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?

The problem is that you don't really seem to know about the company finances and what salary your OH is drowning for himself, and what dividends are left. As a Director, you really ought to know.

Once you know, then you can both agree how all bills are paid so that at the end, you both have the same amount of disposable income for yourself as individual.

@SoupOnMyTableNowSir - I think this is part of the problem. He's been running his own business for 10 year but I don't think he ever puts money aside for tax ( despite me always telling him to). He says he can't afford to!

What would your husband say if you asked to be removed as a director? That financially it makes more sense to you not to be?

Are you an employee and shareholder of the company as a director?

It all sounds very confusing, where is the income that takes you over the personal tax allowance coming from?

Is the money he gives you each month marked as wages? I am a director with my dh for our business and we both receive a wage and dividends from it. All tax is paid from the business.

We get a small wage so as to be under the tax threshold and I don’t have to pay any personal tax, although I don’t earn money from anywhere else.

Perhaps he needs to look at the wages again and either get yours under your personal threshold so you are not liable for extra tax, or work out a way to pay the tax from the business. Otherwise, his business is costing you money and that is not good....

I was coming on to post the same thing as @BlueEyedPersephone. If you have an income from the business, no matter where it goes, then that should fund the tax. That's the simple bit.

However, if there isn't enough to fund the tax in the account, then you're living beyond your means and the two of you need to address that. For a start, this £600 a month that's going on "personal expenses" needs to stop unless they are absolute necessities.

He's in dreamland if he thinks the business isn't liable for this tax bill. And I wouldn't be gentle about it.

@BlueEyedPersephone has the right of it.

Why on earth does he think you should be made worse off by an arrangement that he's set up to benefit him and his company?

@swingofthings I have access to the finances but I haven't looked into it deeply as I trust him. We get paid the same salary on paper ( I know that as I do the payroll) and we get the same amount of dividends ( apparently we have to ) and we both get £300 a month disposable income. I help out with the business and I'm a director/shareholder but I don't see it as my business - it's in DPs area of expertise. So the money coming into the business is roughly what it's always been but whereas it used to be all in his name now the money is assigned to me and him equally on paper. Obviously I benefit from the money as it goes into our joint account and pays our mortgage etc. Now it's in my name though I am due to pay an extra tax bill - but my disposable income hasn't gone up.

So does this mean that you had £300 and he got less before?

What he is trying to tell you is that it's not fair if you have more money for you to dispose as you wish then he does, so is it the case or not? What happens with the rent from your property? Do you get to keep what's left after paying the mortgage and tax on addition to the money you get from the business?

Are there any other directors or just the two of you?
If I were you I would expect DP to go through the finances of the company with you and with the accountant so you all are on the same page in terms of how this is working and that the accountant can advise what is best for all of you. You have a responsibility to understand how the business finance is operating - and if necessary to insist on money being put aside for tax. Is your PAYE and pension being covered?

From what you say I don't understand this "giving" you money - from where? Is it just that you are - as a unit - a bit skint? Or is he drawing a large salary and earning more?

I haven't looked into it deeply as I trust him.
famous last words

We get paid the same salary on paper ( I know that as I do the payroll) phew - so your PAYE is done, yes?
both paid into the joint account?

• we both get £300 a month disposable income.

from where?

And you also get some money from your flat?

Can you work out what your tax bill should have been without the salary and dividends? Then work out what the extra tax is as a result.

I would say that that element is what should be coming out of the joint account with the original tax liability coming out of personal funds. I take your point that there isn't enough money currently to pay this. In this case I would suggest that he pays it from wherever he pays his own tax bill from!

Assuming he's not changed the actual amount he's withdrawing from his business, he's ending up with the same amount in his bank account as he used to, but with a smaller tax liability at the end of the year. All the while you're also receiving the same amount but having a larger tax liability. Surely he can see that's not fair?!

I'd be more concerned that you're earning more on paper than you're actually receiving. As you call him your DP, rather than DH, I'm assuming you're not married. If he's paying both his and your salaries and dividends to his own personal bank account you've not got access (or legal entitlement) to your own money in the event of you breaking up.

@Quizzlybear if your parents' business has that small a turnover, unless they employ over 50 people and have over £5.1m on their Balance Sheet they don't need a statutory audit. They can choose to have one done voluntarily, or sometimes a lender might make it a condition of a loan.

If you don't legally or contractually need an audit for any reason, it's not worth it as it is significantly more expensive than just having an Accountant prepare and certify your accounts. Something I charge £2k for as an accounts job turns in to a £6k job if you want an audit. Lots and lots of forms to fill in!

It's highly likely your parents accounts aren't actually audited, but they're just using that terminology for when the accountants come to do their year end work.

Phew - that was long - sorry!

I don't think he wants you to pay it out of the £300, he wants you to pay it out of the flat rental profits - but for some reason he won't say that.

YANBU.

As an aside as a SAHM who I'm presuming isn't married (as you mention DP not DH) are you protected financially in the event you split up? Do you have wills, pension etc sorted? I'm concerned with your DP's attitude how he'd behave in the event of a separation.

