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?

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

They were almost certainly forced into being limited companies to get those jobs in the first place. Employers don't usually take on freelancers/contractors as self employed sole traders, not just for tax/employment law reasons, but because they can't due to a 1990's law.

Stop blaming limited company directors for something many didn't have a choice into doing, and for doing things which have been perfectly legal and encouraged for over 20 years!

@zigaziga Banks and IT companies won't take on contractors who are sole traders or self employed. That's just the way it is. Yes it also used to be lucrative via the dividend route, but it's not any more.

They want a temporary resource to complete a project. Contractors/freelancers fit that purpose. You charge a premium for the lack of employee rights and to cover the lean months when you are benched. The banks and IT companies accept that. They don't want you around once the project is finished.

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

Which makes it even more of a mockery as some people could end up with a higher income due to government support which is clearly not necessary!

Anyway, if furloughed by your own company, you're effectively closing it down as you are no longer allowed to do any work for it at all. Very few businesses will be able to carry on after effectively abandoning and ignoring their regular customers/clients.

Back to the glaring unfairness. A sole trader can have his 80% support and carry on working in his business to keep it ticking over. A limited company director can't. Still no one can explain any logic behind that!

Oh dear
HMRC have an employment status indicator tool on their website, supported by decades of legislation and case law.
It (CEST) isn't supported by decades of legislation and case law - in particular, CEST refuses to even consider the question of Mutuality of Obligation which is considered in most of the case law because HMRC has decided they know better.

Pop Quiz - since HMRC are "the experts" on this you'd imagine they would have been able to find a significant proportion of the "disguised employees" wouldn't you?

Since IR35 started 20 years ago, HMRC have LOST more than 80% of the cases that they have used (a lot of) our tax money to persue - because the legislation is a mess, the case law is very complex and even HMRC cannot get it right.

@kazzyhoward Are you always so patronising?
You do not know what you are talking about. Have you even noticed all the legal fights with union backing to make firms take on people as employees? This is a recognised issue. Many many people who are supposedly self employed do not meet the test for self employment on the HMRC website. But there appears to be zero enforcement.

Reading these comments there are clearly people on here that know what they are talking about and some that really haven’t got the foggiest.
Many companies large and small are going to struggle and to those who seem to be taking great delight in demonising them remember it’s probably the consumer that will pay in the long run as companies try to recoup their losses when this is over
If they think people have small limited companies to enjoy fantastic tax benefits why not give it a try. But it takes balls and a lot of tenacity to go it alone.

How many directors would be affected if they were allowed to claim 80% of salary and dividends BUT the same £50k earnings cap applied to them as SE?

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

And how is there going to be a business to come back to if the director hasn't done any work while on furlough?
How are any overheads going to be paid or any essential work done?
If I furloughed myself I would have to shut down the company entirely as I would never recover from the damage.

And they obviously know this otherwise they'd say self employed people couldn't work as well.

Also universities. I have a uni in our city. As a result I have a lot of limited company directors who provide services to the Uni only, such as lecturers, research associates, support services etc. The Uni has been adament for years that they won't accept anyone as a sole trader - they have insisted on all their freelancers/contractors being limited company. So it's not just businesses trying to pull a fast one - it's also non profits like Universities. It was the same with our local hospital - loads of consultants (both medical and non medical) only engaged via their own limited companies. How about the BBC - they loved paying their presenters via limited companies rather than putting the on the payroll. ALL employers, including public sector, charities, etc., have embraced freelancers to avoid the additional costs of employment, such as employers nic, workplace pension, sick pay, redundancy, etc etc. To blame the limited company director is misguided and often false. The entire employment/freelance market is to blame, employers, workers and goverment!

How many directors would be affected if they were allowed to claim 80% of salary and dividends BUT the same £50k earnings cap applied to them as SE?

Well I earn far far less than 50k a year.
Why don't we try it and see?

Is your argument that because some directors earn more than 50k a year we shouldn't help any of them?

I am on furlough, our company has shut down. Might not be possible in your sector, but as you said to me, you don't know all sectors.

I never said that to you.

And yes all sectors are different but that's not being taken into account for the self employed where ALL of them are allowed to work as much as they like, even if they aren't affected by coronavirus at all.

So again, why are they allowed to work, and we aren't?

Tax avoidance is legal.

Tax evasion isn't.

