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?

"I think the fact that DP has ended up having to pay his tax bill and the company tax bill from his personal savings ( because he didn't put anything aside) means that he thinks I should too otherwise it's unfair..."

that demonstrates an alarmingly illogical and emotional approach.

I've already mentioned concerns around the legality of directorship, but another reason to resign is that working for someone who sees company money in such an irrational way is a recipe for disaster.

You should be! It's not easy doing it with young kids and I speak from experience. When the dust has settled I would speak to DP about you having this side business as a focus as your way of contribution. I totally get what you mean on this BTW. I couldn't just take the money without doing little for it.

He probably is stressed and is perhaps struggling to make the business what he wants. Maybe leave it a day or two and see if time equals reason!

@Isleepinahedgefund 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.

So you're saying that she should abandon her share of the business, lose any income from it, but keep all the responsibilities of a director for no return? Really??

@bedknobs72 I've said I'm going to resign as Company Director but he keeps telling me we'll be worse off...

He's probably right, as a family you may very well be worse off. He's presumably avoiding higher-rate tax by, on paper, splitting his business's earnings with you.

I assume you're both on the payroll at £8,424 pa? So total 'drawings' are £16,848 plus £40,000 dividends split between you? So if he drew all this in his name he'd be liable for £5,849 tax on dividends. If you split it to £8,424 salary and £20,000 dividend each then your tax bill is £1,093 each. Your family is £3,663 better off because you've split the earnings. It doesn't seem right that you'd lose £1,000 while the family 'pot' got £3.6k bigger.

If those figures are anywhere near then you'd also lose a big chunk of your Child benefit because his earnings have gone over £50k.

Gosh thanks for letting me know Flower. I shall just trot off and check that I've done it correctly for all of my clients! I don't think that there is any indication that the company has overdrawn director's loan accounts and it wouldn't attract tax on the OP's self assessment tax return as the 32.5% you are referring to is a corporation tax charge, not income tax.

@Stickerrocks sorry! You will obviously know far more about this than I do! From the sounds of it, I'm not sure OP knows where the money is coming from or how much. If it was me, I would be worried if I was receiving money and the tax hadn't already been paid. I would want to know what had been and when, personal or otherwise.

Flower you did make me giggle. So far today I've submitted a corporate tax return & company accounts along with 3 self assessment tax returns. I started browsing AIBU for some light relief and got sucked into 2 tax related threads!

@Stickerrocks I'm just so paranoid about the tax bill. I'd be going through everything. I bet all you get to talk about is tax at this time of year!

My main job is actually teaching for the professional accountancy exams, so I spend 12 months a year talking about It!

Sticker I was just thinking this would make a pretty good exam question.

@FishesaPlenty no I didn't suggest that actually. You've misconstrued what I said.

Perhaps I expressed it badly, my point is that as the positions of director and shareholder do not go hand in hand (you do not have to be one to be the other), simply resigning as a director will not solve the problem. The practical steps to get out of having a personal tax liability are to come off the payroll and stop receiving dividends, I.e. to stop receiving income from the company.

The role and responsibility of being a director is separate from the money. A director does not have to be remunerated, although it would be surprising if they weren't compensated in some way.

Also, even if she resigns as a director, her husband could choose to still have her on the books as an employee to continue minimising the tax he pays - she needs to make sure that doesn't happen.

Believe it or not. I do actually know what I'm talking about!

I'm being stupid here because I'm confused about where the £300 is coming from.
You say you're paid a salary (I'm assuming it's 8400 something) and you're paid dividends (20K) this goes into the joint account. Then you are given £300 per month out of the money which is made up of your salary and dividends.
Am I missing something why are you then paying extra tax on the £300 aren't you spending your salary (for which you've paid tax already) ?

Someone with a clue could explain it to me!!!

