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AIBU?

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Original poster

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

500 replies

Milo2 · 30/03/2020 23:01

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?

OP posts:
Stayinghome · 31/03/2020 16:04

You pay less into the system therefore most people think it is right that you get less out.

Dividends are technically unearned income which means you don't pay so much tax on it. You are 'avoiding' tax by setting up as a limited company so I beleive it is fair.

alloutoffucks · 31/03/2020 16:05

Welfare benefits with £16k limit does not make allowance for the fact that any money you may have may be to pay debts or even pay very essential things such as making your house habitable. It is a blunt tool and affects everyone.

Branster · 31/03/2020 16:05

I don’t know why there is this miss-conception OP. Yes there might be certain benefits to being the director of your own company but not as much as people believe.
Also, companies pay VAT returns and corporation tax, not exactly negligible sums of money. One way or another plenty of money go to HMRC.
And people need to realise how risky such a position actually is. I think the current situation demonstrates it very well. It is risky for the director as a company owner who has to look after their own family with the added responsibility of keeping staff employed so they can look after their own families.

furrytoebean · 31/03/2020 16:07

You pay less into the system therefore most people think it is right that you get less out. Dividends are technically unearned income which means you don't pay so much tax on it. You are 'avoiding' tax by setting up as a limited company so I beleive it is fair.

Have you read the thread?
Do you realise that dividends are paid from profit that has already been taxed?

So you pay your corporation tax and then you pay your tax on your dividends.
You also pay national insurance as an employer and as an employee.

rosie1959 · 31/03/2020 16:07

Cant for the life of me how dividends are unearned income in a small limited company Who puts the money there to pay them in the first place ?

VanGoghsDog · 31/03/2020 16:11

The 16k limit is also affected by my business account. Not just personal. And there is no way to explain that money in there is effectively owned by me to the HNRC. Riddle me that

Well, if that really is an issue you can pay it to HMRC early.

Kazzyhoward · 31/03/2020 16:11

If the government supported shareholder, where do you draw the line? Do we protect dividends for FTSE 100 shareholders? Do you protect dividends for non UK tax payers?

Those of us old enough to have been working in the 80s and 90s will remember the concept of "close" companies - a concept put in place exactly for the purposes of dealing with small limited companies owned and operated by a small number of people, such as one man bands, husband/wife, etc. If those rules hadn't been swept away, we wouldn't be in this position now. We had something called close company apportionment which apportioned profits to individuals to stop perceived abuse. Re-introducing the concept of close companies would solve many problems.

furrytoebean · 31/03/2020 16:11

I seriously don't understand how I'm supposed to be paying less into a system when not only am I paying tax but I am literally paying people's wages.

Fine all us small business owners will just close down our companies; that'll show us.

I'm sure all the people we employ will be glad to see the back of us.

alloutoffucks · 31/03/2020 16:12

True vangogh.

I suspect most of you have much more than £16k savings and would not be entitled to any welfare benefits anyway. And yes they are low.

VanGoghsDog · 31/03/2020 16:13

Also, there is "getting less out" and getting zero out. Not really the same, are they?

A universal basic income for all would solve this problem and be very easy to administer.

furrytoebean · 31/03/2020 16:14

Totally agree Van

VanGoghsDog · 31/03/2020 16:15

I suspect most of you have much more than £16k savings and would not be entitled to any welfare benefits anyway. And yes they are low.

And yet employees and self employed getting support are not having their savings levels looked at......

Stayinghome · 31/03/2020 16:15

@furrytoebean

If its not advantageous then why do it! Accountants advise people to set up as companies specifically to avoid paying so much tax. I am not daft, I am a Chartered Accountant! If they paid more tax this way why do it? Years ago everyone was set up as a sole trader but now they are all companies purely to save paying so much tax!

Kazzyhoward · 31/03/2020 16:17

You won’t be accepted for bankruptcy if you’ve been running up avoidable debts before applying.

There's a difference between the company going bankrupt and the person going bankrupt. Pretty sure the earlier poster was meaning putting the company into bankruptcy (liquidation) rather than themselves.

HMRC are going to lose a lot of money with people "spending" the tax monies (VAT, CT, PAYE etc) on other things like company overheads over the next few months and then being unable to pay the tax, so going into liquidation. Then starting a new company and starting again with a clean sheet. Phoenixism.

Imafarmerama · 31/03/2020 16:18

What about Directors who pay their wives who don’t even do any work / have an actual job. Is that tax avoidance too?

(I don’t know anything about tax but I do know several WAGs being paid a salary for doing zero work and I simply don’t understand why. Not having a whinge or anything) Smile

furrytoebean · 31/03/2020 16:18

If its not advantageous then why do it! Accountants advise people to set up as companies specifically to avoid paying so much tax. I am not daft, I am a Chartered Accountant! If they paid more tax this way why do it? Years ago everyone was set up as a sole trader but now they are all companies purely to save paying so much tax!

Well I do it because I work in an industry where people are often sued. My governing body and insurer both strongly advised I became a limited company.

And as it has been repeated again and again on this thread some companies prefer you to be a limited company when the contract you.

rosie1959 · 31/03/2020 16:19

If someone was a chartered accountant they would know why some cannot be sole traders and have to set up a ltd company

furrytoebean · 31/03/2020 16:20

What about Directors who pay their wives who don’t even do any work / have an actual job. Is that tax avoidance too?

Yes and it's illegal, unless they are actually doing work that is against the law.
Hardly fair to penalise all directors because some people break the law.

VanGoghsDog · 31/03/2020 16:21

What about Directors who pay their wives who don’t even do any work / have an actual job. Is that tax avoidance too?

Technically any company can employ anyone they want to do, or not do, anything they want.

So Tesco could employ you to do nothing. Same way as your spouse can.

That's really hard to police though. It does happen, and people set up spouses as shareholders too. And I suppose it is a tax scam.

Kazzyhoward · 31/03/2020 16:22

If its not advantageous then why do it! Accountants advise people to set up as companies specifically to avoid paying so much tax. I am not daft, I am a Chartered Accountant! If they paid more tax this way why do it? Years ago everyone was set up as a sole trader but now they are all companies purely to save paying so much tax!

If you are a CA, then you'd surely know all the non-tax reasons why people set up as limited companies.

Yes, due to Gordon Brown's stupidity in the noughties, it did, for a while, become the norm for people to be limited companies because he brought in reliefs and lower tax bands only for limited companies which caused a stampede of window cleaners, dog walkers, etc to incorporate - why wouldn't they? But since he's been kicked out, sanity has returned and such low income trades now operate as sole traders again.

Imafarmerama · 31/03/2020 16:23

@furrytoebean oh my days I had no idea! I thought this setup was Ok as I know several people doing it. Including those who own accounting firms Shock

They don’t keep it a secret either (hence how I know!)

furrytoebean · 31/03/2020 16:23

Technically any company can employ anyone they want to do, or not do, anything they want

Oh really?
My accountant told me this wasn't the case. I was thinking about hiring my husband to do some work (he was genuinely going to do the work it's his day job) and my accountant was very clear that I'd have to keep a clear paper trail to prove he was actually doing the work.

Kazzyhoward · 31/03/2020 16:23

What about Directors who pay their wives who don’t even do any work / have an actual job. Is that tax avoidance too?

Sole traders and partnerships can do that too. Why single out directors??

Imafarmerama · 31/03/2020 16:23

I feel a bit awkward now knowing that Blush

alloutoffucks · 31/03/2020 16:24

The reason they are not applying the usual savings rules to furloughed employees and self employed is because they don't have the staff to process this. These benefits will only last while in lock down and after that usual rules will apply about level of savings.

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