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?

@thelowry As I understand it with tax and NI do you pay slightly less than an employee on paye. VAT is irrelevant, anyone who buys goods and services pays VAT.

@TheLowry - company shareholders who pay themselves via dividends pay less tax than if they pay themselves only as employees. It’s not “hate” or anything like that. It’s just fact. And understandably if you structure your affairs deliberately so as to pay less tax, you can’t complain if you get less back.

And company directors can claim furlough for their salary part as long as you are not working.

Also employing your spouse if they are not doing any work to use their “nil rate band” is illegal tax evasion. Of course a company can employ anyone they like, but if it is being done as a scheme to evade tax it’s illegal.

Some on here are saying, if you don't pay much in to the economy, then don't expect much back. There are many ways of contributing to the economy (and society). Stay at home mums don't contribute money to the economy, but we don't deny them benefits. Volunteers don't contribute money, but nobody would say they don't contribute. So why the attack on a working parent who has a small limited business and might employ a couple of people. They provide a service, create jobs, pay NI and tax on their lower PAYE amount, corporation tax on profits and personal tax on their dividends.
They do this while not relying on the state for sickness and unemployment benefits. They pay accountants, suppliers, landlords, for vehicle leases etc.
The next person who criticises a director of a small limited business, please be sure to state what you do at the start of your post. Are you a SAHM, volunteer, or employed in a secure job with holiday, pension and sick pay? Which one is it?

I'm having a bit of trouble understanding, so forgive me if i'm wrong about any of this.

1. Why do directors see it as 25% NI? Surely the money coming into the business belongs to the business and not to them (hence the limited liaility). The corporation tax & employer's NI is paid by the business, then the director is paid their wage and dividends from what's left. Surely the main benefit of an llc is the legal structure separating you from the business.

1. Sole traders work by themselves and would need to continue working during the job retention scheme or their business would fail. Shouldn't a director of a company technically have other workers that could continue their work for them if they abolutely need to be furloughed. Otherwise any director could be earning their larger salaries+dividends and still receiving govt assistance?

Strivingtosuceed probably all depends on the set up and industry
We have a small ltd company. Changed from sole trader a few years ago because we had no choice due to legalities in the industry
My DH creates all the income he at this time is the only one regulated to do this The rest including myself are admin accounts
So all the monies earned are created by him.
The industry has come to a virtual standstill no point in admin continuing to work
We cannot furlough him as he is continuing to oversee the company. This is a highly regulated business.
We will top up the 80% to full salary for our admin employees
We may survive depending on how long this goes on and the state of the economy afterwards but may drain the company of any reserve we have
My DH has being doing this for over 30 years and as a small basically one man band has a very good reputation. But age is against us as many people his age are retired So rebuilding will take time if this is prolonged
Never have asked for any help from the government so whatever we get is appreciated.

What about Architects? Due to the requirement for an Architectural practice to carry professional indemnity insurance, it is common to set up a limited company with one or more directors, who are consequently paid via a dividend from the companies’ profits. Incomes for such directors are often modest, and well below the government’s £50,000 threshold for claiming assistance. My DD1 is in this position, with her own business she HAS to be a Director of a Limited company, or she can't practice.

striving

Lots and lots and lots of directors are the only worker in the company.

I see it as paying 25% of national insurance because yes technically the business pays half but where has that money come from? Behind the curtain of the 'business' is actually me making money to live, when you tax the business you are taking money I have made in taxes so I have less left to live on.

I don't think you understand small companies at all.

You don't need employees to be a director.

@strivingtosucceed Whether you trade as a limited company doesn't depend on size, number of employees, etc. Some are literally just one person working for themselves, so what their company earns is directly what they have earned - it's their equivalent to a wage. TV personalities and sports stars etc are often "one man limited companies" such as Fiona Bruce, Lorraine Kelly, etc. By contrast, there are sole trader "businesses" that aren't limited companies but employ hundreds of people. There are a multitude of reasons, some people literally have no choice but to be limited companies, others do it to avoid personal liability if the business fails through no fault of their own (i.e. bankruptcy of a customer owing them large amounts of money). If you'd read the thread, you'd see examples of industries where you simply can't get work or it's against professional body rules not to operate as a limited company. Conversely, some industries don't allow use of a limited company and insist on sole trader or partnership structure instead. So, no, it's nothing to do with size, number of employees, etc, and in a lot of cases, it's nothing to do with tax either, especially for genuine "businesses". Of course, for Lorraine Kelly, Fiona Bruce, various sports stars, footballers, TV comedians, etc is WAS all about tax, both for the person and the likes of BBC who forced their staff to work that way to save themselves the costs of employment such as employers NIC, pension, sick pay, etc etc. It's a very complicated picture and different people have different reasons for operating the way they do, just like different "employers" have their own reasons why they don't want their staff on the payroll (like BBC, NHS etc).

Strivingtosucceed my company has 2 directors (my husband and me) and no other staff to furlough. If we don't keep doing some work the business will fail. Our work is customer facing, so all we can do at the moment is some online support and get some paperwork up to date. If we are furloughed we are not supposed to do any work for the company. I'm not sure our customers would be happy about having no contact at all.

My limited company has one director, me.

I am deliver a face to face service and I became a limited company so that if I got sued my house wouldn't be at risk, especially as I'm married and the house belongs to my husband as well.

