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?

there are some big red flags being waved here and you would do well to start taking more of a detailed interest in this business because with rights to dividends comes responsibilities and liabilities.

you are sleepwalking into this OP. don't do it. what happens if the business goes bust owing people thousands. and don't say it wont because you wont know unless you have a day to day handle on it. Go and get yourself some proper legal advice from a business solicitor and accountant about this.

Claim child benefit, he will pay tax on that and you will get credit towards state pension

OP, is the salary to you new or is it just the dividends - I may have missed it but I'm not sure if he was always paying you a salary (as an employee) before making you a director, or if both salary and dividends are new.

By the sounds of it, your DP previously would have been paying PAYE on his own salary, but was then taking dividends and living on them and never putting the tax aside. Come year end, he's taking the tax from his savings.

Now he's doing the same, but you're now taking a salary (should be PAYE) and dividends. He's still not putting tax aside, but now the amount of tax for which he's personally liable has reduced considerably, so he's taking less out of his savings to cover it.

You, meanwhile, now have a tax liability (for the dividends) and no savings to cover it. So he's better off at your expense.

In reality, there was never enough money (whichever way you cut it) for you both to have £300 a month personal spending money. By splitting things you should have a bit more available in total between you but that extra is in fact just a reduction in the amount that you were overspending by (i.e. the tax he was taking from his savings each year). However, because he's now split the tax liability between the two of you he's getting a double benefit - he's gaining the tax saved from being more tax efficient (i.e. by splitting it between you, reducing his CT bill plus his tax on dividends) plus a proportion of that reduced tax is now attached to you (for your half of the dividends). So the amount he needs to pay personally has gone down a fair bit I'd imagine.

I think Kariana has got to the bottom of this. If both are getting equal tax bills from equal salaries and dividends, then it's not unfair to expect each to pay their own tax bill.

Logically the tax bill should be paid by the joint account, but passing an equal bill to each partner amounts to the same thing, in reality it's a cut in the £300 allowance, which is unaffordable.

The reason you are worse off is that the business/joint account can't afford to pay joint bills and £300 allowance each, the passing on of tax liability is a way of cutting the personal allowance of both to what is affordable.

He should have explained that you now need to net less than £300 a month because that can no longer be afforded.

@kariana - thanks for your post. I think you are spot on. I think an underlying issue is that we have different attitudes to money ( I am more sensible and would have been putting tax money aside had I known). We also have different perspectives on how 'involved' I am in the business. I do think DP sees us as both being in it together splitting the profits and expenses equally. I don't quite see it like that as I wasn't part of the business before and if I was 'running' it I would run it differently anyway - but I don't really want to run a business!. Also the business doesn't generate enough to support me being a SAHP ( despite DP wishing it would) But when I suggest I get a job he's not keen and would prefer me to stay in the business ( obvs he wouldn't 'stop' me getting a job). I think I'm also a bit despondent that he hasn't made a bit more of a success of it after doing it for 10 years. He is trying though and I've also been helping him with the business side/strategy as well as actually generating around £2k of extra income from doing client work. But I'm not sure how long I can 'wait' for the business to 'work'. I can help him but at the end of the day, whatever it says on paper it is 'his' business. I feel a bit trapped by this situation - as for me personally I'd be better off going to get a job - at least I'd have a pension, possibly healthcare etc and my tax would be paid at source etc. But that would bring it's own challenges - I wouldn't be able to help him out anymore, he'd be more liable for childcare ( he works from home) + he wouldn't get the tax benefits of me being a director which is why I don't think he's keen on that option. I've suggested before that I become his employee or that I get performance related pay - as however much more business I bring in we are still in same financial difficulties. I don't/can't work on the business full time and he made all the decisions as to how many dividends we get and how much disposable income we could have each month. The salary we get paid is just below the threshold. I just don't know where I'm supposed to find the money for the tax bill. I've said I'm going to resign as Company Director but he keeps telling me we'll be worse off.....

I know you say it’s for ‘personal expenses’ OP, but does that include buying stuff for your child/children?

I don't think you should resign as director, that will reduce the family income by increasing tax.

The real problem is that the business is not covering joint outgoings (counting £300 each of personal spending as part of that.)

@statisticallychallenged @firesuit - yes spot on, thank you

@missingstreetlife - ah - I DO claim child benefit. I don't think he's mentioned that on his personal tax return though? Will I have to pay tax on that too?

@mummymeister - sleepwalking into it is exactly what I said to DP - I never made an actual decision to be in this position. I understand enough about the business to know that we are unlikely to owe thousands to people - it's a service based business.

I'm a bit worried about the child benefit situation now actually...

