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?

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

It's not a matter of "saving". It's a matter of the additional cost of payroll, i.e. BOTH employees and employers NIC, totalling just short of 25%. As against a sole trader business who pays only 9% NIC or an employee who pays only 12% NIC. So, directors are actually penalised by paying higher wages due to the double NIC whammy. If they'd only be liable for the 9% or 12%, then there'd have been virtual parity between different ways of trading. But a whopping 25% would make even the most ardent socialist look at alternatives!

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.

Yes, back in the noughties, lots did because of Gordon Brown encouraging them to do so with his stupid tax breaks which only applied to small limited companies which didn't apply to sole traders, hence all those gardeners, dog walkers, window cleaners who became limited companies. Thanks for that Gordon!!!

But what about ALL the other reasons..

Some suppliers won't sell to businesses which aren't limited companies.

Some clients/customers won't engage contractors/freelancers who aren't limited companies.

Lots of professional/trade bodies encourage their members to set up as limited companies to reduce their personal risk.

It's NOT all about tax - in fact for the last few years, it's not been about tax at all.

I have arranged suppliers to a couple of firms I work with and never been asked if we are a limited company. I simply don't believe that is a general issue.
Yes limited companies help you reduce your personal risk. If the firm goes bankrupt you can still be personally okay financially and have very limited liability. I don't agree with this either.

@Smilethoyourheartisbreaking Yes I do know plenty of limited companies without business premises, they are in reality sole traders. They have no employees and maybe simply outsource bits of work on a freelance basis or do all the work themselves. They chose limited company structure because it gave them benefits over being a sole trader. Yes suppliers sometimes want you to have a legal structure, this is not the same as having to be a limited company.
I also know people who are proper limited companies with employees and business premises.

I also know people who are proper limited companies with employees and business premises.

Please enlighten us with your legislation which explains what is and isn't a "proper" limited company. Or are you just making it up?

Also, lots of businesses with employees and premises AREN'T Limited companies, so your home made definition of what's "proper" and what isn't is fundamentally flawed.

So, please stop talking crap - you're making yourself look a fool.

Okay fine you were forced to be a limited company, and up until recently paid substantially less tax and NI than an employee on paye, and recently just slightly less. And after being forced to be a limited company the government refuse to give you money now you can't work. That is unfair.
I assume that is your position on the matter?

I've said this on another thread and I'll repeat it here.

I'm totally fine not to get help on dividends; but I don't understand why company directors have to furlough themselves to get help when the self employed can keep working.

My salary is probably the smallest amount of my overheads, if I furloughed myself I would go bankrupt because I still have to pay my rent, insurance, accountant, software and all the million other things that I have to pay to make sure I still have a business to return to.

At the minute I'm able to make enough money to do that but not to also pay me a salary.

Why can't I get 80% of my salary and still work when that's what the self employed can do?

@Kazzyhoward Have you missed that I said there are different types of legal structures for businesses. I know this.
Yes sole traders setting up as limited companies are legally limited companies. In reality they are sole traders setting up as a limited company for the advantages it brings. Perfectly legal, but you have to take any negatives along with the positives.

Avenueofcherryblossom yes he is a high earner. I am comparing him to his equivalent corporate peers, who won’t be affected by this at all.

He won’t earn anyway near that much as he has year and it’s fine. I am not complaining. I know we are in a good position compared with most people. There is money put aside.

But I am just comparing like for like. We will be affected much more than this than his corporate equivalents.

And if you are comparing smaller companies and lower wages like for like it’s fair to say most employers have a good pension, Holidays and sick pay even if they don’t get the other stuff I mentioned earlier.

I work for the nhs in a frontline role. My wage is completely unaffected. I am currently self isolating due to the whole family being sick with probable covid. ( No the nhs has not tasted me after a week and a half of symptoms in the family). My dh will be doing the childcare at the further detriment to his earning capacity when I go back.

