To ask why people think directors that take dividends are tax avoiders?

[Milo2]

Small Ltd companies are currently left out of the UK government funding. Why? The directors still have families to feed and bills to pay.

I’ve seen a few people on here rubbing their hands with glee. Saying things like ‘good it serves them right for taking dividends’.

Some have compared directors to those that avoid paying tax and it’s completely unjustified.

Am I being unreasonable to ask why there is so much hate for these directors?

Also would you be upset if you had no hot water or heating to find that your local heating engineer had gone bankrupt and couldn’t help you? If so, why would you hate them so much when all they do is work hard and pay their taxes just like everyone else?

Gordon Brown didn't address the tax anomaly
Neither did 10 years of various Tory govts

Maybe now it will be addressed:
I'd sign a petition for that

Because dividends are taxed at a lower rate and are divided among household members to ensure other benefits are not lost sometimes (eg child benefits). Ni is lower too

This thread seems to be about whether the taxpayer should replace dividends

No, it's about the disparity of the support between employees, sole traders and limited company directors.

Sole traders can carry on working and still claim the 80% - directors can't.

Sole traders have a £50k limit on earnings, over which they receive nothing. Employees don't.

Gordon Brown didn't address the tax anomaly - Neither did 10 years of various Tory govts

No, but at least the Tories have brought in the personal dividend tax to level the playing field re tax.

The 50k limit is unfair and should be the same as for employees

"the disparity of the support between employees, sole traders and limited company directors. "

is because they are such different entities

Noone should have their dividends replaced by the taxpayer, only their wages

Otherwise, those relying on dividends from stocks & shares will also claim unfairness and demand recompense

Any money earmarked for tax bills should of course not count as savings, when claiming ordinary benefits

Noone should have their dividends replaced by the taxpayer, only their wages

If we'd had a "fit for purpose" tax/nic system over the past 20 years, there wouldn't have been the same issue. It's the double NIC on directors of private companies that is the problem. Had Gordon Brown taken heed of advice at the time back in the late 90s, he'd have introduced a new NIC class for directors of their own companies to stop the NIC deduction duplication. He chose to ignore that very simple solution. Directors don't mind paying NIC on their wages - what they DO object to is paying it twice. Sole traders only pay it once, why not directors?

Sole traders can claim for lost profits. Up to 80% of 50k. That is why they can continue working. They won't get as much as money as they normally do under this scheme, but close to it.

Many small businesses are one person. Mine is.

So effectively the corporation tax is my money. I'm the revenue earners, I am the only person taking profits.

This is confusing:

Personal expenses - trips away for weekends with a training day in the middle. They claim hotel for weekend and meals out. Mileage to travel from home to work. Books that interest them about their field of work. Magazine subscriptions. Lots of things that I have to pay for as an employee.

I'm convinced people think we "claim" these things (I never claim any of them anyway) from the govt or something. We don't, they come from the money in the company which is our money, and the only "benefit" is that it reduces the corporation tax bill by that amount if it is shown to be a genuine business expense. If not, corporation tax is still payable and the individual gets taxed on it as a benefit in kind.

@BigChocFrenzy I didn't think the benefit system cared what your savings were for.

Sole traders can claim for lost profits. Up to 80% of 50k. That is why they can continue working. They won't get as much as money as they normally do under this scheme, but close to it.

Yet company directors are banned from working at all, so most will lose their company/customers completely. That's the problem - lack of consistency and illogical!

@VanGoghsDog I am not stupid I know you claim these things from the company. But it reduces the real cost to you of these things.

Tough really isn't it. Pay in less, get less out

This is the crux of it. Deciding to be an LTD comes with pros and cons. Everyone knows that going in to it. It’s not right to shout foul when you knew the risks going in to it

@Kazzyhoward No one is banning you from working. Carry on working.

No one is banning you from working. Carry on working.

If you're a director wanting the furlough payment, you are banned from working, even banned from normal email communication with long standing clients, not just income-generating work.

