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 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)
He's not a good business man, and he's screwing you over financially too.
Not content with pissing his own money down the drain he's trying to manipulate you into spending all yours too.
His parents will bail him out when there's nothing left - who's going to bail you out?

If/when the business fails then you will be liable for all the debts as well, all that for no actual earnings of your own!

There's no money in his company and it hasn't been a success for you in particular, so i'm amazed you still want to keep enabling him.
Get your own job and safeguard your own security - and pension!
FGS woman WHY have you allowed yourself to get sucked into this crap?

The tax on her dividends will be due after she submits her self assessment. It's not been paid yet. Salary should have been deducted at source, but of course if she's used most of the personal allowance there then she'll be due tax on the rental income which otherwise wouldn't have been due. She's not declaring it twice.

Also as others have said your dp needs a financial kick up the arse and needs to take some responsibility for the mess things are in. It's jointly his fault that the family has been living beyond its means. His head is in the clouds!

OP I think that there is a huge danger that you are going to just put this issue to bed. Your DP has sort of compromised and that's it you are happy. but you shouldn't be. you shouldn't take on this kind of responsibility for his company unless you 100% know what is going on. you must have full financial transparency between the two of you. This issue was just a small manifestation of the real issues - that he is living beyond his means, that he has a hobby business and that you have been dragged into signing something which could if it all goes tits up have massive consequences for you. Please don't bury your head back in the sand now that you have had this particular box ticked. get it straight and sorted. your next post might be about a whole heap of trouble if you don't.

Does anyone know if I resign as a director and become an 'employee' and an equal shareholder will that make us worse off tax wise? Following this thread I'm a bit worried about the responsibility of being a Director. If I don't need to be ( for the tax benefit) then I'd be happy being an employee and shareholder

@kariana - my plan was to grow this new side of the business as my 'thing' as well as doing some of the admin and marketing for DP. However, feeling it's a bit of a thankless task as it just seems to plug the gaps when DP has a low month financially. I still get the £300 a month no matter what I put in!

DP has asked me to stick around ( with the business) for a least a couple of months as he's about to launch something new. It's something I got him into and I think it has a good chance of being successful.( he's very talented at the thing he does - just not the business side) I'm really narked off though as he still hasn't apologised for getting angry and saying I was being unreasonable about the tax issue. He's just being a bit sheepish at the moment..

Personally I'd grab a tax calculator online and work out the actual figures to show him how he's saving at your expense.

Could you spin the new line in to your own business instead of being linked to his? At least then you could be confident it was run properly!

As a shareholder you'd still be entitled to the dividends so AFAIK there's no tax advantage of directorship.

I have a DH who runs his own business btw and I completely understand how frustrating it can be when they don't prioritise the financial side. DH is great with the clients but for the love of god man do your fucking expenses!

@statisticallychallenged - thanks for all your sensible advice!

I had thought of setting up the new line as my own business so I had total control of it, and leave DP to do the thing he does within his own business ( I'd still help him out where I could). But thinking there must be some financial/tax efficiencies of having everything rolling up to one company rather us both running separate ones? I don't have my own business entity set up at the moment so would have to start from scratch.

Setting up a small limited is pretty straightforward tbh - I'm assuming you own your house so would want the limited liability.

It's hard to know whether there's efficiencies to sharing a business or not as it varies so much. If there's resources which you'd have to pay for twice then it might be more efficient but not much. Don't think it makes much odds from a tax perspective - are you two the only employees?

At the scale you're talking I suspect that the efficiencies would be minimal and that would be more than offset by you being free from your DP's mismanagement! It would also be YOURS. You're clearly a smart woman - I suspect you could make something you really wanted to do fly but it's not surprising that you're not hugely enthused about the current business when, regardless of the ownership structure, it seems to be very much his company.

I don't much about the whole thing, but it seems to me neither you nor your husband seem to really understand your full financial situation together. I think you both need to sit down and work absolutely everything out and figure out how much money you have and how much you can live on. The sticking your head in the sand and hoping for the best approach is very dangerous. This is about way ore than just a tax bill.

If I was in your situation I would leave him to develop the business remove myself as Director and get a decent job so I didnt have to fight to get my tax paid

Tax wise there's no difference between being an employee or a director so you could resign as a director but stay as an employee. The company would then be required to have a workplace pension but you could opt out (if you even earn enough to pay in to it).