Howabout We've got the ethical slant for a few marks, a little bit on corporate governance and director's responsibilities, developing new strands of the business and then considering their suitability, feasibility & acceptability. Forget the tax side of things, I'm pushing this one towards one of the 3 top level case studies!

ineedtostopbeingsolazy - the OP has to complete a self assessment tax return because she receives dividends and rental income (not just the salary from the business). Her tax bill will be based on her total income - rent+salary+dividends. But the salary+dividends never went to her account, but to the joint account.

Even though it went to the joint account it was money paid in her name and so from HMRC perspective it's her income and her tax bill

bednobs72 is right. Her dividend tax should come out of the joint account. The £300 per month is her spending money which will be reduced if she has to pay the dividend tax out of her own spending money.

ineed all of the OP's income from the company is being paid into their joint bank account. Her DP then kindly transfers £300 to the OP's personal bank account for her to spend as she sees fit as pocket money. She isn't allowed to touch the rest of her income from the company as that goes towards household bills & expenses. She also receives rental income & child benefit. She is only being taxed on her £8k salary, £20k dividends & unknown rental income, not her pocket money from the joint account.

Don't forget a side order of opportunity cost for having at least 1 if not 2 potentially higher earning resources tied up in the business (OP and her DP) Stickerrocks. It would be a great one to use in an exam

(actuary with an accounting background!)

I'm in awe of your greater capacity for exams!

Resign as director immediately - receiving a salary for services rendered as an employee does not mean you need to be a director.

Your dividend payemnts are related to your shareholding in the company and your status as officer (director) of the company is irrelevant to those too.

The directorship gives you significant responisbilities for areas you seem to have no visibility over and none of the "perks" you're getting are in any way related to your being a director.

Is thuis 300 suppleer to be dividends or salary? If you are an employee the company is obliged to withhold the amount payable for tax and pay it directly to HMRC. There shouldn’t be any tax on dividends at that level.

Currently trying to get the final ones out the way with a 3 month old baby. I'm simultaneously done with exams and wondering what to do next! Sad case!

zsazsa the dividends and salary are a lot more than 300, that's just the amount OP has personally.

I think CTA would give you another challenge stat.

Honestly, your DP sounds hopelessly crap at business, OP. If he really won’t give it up and get a proper job than I think you need to leave him to it before he drags you even further into financial mess.
I would seriously advise you to resign from this directorship and go back to work.

Honestly... if he won’t “let” you pay your taxes from your salary (joint acct) then I would suggest having your salary etc paid into your own account and both put a share into the joint acct for bills etc.

Tax has already been paid on that £300 from her salary and dividends, so why is she paying tax on it again?
I get that it goes into the joint account but she's declaring it twice?

@bedrocks72 could you split the remaining money in the joint account between you so you both get equal towards your share of the tax? Obviously doesn't solve the whole issue of where your part is going to come from but at least it's something.

If you resign as director you will as a family be financially worse off unless you can get a job that pays enough to cover the extra tax dp will need to pay, plus the 2k you were bringing into the business, plus childcare, plus some left over on top of that. I've added childcare as your dp can't run a business and look after your children even if he is working from home (I'm saying this as a mum who works on my own business from home. I'd be furious if dh suggested I could somehow do childcare at the same time.) Obviously childcare would be a bill that comes out the joint account not something you are responsible for, I'm taking purely from an book balancing point of view in that any job you get needs to cover all addition expenses in order to be financially worth it to the family unit. If you can get a job that will cover all that then that does sound like the sensible option.

If you can't get a job that covers all that then you are going to have to reduce outgoings. Obviously you could still get a job that doesn't cover all those things of you would prefer to be in work as that's a separate issue, but again outgoings would have to be reduced. The main point is that the current situation is unsustainable. Is there any scope for you increasing the side part of the business that you are running now and taking on that as your job by growing it? Obviously only if it's something you enjoy though, you aren't obliged to!

You also need to think about the fact that this tax bill will be up to April 2018. You are both accruing tax for this year which presumably you haven't put any money aside for so you will need to start saving up asap for your tax bill next year.