By contrast, a sole trader is free to carry on working, maybe even at similar or higher profit levels, and still get the 80% on top.

Even if you can't actually do any real work, due to social distancing, etc., lots of directors will want to stay in touch, offer online/phone support/advice, etc just to stay in contact and keep their name in mind for when things return to normal. A furloughed director is banned from doing that!

Pay in less, get less out

Another nonsense post.

People have paid in a lot more and get less out too. I.e. a director could have paid thousands in tax (corporation tax, NIC and personal dividend tax), and get next to nothing. Compared with a sole trader on a lower income who's paid less in tax and NIC, but is now going to get 80% of their income, worked out at more than the director.

If you dont save much on your dividends, then why do people do it that way? there must be something in it

I am not stupid I know you claim these things from the company. But it reduces the real cost to you of these things.

Yes. And employees get them FREE, their employer pays for them. Do you see.......

If you dont save much on your dividends, then why do people do it that way? there must be something in it

As has been explained several times, it's the unpredictable nature of running a business, you can't always be sure there will be money for a monthly wage, so you wait until you can see what the profit will be and take dividends from the profit.

You can carry on working, you can't claim government money and carry on working. Employees also cannot work at all. Including keeping communication going with clients.

Theoretically you pay yourself the salary that is “fair” given your role. The dividends are only recompense for the risk of your investment in the business, and a reward for taking that risk (just like any investment).
Most pay themselves as little as they can and take dividends instead, as this is “tax efficient” - ie a legal way to minimise how much you pay in NIC and tax.

It is legal, “everyone” does it (ie directors of small businesses), and its what accountants will advise. BUT it doesn’t mean it’s fair.

If you minimise what you pay in, you shouldn’t now expect to maximise what you get out.

The £50k limit on PROFITS (not turnover or salary).

YANBU.

My oh has paid a fortune in tax over the last 3 years and has always declared everything. He (we) will get no help whatsoever.
I am unable to work due to poor health.

As soon as this started back in Feb, he took 50% pay cut (ie, reduced what he pays himself by 50%) to ensure he could keep all of his employees (over 30 ppl) on their usual salaries.

Now he's getting no help from the government it's highly likely the business will go under or have to make massive cuts to employee numbers in order to survive.

He's above the threshold for 80% help, etc, but that doesn't take into account that business has tanked overnight.
What he earnt last year doesn't help us now and it could be years before we get back to that level.

We have no savings as we were putting every spare penny into the company.

That will be lost if it goes under and without his job we will lose our home and everything else.

He works 16hr days 5-6 days a week and had been building it up over the last 3-4years and it's not fair that he's being left with no real help to get through this (loans still have to be paid back).

He's barely sleeping and is so worried about his team and he's still working every day trying to keep money coming in.

I was a contractor for many years and used to operate via a limited company. It was partly (a) the clients insisted on it and (b) it was the most lucrative way to retain my daily rate.

I declared my dividends on my tax returns every year. To not do so, would have been tax evasion, which is a criminal offence. Tax planning/avoidance is perfectly legal. An ISA is tax avoidance/planning so I imagine there are quite a few tax dodgers on here.

A few years ago I took a non contracting permanent role as I could see the way the government was going with the whole dividend tax rates thing and the new public sector ir35 rules inevitably being rolled out to the private sector. Which makes contracting pretty pointless.

HMRC do not like contractors and want everyone to be on full PAYE and NI. They won't bail out small Ltd companies. They are also not keen on the self employed. Rishi Sunak made it quite clear in his speech about giving the bail out to the self employed that he will be making tax changes when this is all over.

When contracting I would not have expected to be bailed out in these circumstances. You make your choices, you take your risks.

... if you’re not sure there’s enough for a wage each month, then you have the option to sort that via loan (from directors to business).

Look I know loads of people that set themselves up as limited companies so they could pay less tax and NI and claim lots of things as expenses. I heard conversations where people were advising each other to do this.
And yes, you pay less in, you get less support. Tough luck.
And there is government help for businesses, rate holidays plus loans. Very few proper limited companies do not have premises.