If people are earning sufficiently high incomes to have to pay an accountant to find tax avoidance measures for them, then they are clearly earning a lot more than most people. Hence the lack of sympathy now it has all gone pear-shaped.

But there appears to be zero enforcement.
HMRC are trying to enforce it but the Courts keep getting the wrong answer (for HMRC) -

In the last seventeen case decisions, since April 2010 HMRC have only fully won 2 cases out of 17 - just a 12% win rate. This is against the backdrop of HMRC claiming that there is widespread non-compliance with the rules.

Placemarking

If people are earning sufficiently high incomes to have to pay an accountant to find tax avoidance measures for them, then they are clearly earning a lot more than most people. Hence the lack of sympathy now it has all gone pear-shaped.

Oh my god this is so frustrating.

Limited companies don't only exist for tax evasion.

I am a limited company because I work in an industry with a high rate of chance of being sued. My insurance company and my governing body strongly advised me to become a limited company so I wouldn't lose my house if I was sued.

The government encourages you to become a limited company because it's been shown that limited companies are far more likely to pay their tax on time and in full than the self employed because their tax statements are public.

@furrytoebean you see to have taken my question as an 'argument' which it was far from. I was simply trying to gage if a £50k cap would allow more directors that needed to claim. Isn't this why the cap was put on SE earnings to stop the top 5% that didn't need assistance claiming?

Self employed people are allowed to earn and get the difference made up to 80% of their usual income. It makes sense for them to work for the governments sake as they will then have to pay out less money.

I'm a director in my own Ltd co. Have been trading for only 8 months. I had a plan to take on staff in the next few months due to demand in workload however this is looking unlikely. When I looked at how best to trade a Ltd co looked like the best fit for me at that time and thinking about expansion in the future. 60% of my work is contract work in public sector where they required outside ir35 and Ltd co.

I also work part-time in the public sector where I pay my taxes, NIC, pension contributions. I earn more through my Ltd co than I do for public sector, and I put in more hours.

Due to being PAYE with public sector job I do take my 'salary' from my company in dividends. I will be taxed 19% corporation tax and 7.5% on these dividends. As I've not yet filed any returns I'm not sure how this will pan out and it may be if I can't expand that I review by set up. I certainly will be paying my fair share of taxes though and am not avoiding anything.

I am lucky that I have enough work to see me through but I would be up shit street if I didn't as I can't pay my bills and raise a family on my public sector salary alone and am not eligible for any support from the government- which I accept. But this has been eye opening in terms of how the public view Ltd companies, directors in particular.

If people are earning sufficiently high incomes to have to pay an accountant to find tax avoidance measures for them, then they are clearly earning a lot more than most people. Hence the lack of sympathy now it has all gone pear-shaped.

You don't need an accountant to tell you about the wage/dividend options - it's all over the internet. It's all over workplaces, building sites, pubs, school gates. Unless you've been living under a stone, you'll know about it. It's generic "best practice" just like all the other tax-saving options such as putting money into tax-free ISAs, investing in pensions etc. It's been in newspaper personal finance pages, included in book on personal finance, etc.

Stop making out it's some fancy loophole that only the rich who can afford the best tax advisors know about. It's mainstream and has been for over 20 years.

Oh I see five sorry about that.
With so much venom being spat at directors I thought you were being sarcastic.

There's already a cap up to £2500 so I think that would cover it.
I personally don't earn over 50k a year but I can see the argument that it's irrelevant how much you earnt before if you've lost all your income now so removing the cap for everyone.

I think they should have just given everyone in the country a basic universal income until this was over; this way of doing it is so complicated and we seem to be paying lots of people who don't need it and then other people falling through the gaps.

That way people who are still working such as nurses etc would get a bonus, as it's not fair that they're putting themselves on the line.

@Hingeandbracket Thanks, it sounds like the law is not clear enough then. My DP is self employed, works for one company, cannot vary his hours, send someone else in his place and even has to tell them if he works for someone else. It is his sole job and is full time. The union advised them that they would not win a case against their employer, even though it is clear they are not really self employed in any meaningful way. Sadly DPs industry is a very tough industry to get work in and his managers are actually great, so he stays there.

But this has been eye opening in terms of how the public view Ltd companies, directors in particular
Indeed - HMRC and Political propaganda has done a great job of spreading misinformation about how it all works rather than addressing any of the actual issues.