*enployees

My oh is classed as self employed.
From what I understand they estimate profits then are paid a monthly salary based upon that, which they adjust if profits aren't what they expected (I could be wrong though).
The company profits are over the 50K (a year?) threshold to qualify for government help as the 50K is based on the amount there is before they split it and take their salaries. Please correct me if I'm wrong as I don't really understand this stuff

All I know is we'll get no help, even though profits have already dropped by 70 odd % in the last month, and the industry he's in will likely be affected a lot, and take time to recover. His wage has therefore also dropped significantly.

What he earnt last year really doesn't help us now!

We would've been grateful for the same amount employed people are receiving. That would have been fair.
It would also (at least) hopefully covered our essential bills (mortgage, gas, electric, council tax, water bill). As it is, we'll have nothing.

We had to take out a massive loan to buy into the partnership and so any spare money we've had has gone into paying that off as quickly as possible, which is why we've no savings.

I really don't know how we'll manage.

It's probably just as well that I'm too ill to have ever qualified for life insurance, etc, as I'm no use here, but turns out I'm no use dead either! So I'm pretty useless all round 😏 that was just my sense of humour, btw, I have to laugh otherwise I'd cry.

@furrytoebean Your business is still making money. You want to use the money earned to pay lots of business costs and pay you a salary?
Lets be real, the only real reason a scheme for self employed has been introduced is because there are these days masses of people who are officially "self employed" but are not really. These are mainly low paid staff in insecure jobs forced to take on self employed status. That is why the government is helping them.
Limited companies are proper businesses, even if effectively sole traders. They are not "really" employees. So I suspect that is the real reason for this division.

@olivehater In the nicest possible way, the fact that you think most people in employment get a good pension, sick pay and holiday entitlement shows you are out of touch. Employees all get statutory sick and holiday pay and minimum statutory pension. But even good employers have been reducing all these benefits for years.
Read some research on this. It is largely only older workers who have been in the same job for a long time, or work in the public sector, that still have these. Most young workers do not.

But that's what self employed people are getting how is my situation any different?

In my field of work literally hundreds of self employed people in my area are now offering their work for free or for donation because they know they're getting a pay cheque in June. Whereas I'm working 80 hour weeks just to keep my head above water.

There's no reason at all my the self employed should be allowed to work and a director not.

Like I say I'm happy for it to just go off salary, 80% of something is better than a big fuck all.

worriedsick I think it’s more likely to be based on your DH’s taxable profits (ie what he put on his tax return) than the business as a whole whose profits are shared among several people (by the sounds of it).

The difference is that a sizeable number of self employed people, probably even the majority, are not really self employed. They should be employees.

And what's that got to do with anything?

Careful you don't pull a muscle with all that reaching there.

@Worriedsick2

Your post is confusing. You mention self employed, company and partnership. They're 3 different things. No wonder you're confused. He can't be all 3 at the same time. First thing is you need to find out exactly what he is.

Is he:

a. A self employed partner in a partnership;
b. A director in a company; or
c. A self employed sole trader

Only then can you check on entitlements and restrictions on the different support options.

There were loads of people contracting and getting paid as companies in my place of work and in friends’ places of work - banks and IT companies etc. They were all on day 100k and paying far, far less tax than the others.

I don’t even think the tax regime should be tightened up further for these people just that they need to make it impossible for them to be paid as companies, which they blatantly are not.

@alloutoffucks The difference is that a sizeable number of self employed people, probably even the majority, are not really self employed. They should be employees.

HMRC have an employment status indicator tool on their website, supported by decades of legislation and case law. The vast majority of these "pretend" self employed will have passed HMRC's own test. If they don't, then they are indeed employees. Employers and employees and self employed have known about the official HMRC tests for years and will be working within those parameters.

But hey-ho, someone has popped up on Mumsnet claiming they know better and that all those employers, employees and self employed who've followed HMRC guidance are actually wrong.

You can carry on working, you can't claim government money and carry on working. Employees also cannot work at all.

Yes they can. They just can't work for the company that has put them on furlough. They can effectively get two salaries.