Also, setting up your own company is easy. There are many online incorporation companies who will arrange it very cheaply. If it's just you doing a bit of work you wouldn't need anything fancy.

You would, however, need to prepare annual accounts and corporation tax returns for the company which would probably require the services of an accountant so you'd need to factor their cost in.

You are already an employee (hence the company is responsible for your personal tax and ni but you’re below the Paye threshold). Resigning as director is imperative- the only thing it’s doing is making you personally responsible for stuff you’re clearly not supervising. Tax position will be the same. The fact you signed the necessary paperwork for this to happen without checking what the impact is despite being smart enough to earn a six figure salary is mind boggling.

The main advantage to separate companies is the ability to insulate the 2 businesses. This would make it easier to disentangle finances if you split. There would also be protection from one of the two halves losing money - depending on the service there may be limited scope to generate losses but getting sued for something without adequate insurance is always a risk.

However the downside would likely be that you would have to give your DP shares in your business in return for maintaining a shareholding in his. It may also be more complicated to work out which company should be paying out dividends to whom when to best manage the cash flow and the tax. There may also be extra paperwork not just from having a second business, but if one business ends up subcontracting for the other - some clients may not like this.

Otoh the upside would be that you would be able to demonstrate good housekeeping for your business which would in turn rub off on your DP.

Using the company to declare a salary to you equal to the National Insurance limit and then declaring dividends to you, saves your partner somewhere between £2k and £8k in tax. This is money he would otherwise have had to pay himself. Get him to put this through his tax return as a simulation and show you what the difference would be... whether paid by him or by you.. it needs to come from family funds.

He is using you to reduce his tax bill as well as using you to do the administration for his failing business as well as generate a new stream of income of up to 24k a year.

He pays you £3,600 a month put of which you pay your own pension, mobile phone etc and allegedly pays himself the same.

The business can afford this 60k declaration of salary and dividend so must be making profit of at least that much plus between you, you have two separate rental properties earning profit.

If there is no money left in the joint account and the rest of the salaries and dividends are paid in to it, then your household running costs exceed your family income which is why there are insufficient funds to pay the tax.

You need to get involved in the details and take control.

Resigning as a director but remaining a shareholder would be possible but you have more urgent priorities.

OP, I’m just going to leave this link for you

www.moneyadviceservice.org.uk/en/articles/protecting-against-financial-abuse

What you’re saying is making me worried that you are being financially abused by your DP. He’s controlling how you spend your money... even the £300 he “allows” you to have, whilst having a savings account elsewhere from which he is able to pay his tax bills. This isn’t a partnership.

I would be wary of what he’s asking you to do. It sounds financially “dodgy” (for want of a better word). You say you as a family are getting the same salary now as he was when he was the only one earning money from it. So he must have halved his salary to save on tax: putting some in your name, but for his purposes... after all you are no better off financially even though you are doing work for him.

@Shallishanti123 Thanks for the link. I appreciate there could be some alarm bells in my post about financial abuse but it is not the case.

I just took my eye off the ball ( or never had it on the ball in this situation) I felt guilty for having to leave my high paying job ( stress related, another long story) an leaving DP to support us all via his work. I was aware there was something we could do from an accountancy/business structure point of view that would help us save some tax. I suggested it as he was just working freelance before. I found us an accountant. But I was in no state to be involved in all the nitty gritty and I went along with it so as to help him/us out. I've only been forced to look a little harder into this since DP expected me to pay my tax from some 'other' funds and not the actual money generated and paid out from the business ( basically because there isn't any money available in our joint account) The £300 is what he says is left over each month and what we can afford to have as our own spending money ( he takes the same, I have no reason to think otherwise). What I discovered is that he hasn't been putting money aside for Corporation Tax, personal tax etc. He has paid these bills out of his personal savings/money he's had from his family.
Part of the problem I think is his unrealistic attitude to money and business. He comes from a very privileged background so has always had big chunks of money to fall back on.

If he is financially abusing me it is certainly not deliberate.

@bedknobs72 there's a lot of people here shouting about the directorship thing but presuming it's a limited company as a director you are not liable for the companies debts so really there's not much problem. Take a look at these links to see what you could be liable for in certain situations. From what you've said it doesn't sound like they would be relevant but obviously give it some thought and make sure.
www.businessdebtline.org/EW/steps/Pages/Getting_started_5_business_status_limited_companies.aspx
dofonline.co.uk/2018/04/05/can-directors-held-personally-liable-company-debts/
It's how millionaires get away with abandoning their failing companies and screwing over all the employees :(

Have you managed to have a conversation with him about how you both need to stop taking the £300 and start taking less? Unless you both face up to that it's never going to get any better as there's no gaurantee his new business efforts will pay off.