Child benefit becomes an issue if one of you earns more than £50k

Your Company must be successful as dividends can only be paid out of retained profits. Even micro companies have to have an accountant's report done at each year end so you should be seeing this report. The report that goes to Companies House is very basic but this is available for anyone to view on the Companies House website.

Do you have a Company pension plan. ? This is something else to consider.
Are you paid all your business expenses such as mileage/ fuel, telephone etc. ?

Child benefit is your income as primary carer, not your DP's. It is not taxable. However if either member of a couple earns more than £50k it becomes repayable in stages. As a SAHP you should claim it regardless even if one of you is over the earnings limit, to protect your NI record.

Also:

I left my job 2.5 years ago ( for reasons to long to go into here). DP gave me £300 to live on each month - e.g. pension contributions, mobile phone, clothes, extras for kids, birthday presents, travel etc.

I have been receiving £300 in my bank account ever since each month. What has changed in the last few years is that I have been made a company director/shareholder ( for tax reasons not because I wanted to be at the helm of a business) and I have started helping him out more in the business including actually generating income.

The money in my pocket has not changed ( £300) but with the above changes I am not getting a much bigger tax bill that I am supposed to pay, according to DP out of the £300.

Obviously he could never really afford the £300 he was giving me and he still can't, despite my extra contributions to the business. It seems that he needs to let me go and get a job if his business can't support us all.

I also was wondering who pays for what out of their 300 pounds. I mean if everything like food shopping, kids clothes and nappies, etc comes out of the joint account and the 300 pounds is really just for your personal things like your clothes, make up, going out, etc then that’s fair enough, but does he expect you to pay for all the kids stuff out of your 300 pounds too?

I am now getting a bigger tax bill.

I think that's the reality OP - the business does not make enough to cover you being a SAHM.

OP, if you can’t afford to live of his salary, then yes, you need to look for work, and really he needs to look for better work too. After 10 years, his business should be doing better.

Think you should have directors meeting with accountant
Probably nothing you can't work out but you both need to be in the loop for info and decisions.

He's got savings and you don't?

Well, if you get a job you’ll be better off, won’t you?

You don’t actually have to stop being employed by the business and drawing a salary though, as long as you do some work for it. That’s separate to being a director. You could also resign as a director and still be a shareholder...

If the business is still not earning enough after 10 years, it’s not going to. Cut your losses, get a job and let him do childcare. You’ll both be better off financially and you both might feel that you have an equal right to make financial decisions.

Do you actually know how much goes into the joint bill paying account in respect of each of your pay and dividends? Do you both know the net of tax income position of each of your rental properties? Are you aware of your joint outgoings? Does your DP understand you get Child benefit plus £300 from him?

You would really need to go through everything to understand whether the business is making enough to support you all. Also if you take a job and split the childcare it seems inevitable that this would negatively impact the business?

The child benefit is only an issue if he is earning over £50k income, which is possibly another reason why he was so keen to make you a shareholder.

As you work for the company, it is actually irrelevant whether you are a director or not. You are an employee and get paid under PAYE for the work that you do, so you do not need to be registered as a director at Companies House.

You are also a shareholder, which is why you are receiving dividends and benefiting (as a couple) from the reduced rate of tax. Being a director/employee is absolutely nothing to do with being a shareholder, so you can continue to receive dividends from the company even if you were employed by a third party.

I suggest that you ask to attend the next meeting your DP has with his accountant, and find out a bit more about your own income start to keep copies of the dividend vouchers which you are receiving and keep track of the income which is technically yours which goes into the family pot.

I think you need to
A) sit down the with the spreadsheets and accountant to understand what is going on and check there are no nasty surprises due.
B) Work out the household budget (if you don't already), again to ensure you are both living within means.
C) Start looking for work. To echo the posters above, after 10 years he either needs a different idea or a different way of doing things. But it's not going to get any better. From your viewpoint, even part time work gives you a boost, pension contributions, etc. You can't crucify your finances to satisfy his ego. It's even more relevant as you are unmarried.

Good luck, OP

OP you signed as Company Director without knowing the finances

he might not be misleading you on purpose...but if he is running the business badly, why do you want to be part of it? None of this makes sense.

I'm puzzled by signing as company director without understanding it all.

I understand the issues, have seen many a weird and wonderful arrangement between husband and wife directors. It’s perfectly legal by the way to all those crying CRIME!!! at the OP.

You don’t need to resign as a director in this circumstance but you need to get rid of your shareholding and come off the payroll. If you are going to be a director, you want to make damn sure you know what’s going on in the business because you won’t get off the hook if it all goes wrong.

Presumably the company is solvent if it’s paying dividends. Is it paying its tax - VAT, PAYE and Corporation Tax?