@swingofthings - you are right. That is the problem and it's not fair that I would get more money.SO maybe we both should have been getting less than the £300 - but he decided on that amount and gave it to me each month. I don't know what he had for himself before he made me a director. I had my own money ( from a job) then and he wanted to build a business up. I did not choose or condone this business being set up. I'd rather DP was in an employed job ( to avoid these types of arguments) but it's what he wants to do and I want to support him and help him. But I don't want to have to pay significantly more tax just because he's made me a Director when nothing else has changed. He doesn't want me to go and get my own job... which I've suggested

P.S. re the flat rental - he also rents out a flat. The money we get from our individual flat rentals ( it's not much) is kept entirely separate.

To expand, from what you are saying.

He sees you both working on a business and splitting the profits and salary from it. The remainder pays the mortgage and bills, and you each get £300 a month spending money.

meanwhile you also get the profits from your flat. What happens to that money?

So rather than have a conversation with you that he is overspending his budget and cant afford to pay his taxes, he has made you a director to try to shift some of his tax liability\expenditure onto your private income that you earn from your rental. NOT OK, unless he has an open conversation with you and you agree.

What are you going to do about it? There needs to be an immediate fix for this tax bill, but then there also needs to be a long term fix for his cash flow situation.

If he cant reliably allocate money for known liabilities then you should not mesh (unmesh) your finances as he is irresponsible and could drag you down with him. And he will go down if he doesnt pay his creditors.

OP my DH and I gave a similar set up in that he made me a Shareholding director of his PLC.
I do receive a small salary which is taxed via paye and dividends which go direct to me. No way on earth should you have agreed to this without the actual money going direct to you as the consequences of not having the money available to cover the tax bill coujd be dire for you. You will need to stump up the money due for the dividend in ine lump sum plus possible payments on account. You must sit down and dxplain to your dp that you absolutely must receive the money yourself and if he refuses you should seek legal advice it is that serious!!!

It can't be substantially more tax unless you are getting HUGE dividends, in which case you'd be able to have more than £300 disposable pcm and saving for tax wouldn't be a problem.

Do both salaries and all dividends go into joint account?
Or does he "keep" his salary and give you £300 from it?

If you are not actually receiving the money and it is going into the joint pot, then of course the tax should come out of that same pot. If he is not prepared to do that, then resign yourself as employee and director.

He can't have it both ways. The company tax liability will go down if there are more wages and dividends going out, but you shouldn't be out of pocket over it!

Actually if I'm reading this right I think the problem is that he just didn't communicate expectations to you and you both didn't think it through. The main point is that if there is no money left in the joint account to meet tax liabilities then you are both living beyond your means, although you have obviously been doing so unwittingly. The proper situation should be that there should be enough money left in the joint account, or funnelled into a specific savings account, to meet BOTH your tax liabilities at the end of the year from dp's business, with you then making up the extra for your flat income.

The reason for this is that the income from the business pays your joint expenses and then provides you both with £300 disposable income. The problem is that £300 disposable income is too much as this leaves no money for tax. You are both going to have to tighten your belts and make do with less from now on. Whether you are or aren't a director would make no difference to this as if you stopped being one your dp would no longer be able to give you the £300 he gave you before because again this was too much and he wasn't saving anything to pay his tax bill, which he needs to do going forwards.

Since you are both getting equal benefit from the business in terms of expenses covered and £300 a month disposable income (assuming he really is taking the same) then you should be dividing the total tax between you. This is why technically it should be you paying the tax out of money you put aside for the purpose. Ideally this money would be in the joint account, or at least in your account from what you had put aside of your disposable income, but it isn't because unfortunately your dp has been irresponsible in not letting you know in advance that he was expecting you to pay your share of the tax and you have both dropped the ball in not ensuring the money was being saved jointly to ensure the tax bills could be covered. Your dp obviously decided to cover his half of the bill from his own savings and didn't bother to tell you you'd need to pay the other half. Of course it shouldn't be half half because the money for tax should have remained in the joint account in order to pay the bill in the first place.

Going forward you need to ensure that you both lower the amount of disposable income you take from the joint account in order to ensure a fund is built up to cover this tax bill in future. You're both benefiting from the income so it should be a joint bill, not something your dp has to pay entirely from his savings or from his share of the disposable income.

As for this year he's really dropped you in it and if you have no money available to pay the bill he's going to have to help you out with your share as he failed to tell you it existed. I'd be having strong words about how it should work going forwards with putting the money aside though.

Is the problem simply that the business doesn't generate enough income for you to be a SAHP?

If being a Director means you are collectively worse off tax-wise, then stop it immediately! If he or his business is better off tax-wise, then he/the business pays your tax bill.

But surely the 300 doesn't come from the business - it comes from him personally? If you didn't pay tax before, I don't see why you are paying tax now.

Just to add as I'm not entirely sure but if it turns out that there is money in the joint account to cover your tax bill you should absolutely be able to use that for this year's bill. Equally your dp should be able to replenish his savings from it if there is money in there for him to do so.

This is assuming that the only money going into that joint account is money from the business. If your flat money is going in there (can't remember what you said about that part) then you should be able to use that money to cover your flat tax bill as well.