Your DH is being massively unreasonable. I only see two reasons why, either he's thick and that why he can't see that it's unfair, or he's financially abusive.

You need to properly look at the accounts across the board including his you don’t have the money for £600 a month personal spends
That is a lot for just personal use

Although directorship comes with limited liability it's not absolute - the veil of incorporation can be lifted. HMRC, for example, can come after individual directors for some unpaid tax debts - PAYE, NIC, VAT at least IIRC. Plus responsibilities under the companies act and a few others scenarios.

In theory most of these shouldn't be a problem - but given the DP's slapdash approach to tax and finances I wouldn't be willing to share directorship without having a firmer handle on things to make sure that he's not pulling any stupid crap. It's hard to say what the potential scenarios are without knowing more about the business setup obviously.

Why dont you stop guessing and what iffing. Get to grips with your position, if you don't understand it get some professional help. How much is the tax anyway? You don't seem to know what's going, obviously loaded, houses and flats everywhere, just muddling along. Your oh is either v clever or v stupid, but either way he's got you tied up in knots. Just sort it out and don't sign up to things you don't understand.

It's probably time you both sat down and had a proper look at both your finances - what each of you have / haven't and what you actually need to run your house. Anything actually left over can be for personal spending but it sounds like you could do with more savings, since your husband has personal savings he can fall back on but you can't.

The biggest alarm bell is not setting aside funds within the company to pay business taxes. It is possible dividends are being illegally disbursed which could open up the possibility of insolvent trading and lead to lifting the veil of incorporation.

There may be insufficient profits to pay dividends once taxes are properly accounted for, which would make them illegal. However even if the paper profits are there the company could have insufficient cash flow to pay the tax. Again I would be asking whether the business is invoicing and collecting on all the business it is doing in a timely manner. A paper profit can easily be wiped out by a few bad debt write offs.

@Missingstreetlife I'm not sure that 'I don't understand it' . I have a flat which I rent out. The income and taxes for all that are handled by me and have nothing to do with DP ( I am unmarried and want to keep that totally separate. I saved up hard to buy that flat and it is my asset if everything goes wrong) My DP also has a flat ( gifted to him by his parents) which he used to live in and now rents out ( he handles income and taxes for this separately and it's nothing to do with our family pot, that's fine)

I used to have a job ( well paid). He used to work freelance. I gave up my well paid job ( not willy nilly, I was literally on the edge of a nervous breakdown managing 3 kids and a high paid job I was stressed in).

Suddenly we are reliant on one income ( although in reality I got a tax free pay off and was able to live off that for more than a year and maintain our lifestyle) I was the one that suggested to DP that there might be a better way of structuring his business to be more tax efficient. I didn't know how but I new it was possible. He went off to an accountant and sorted it out.

Meanwhile I tried to recover from my diminished mental state, due to the job situation and think about my next move whilst enjoying being able to be with my children ( all 3 are in primary school now). DP always said he'd ideally not want me to 'have' to go back to work. Over the past few years I have got more and more involved with his business - mainly through frustration of it's lack of growth. DP works hard but is not very focused on business strategy. I left the business financial management to him as it was his business to start with and there was never an expectation that I'd do the financial management.

My original question on here was whether IWBU to argue with him about his expectation that I would pay my tax bill ( incurred as a result of being a shareholder director of the company) out of some totally separate funds - not from the proceeds of the business that get paid into the joint account. He thought I was being wildly unreasonable ( on the grounds that he regularly tops up the joint account from his own personal funds and I don't)

I think that the fact that he is regularly topping up with his 'own' money indicates financial mismanagement and that the business doesn't generate enough to support the family and hasn't for a long time. He ( and I ) either need to get a job, do something radical to the business and/or stop or the extras for the children - piano lessons etc.

It has now also transpired that he paid the Corporation tax out of his own 'personal funds' ( he gets given money by his family every now and again - big chunks). Obviously he wasn't putting money from the business aside....

I was feeling calm yesterday but I'm exhausted today. He still won't address the situation properly and has just shouted "I've been bleeding him financially" No wonder people used to say to me they could never work with their husbands...

@Missingstreetlife sorry - that was just supposed to be a quick post to address your point - ended up a big post me venting my frustration!