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?

If you both pay all your incomes into a joint account, then any tax bill either of you receive should come out of that account.

However it seems you have some investment (rental) income that isn't shared, so things aren't quite that simple.

Well if your DH says he only gets to draw £300 pm himself as a salary, presumably he's paying his own tax bill out of that?

Of course if he's not...

Gentlygently - In practice nothing has changed - he gives me £300 a month. He did before I was a director and he does now I am a director

From a legal/accountancy point of view I earn more than that + dividends. It's the same money that previously just 'he' was earning.
I do help out with the business so it is legit.

But my personal financial situation has not changed and I don't think I should have to find the money for the increased tax bill that I now have as a result of being a director

In your shoes I’d be handing in my notice and resigning as a director.

Of course he’s BU, you shouldn’t be out of pocket for becoming a director in the company. You should be better off, or in the same situation but definitely not worse off as a result.

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?

Companies with turnover less than £10m are not required to be audited, some may choose to do so.

@QuizzlyBear no companies don’t have to be plcs to be audited, but it is compulsory to audit plcs. Limited companies can apply for audit exemptions if they’re under certain thresholds for turnover, net assets etc.

YANBU. DP should pay for it, as it benefits HIM and HIS business, DH and I have the same set up, the tax bill came through for myself and he paid it, from the earnings from the business. I would laugh in his face and instantly have my name removed from the business if he even suggested I paid for it. I receive no 'physical' earnings from it, as in it's not given to me to spend, it all goes in to one pot which everything is paid out of.

So let me get this right, you're not a actually receiving any of the money you are expected to pay tax on? He's keeping it himself I presume. He's used your name as tax avoidance, and also wants you to pay some of the tax to make sure he personally pays even less.

What a nice husband.

I am a director of my husbands business, we are both paid dividends and that money is paid into a joint account, once the self assessment has been submitted and I receive a tax bill my husband pays it. I do also have a part time job and that money is paid into my own account.

Your DP is BU.

I agreed to have some shares transferred to me for CGT purposes (yes, done by an accountant, all above board) and received no personal benefit from it.

Similar to what you've done OP, I agreed to it just to improve my DP's business's tax position.

I made my DP send me an email first though, saying he would indemnify me against any losses or obligations to pay CGT. Which he thought was entirely reasonable.

Is the issue arising because you also have income from your rental property? Is it the case that were it not for the rental property your earnings from the business (pay and dividends) would be below your personal allowance? Assume your DP's logic is that the tax actually relates to your rental income rather than the income the business generates and that the rental business should therefore bear the cost.

However if what he has done makes you jointly better off, as intended, it makes no sense for you now to have less spending money. Perhaps you need a discussion around the finances of your rental property and your joint contribution to HH expenses?

@celtiethree - I always used to tell DP ( when he was self-employed and I had a corporate job) that he should put aside money for his tax. He never did - I think he pays it out of his savings - he's from quite a wealthy background.

I always put money aside for the tax I need to pay due to having rental income but I didn't put any aside for this as this is the same money that was always being generated from the business.

@ineedtostopbeingsolazy - no he's not a higher rate tax payer ( possibly he was before making me a director)

'Your'tax bill should come out of the joint account as that is where the funds which 'match ' the tax are going, anything else is him taking the piss out of you

So at its most basic, this change has made you worse off, and him (presumably) better off? And he is getting angry when you point this out?

I think you have more of an issue than just who pays the bill.

Surely if the family/business can allow you £300 a month,then after a change that saves on tax you should get more,not less?
You should have access to the dividends etc and if they go into the family pot that tax should come out of the family pot as well.Presumably you have access to " the family pot" - can you not just pay the tax bill from that?

Where does his tax come from?

Just to clarify - My DP is a nice guy ( most of the time!) He is not dodgy and I don't think he's being deliberately unreasonable. I just really want him to understand my point of view on this.

It's helpful to hear others in similar situations and that the tax gets paid from the the dividends for example.

Also, to be clear I WILL pay the tax from my rental from my own money - it's the added tax bill that I think DP or 'the business' should pay. DP still insists I am being unreasonable though!

If you pay tax on your rental income then that must be more than your personal allowance. And if he is not a higher rate taxpayer then it makes no difference who earns the money, so he needn’t have made the change?

If it is dividends, then the only difference is your (now) £2k dividend allowance, but if they were the only dividends received you wouldn’t have an increased tax bill for them.

The rules in this type of arrangement have changed and HMRC are tightening up on this. I would suggest you get advice from an accountant pronto.

Re the tax being paid. Presumably he is taking a corporate deduction for the money he pays you so he/you/the business are saving tax that way.

You didn't mention whether or not you are applying PAYE to the payments you receive each month.

Two things. First on the audit confusion - there is a difference between a statutory audit of a company's accounts -where being a plc/turnover etc have a bearing. This is different to an "audit" for tax purposes by HMRC who can decide to review a company's financial affairs at any time and for any reason (or at random) which is where a non-working director's salary can be queried as tax avoidance (although that doesn't appear to be an issue here).

Secondly, if the dividends and salary have been paid into an account in your joint names, you should have access to it and therefore can presumably pay the tax by bank transfer/cheque from it? If you don't have access to an account in your joint names then there is the problem. Then you either need to get access or change the payroll arrangements to pay the salary and dividends to an account in your sole name. Then you can transfer funds less the £300 and a reserve for the tax into the joint account.

@BlueEyedPersephone
['Your'tax bill should come out of the joint account as that is where the funds which 'match ' the tax are going, anything else is him taking the piss out of you ]

I think that's spot on - I need to try and word it in a nicer way for DP. I think one of the problems is that we are really strapped for cash and there simply isn't any money in the joint account to cover my tax bill let alone his ( he has funded his tax bill from personal savings I think)

This whole situation is worrying, mainly because you didn't discuss the tax implications before he made you a director but also when you say he possibly was a higher rate tax payer before the directorship changed.

You are becoming involved in a company and you do not know about the finances.

Have you seen his tax returns? Why is he not putting aside his tax liability each time he is paid? There are simple calculators online that will do this for you.

We have an accountant and all invoices are input into their system which tells us how much corporation tax etc to set aside and we do.

And yes, of course he should pay the increased tax for you. I would be wanting to see all the accounts for the business, his tax returns for the past 3 years to see what tax he was paying before he made you a director.

is this financial abuse/slavery that men put wives through?

You've had plenty of good tax/business advice here. It seems unfair that you should now be paying the extra tax from personal money, but more than that I would worry about why he is so incandescent about the idea. Especially if he is a nice guy most of the time.

On a different note, there is absolutely no way I would act as company director as a favour to someone if I were not married to them. Do you have access to the company bank accounts etc? If not, you are putting yourself in an extremely vulnerable position. I'm not suggesting he's up to anything, but if he were you are liable for a whole lot of shit you're not party to.

I prefer to have everything financial out in the open - joint account for family income (including your rental income) and then personal money paid out of this. I know that doesn't work for everyoe but it does stop muddy situations like this from happening.

Sounds like he wants you to pay his tax bill. I think you need to say that this will only work moving forward if he pays it. If not I would resign the directorship