It does not cost me less to have a limited company than if I was a sole trader, I may pay ever so slightly less tax but the accountancy fees for the added tax returns eat into any savings I make.

I cannot provide my service any more, but like I've said many times I am still expected to pay the overheads of running the business.
I need to work to pay these. In order to do this I have managed to adapt very quickly and basically pull another business model out of my arse in two weeks.
I am making enough to pay rent, accountancy fees, tax, suppliers and contractors but not a wage.
If I furloughed myself I'd get a wage but no one else would get paid putting other businesses at risk.

I would also lose clients hand over fist and wouldn't have a business to return to.

I didn't mean to offend anyone or trivialise the issue, as I said before it was a question I was asking for clarification. Maybe the main issue is that limited companies are not the right option for 'one man businesses' and another type of company (still limiting liability but has the benefits of a sole trader) should be created by the government, just a thought.

striving
Yes that would be a good idea, however that's not the situation we are in.

It's very very painful to be watching your much loved and hard worked for business slip away and be refused help. Then be repeatedly told that you don't deserve any help off the government because you brought it on yourself when you followed industry advice and created a perfectly legal (and in fact encouraged) company in order to reduce personal liability in case of being sued.

So many people on this thread have literally no idea how companies work and yet all have an opinion about all of us apparently avoiding tax so deserving to be left to rot.

We pay corporation tax on all profits, we pay national insurance as both and employer and employee, we pay income tax and we then pay tax on any dividends we receive (and that's on top of the corporation tax).

All I am asking for is 80% of my salary and be allowed to work. It's no more than the self employed get (and actually less because I'm not asking to claim it on dividends so it's not even my full income).

It's so upsetting.

Maybe the main issue is that limited companies are not the right option for 'one man businesses' and another type of company (still limiting liability but has the benefits of a sole trader) should be created by the government, just a thought.

Professional bodies, accountants and solicitors have been telling successive governments that for the past 20/25 years but are being ignored. The Treasury and HMRC have the same muddled thinking about limited companies as many of the posters on this thread so havn't really dealt with the fundamental problems. I hope this fiasco and the sheer amount of complaints about the flawed support package may force a proper review of the entire situation around employment law, freelancers, limited companies etc. As things stand, it's all a mess.

I am very grateful that our business isn’t impacted, but yes I’m sure plenty who have asked how things are we’re hoping that I’d say badly (purely from their replies afterwards).

We pay plenty of tax, even with dividends and salary.

The non tax reasons people are claiming on here just don't stack up

You can be sued even if you operate as a ltd co - it doesn't offer much in the way of protection if you are a small company. Anyway, you should have insurance to cover most of it.

In many industries, 'employers' demand you set up as a company specifically to avoid IR35 issues - it is purely tax avoidance/evasion! It is a problem with the system. These type of companies are 'one-man bands' that really shouldn't exist but do make up a huge proportion of the work of small accountants.

Sorry but its a fallacy - a small limited company does not protect you.

These type of companies are 'one-man bands' that really shouldn't exist but do make up a huge proportion of the work of small accountants.

Err No. I'm a "small accountant" and most of my limited company clients are what you'd call proper businesses, i.e. premises, staff, multiple customers, selling products, professional practices, etc. In my experience of over 37 years of being an accountant, the "one man band" freelancers/contractors generally use the big chain accountants set up purposely to cater for one man contractors. I do have a small number of one man freelancers and in every single case, they didn't have a choice as the firms they contract for (including a university) simply refused to take them on as a sole trader and insisting on them being a limited company (or other intermediary such as an umbrella firm).

Sorry but its a fallacy - a small limited company does not protect you.

It does against financial collapse of the business if a major customer goes bankrupt on you and you can't afford to pay suppliers, taxes etc because of that.

It does if something you sell injures someone or some work you do turns out to be faulty and your insurance won't pay out.

It's not a fallacy as I've personal experience of clients who've been very grateful they've not lost their homes and savings when something not their fault has ruined their company.

It's only if it's the director personally at fault due to negligence or fraud etc that the limited company status wouldn't protect them.

Accountants are not shielded from this If loads of their clients go bust they wont have anyone to charge their fees to
A good account does his or her best to advise their clients on all matters and help them That's what they are paid for

@user1497207191

Ok I accept that the veil is only lifted if there is wrongdoing but I have found that many believe they can continue running up debts in a difficult situation and not be held to account.

The discussions on this thread are not about companies with premises etc with employees as they are being offered Government assistance. Your experience of small accountants is clearly different from mine as I know of many around here with plenty of freelance/contractor companies. I do appreciate that it is not the fault of individuals. The simple way to counteract this problem for HMRC to make it more beneficial for companies to hire full-time employees and less attractive to offer contract work. I don't think we will see that happen under a Tory Government though.

The simple way to counteract this problem for HMRC to make it more beneficial for companies to hire full-time employees and less attractive to offer contract work. I don't think we will see that happen under a Tory Government though.

I think it's more likely under Tories. It was under Labour with the ever increasing employer costs and employee benefits/rights that pushed firms (inc public sector employers) to use freelancers instead of employees. It'll only be cheaper/easier for firms to take on employees rather than freelancers if costs and rights are reduced - that's more likely under Tory!