that I'm even suggesting that this seems unfair.

AIBU??

I genuinely don't know if I'm being a selfish unreasonable cow or if I have a point?

Legally I don't know the first thing about this but this seems insane. I'm completely with you, you've done him a favour that is benefiting him but costing you twice as much. Either making you a director has a benefit or it doesn't, if he's saying that him paying the extra is of no benefit to him then I'd question why on earth he did it in the first place. It just makes no sense. If I were you I'd "resign" as you don't want a job that costs you money.

If you're not actually working for his company then what you're doing is illegal. Did you not look into the tax situation before you signed up to be a company director? What happens if the business goes bust? You could lose you rental apartment pay of his debts!

paying off not pay off!

It is a little complicated to work out from your OP but I presume you are saying that you (now) earn £300 a month from the business rather than him just giving it to you?

I am confused about the 'earnings' and 'dividends because you have put them in inverted commas. Do you not actually get the cash?

If you do get the cash, then assuming you and your DP are a long term couple I presume it would make sense as you earning rather than him would lower the tax bill for you as a couple, assuming you are a basic rate taxpayer and he is not.

HOWEVER to get dividends you need shares. As you are not married and you don't seem to fully understand what the legal nature of all of this is (apologies if you do and have just not put it all in) then I would be very wary, because being an unmarried, non earning partner of someone who 'gives' you £300 per month sounds like a recipe for disaster.

Should have put in the previous post that of course if you are earning (rather than getting dividends) you need to be doing something to earn the money.

And why on earth is your DP getting angry? Either it makes sense for you as a couple, in which case he needs to explain fully so that you understand and can make an informed decision, or it doesn't, in which case you are right to be questioning it. Actually you are right to be questioning it either way, given the roles you have clearly have legal significance as a director, shareholder or both.

Do you receive any actual payments from the company or do they appear only on paper?

This sounds rather dodgy.

You would only get dividends if you actually have a shareholding and they should be calculated based on the shareholding and available distributable profits. If it’s a salary then a) you should be doing something for it in order for it to be genuinely tax deductible as an expense of the company and b) it should be going through the company PAYE scheme.

Have a read of this OP,

www.russell-cooke.co.uk/news-insight/briefings/2010/personal-liability-for-directors/

He is on dodgy legal ground, both your salary and dividends should be paid into your bank account.

Answering the question narrowly, assuming you had a reasonable financial arrangement with him before, then obviously you helping reduce the family tax bill in this way shouldn't result in you being worse off.

The real question is whether or not your overall family finances are reasonable now.

And look you and the company up on companies house:

www.gov.uk/get-information-about-a-company

If you have received cash payments from the business as earnings or dividends then you should include them on your tax return. If you have not received them then where have they gone? There should be a directors loan account with money the company owes you in the company accounts if the dividends have not been paid.

Presumably when DP made you a director you had to sign something - did you discuss what the arrangements were then?

I'm in a similar situation OP, my DH is a LC contractor and we decided to make me a director and shareholder for tax purposes (I earn just under the taxable threshold from the business but take dividends that go into the family pot).

The difference is that I do all the company invoicing, expenses, manage the website and liaise with the accountants to earn the money. If I didn't do that it would be fraudulent (tax avoidance). If you don't and you guys are audited you'd both be in a heap of trouble!

On the other hand, yes - my DH pays my increased taxes from the dividends because I don't keep any of that money. Your DH is being massively unreasonable to expect you to somehow magic it out of thin air!

Are you even legally allowed to do this? Wouldn't you actually have to be doing something to be a director?

WhatHaveIFound - I do actually help out with the business - Admin, Marketing, bringing in new clients etc. DP didn't ask me to but I want to help him make a success of the business.

When I first became a SAHM DP gave me the £300 a month. Since being a company Director he still gives me the £300 a month ( he says thats all he takes for himself too). Dividends and a salary are paid but the actual money goes into our joint account to cover mortgage and bills etc

I've told DP I'm struggling financially with this set up and suggested I find my own job but he says he doesn't think that would be best for the family or financially ( although he wouldn't stop me). We're still in deadlock about this tax bill I have to cover though..

@QuizzlyBear given that it’s a small company, it is highly unlikely to be a plc and is in all probability below the audit exemption thresholds which would mean no audit is required. Unless it’s turning over a few million and has tens of staff, but I doubt it from the sounds of the OP.

said that if 'he' paid for it I would be getting more money than him as he also only has a about £300 a month left over for personal expenses.

If you have an agreement that you should have equal spending money, and that actually happens, then it should't matter who pays any bill, as long as the bill isn't for something that counts as personal spending. (Obviously tax isn't personal spending.)

Do you have a payslip? Do you have access to the joint account? Can you see his salary and dividends going in there, and yours, and then both of you taking £300 out?

If he 'gives' it to you, which account does it come from? If your salary and dividends go into the joint account don't his as well?

So you are actually a shareholder as well as a company director. Let's start with the dividends you are receiving on your shares. You can take advantage of the dividend allowance on the first £2,000 you receive, so there is no tax on these. Thereafter you will be paying tax at 7.5% as the top slice of your income.

I assume your DH is claiming that you work for the company and you are drawing a salary of around £8k. This is reducing the company's corporation tax bill by around £1.5k, but anything over and above your personal allowance will be taxable at the basic rate for you.

Presumably your DH is a higher rate tax payer, so you are also effectively reducing his tax bill. The dividends diverted to you are saving him 25% tax. I suggest that you work out the amount of tax you are paying and compare it to the tax he is saving on his dividends and corporation tax liability. You are better off as a household, but you are worse off as an individual.

You do realise that you should legally be receiving your dividends and salary in your own right into your own bank account? If you actually receive the cash, the additional tax bill should not be a problem. However, if the company is not actually paying you directly, you should be asking your DH to hand over all of the cash you are legally entitled to.

@Lockheart is that always the case? Odd - my parent's business turns over about 300,000 pa but was audited last year (limited company). I'm pretty sure that companies that aren't plcs can also be audited?

Dividends and a salary are paid but the actual money goes into our joint account to cover mortgage and bills etc

Actual money going into joint account is fine, that counts as you being paid what you're owed.

The tax bill on any money going into joint account should obviously be paid out of joint account, there's no logic to doing otherwise.

QuizzlyBear - Yes It sounds similar and yes I do do stuff in the business - including the payroll! We've got an accountant and we're not doing anything fraudulent.

I suppose DP thinks I should pay it out of the £300 cash I get a month ( He is the one that decides this is how much money is left over for me) I don't get the salary or dividends paid into my personal bank account - they go into the family pot.

I think it would be fair to pay my extra tax bill from the dividents. DP does not

Money for the tax bill should be set aside from the salary and dividend money that is paid into the joint account, as if us this income that is generating the tax liability. How does your DH cover his tax bill?

Is he a higher rate tax payer? The tax is from his company so the tax money should be found from the company but it should be less than if he was declaring it himself or what's the point?
How much is your tax extra because of the £300 per month?

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