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?

Approximate (back of an envelope)

On £100,000 income as paye- tax £ £27,496.40 and NI £5,964.16. take home £66,539

On £100,000 corporation tax £19,000 leaving £81k. PAYE about £12k and Ni on that is about £360 (I think -employee and employer) . £69k available for dividend with tax on that of £12,737. (plus the £19k corporation tax)

So income £68K as opposed to £66,539.

thevdifferences in tax is not that big anymore, not like it used to be, we still pay a tonne of tax every year and always have, we've never tried to hide earnings or not put things through the books

This. It's a hangover from the days when a) lots of people used off shore schemes which are now illegal to pay virtually no tax (Jimmy Carr and the like) b) VAT relief was a thing, but isnt anymore and c) tax on dividends was less than it is now.

DH has a limited company and I am now PAYE since moving over a couple of years ago. So I can directly compare. And I can assure you that, providing that you are declaring everything you earn and not taking cash payments like lots of tradespeople admittedly do, which is unfair, then there is little or no benefit left to doing the 12K salary rest in dividends thing anymore. By the time he has paid 20% on dividends and 19% corporation tax (6 figure sum), accountancy fees etc our annual tax return statement and tax is virtually the same. Even though company profits are about 40K more than my salary. We both paid the same large sum in personal tax on our self assessments for the last 2 years, within a few hundred pounds.

Basically, it is only beneficial and tax efficient if you are dodgy and don't declare some of your earnings or dont declare the dividends. It is those people who are being caught out by not being able to claim as much because they havent been honest about their earnings in the past. Which is karma imo.

But directors ARE avoiding tax. It's not legally wrong.

HOWEVER

Many people feel it is morally wrong.

The whole argument about 'job creators' and 'trickle down' economy has hours and hours worth of contributions on both sides and won't be solve on Mumsnet.

I was always under the assumption that companies paid corporation tax and not the individual?

I feel very sad for anyone that’s going to lose their job because a small Ltd company has gone under. That little bit of support from the government could be the difference between a company going bankrupt or not. People might think it’s fun and games while they are getting 80% of their wages paid but they won’t think it’s fun when they realise their job has gone! Because they thought the directors deserved nothing. Talk about shooting your self in the foot!

I was always under the assumption that companies paid corporation tax and not the individual?

They do but in PSC the director is typically the sole income generator.

Milo

You're passionately angry as a business owner.

Understand that there are other points of view which also have strong emotions behind them as well as factual arguments supporting the position, just as you do.

Where people pay themselves a small salary and either leave profits in the company or pay dividends, well, HMRC don't record this on your return

This isnt true. My dividend payments are on my tax returns. Its spilt into income from PAYE and income from dividends, with both taxed at their respective rates and a total annual income and total tax deduction given overall for both.

You get your salary covered by the government, dividends are not salary they are profits from investments. Are you really expecting the government to cover investment profits too?

This. You want to pay lower taxes because of the risks you are taking but also want the same protection as employees who contribute a higher proportion of their wages to the public purse.

Nope. No sympathy from me. You can't have your cake and eat it.

A limited company by it’s nature has limited liabilities. If it goes bust the personal impact to the directors won’t be as dramatic as if a sole trader or partnership went bust. I imagine that is why limited company directors or limited liability partnerships probably don’t need as much support as sole traders or partnerships.

*If a director paid herself £200k dividend it’s subject to tax 20%

Incorrect nonsense. Her company would have already paid 19% corporation tax and she'll be paying personal dividend tax of 32.5% on dividends up to £150k and 38.1% tax on dividends over £150k.

There is no 20% dividend tax!

It's nonsense like that posts that make people think dividends are taxed less - they're not.

I know @suburbanFraggle It’s true. But I honestly believe if people took the time to educate themselves a bit more they might think differently.

Where people pay themselves a small salary and either leave profits in the company or pay dividends, well, HMRC don't record this on your return

What tosh. Whenever money is paid from the company as dividends it is taxable. You complete an annual tax return and record the dividends. You pay tax on account based on dividend estimates (last years figure)

My husband ( who owns a small Ltd company) paid c £30k in tax last year. I'm on a zero hours contract as a cook. We have both lost our livelihoods in the last 3 weeks. Do we really not deserve to be helped by the government?

@PanicOnTheStreets85 What about if you were to lose your job because of it? What if your friends or family are losing their jobs because of it? How can you be sure that no one you care about in your life is being impacted by this? Because they probably are!

I am an accountant (as is DH)and in the last few years we have advised all our clients who are directors of small limited companies to take a salary. They only take either £8k or £12.5k and as irregular payments usually but they are grateful now as at least they should get something under the governments proposals.

There is nothing wrong with taking dividends at all but I personally never advise it for the whole amount a director wants to take out. We also have advised all those earning a specific amount to change from self employed to Ltd and as a result we have no clients slipping through the net at this time earning over £50k self employed. Decent accountants will assist clients to not be inefficient in how they pay tax but hopefully will ensure they are dealing with their salaries/dividends in the best way possible. We would never encourage anyone to be dodgy in anyway as it is our careers at stake.

My only objection is to the people who are self employed moaning they are getting very little back because they have fiddled their expenses to pay less tax in a year than I do in a month but are now upset they are getting hardly any help. I struggle to be sympathetic there.

I totally agree that Ltd companies should be getting more help during this time and have already signed the petition. It is unclear to many people the correct way of declaring directors income and there is nothing to suggest that only taking dividends is incorrect (although accountants should know better really). Not everyone is just out to fiddle the system but I do think this situation will change things going forward and if tax is increased for SE or Ltd companies then they cannot be treated like 2nd class workers.

@Milo2

Could you suggest a starting point? I don't know much at all on tax for businesses and would like to know a bit more but don't know where to start.

You pay marginally less tax, as has been demonstrated, unless you are a large company with large annual profits. Like everything, its an economy of scale.

Not that I'm advocating anything different, sorry Milo. As other have said. People running Limited Companies know it is a bit more risky than being a standard paye employee and do it because it is slightly more tax efficient or to properly build largers companies if not PSCs. As others have said, you cant expect the government to give you a percentage of variable dividends from variable company profits due to unfavorable or unforseen market conditions. Anyone worried about that can/could have changed the balance of salary to dividends and made it say 50/50% but nobody does. They all do 20/80% which has always been more risky. We're just getting hit with it now due to exceptional circumstances. For PSC it was all going any way with IR35. This has just delayed it by a year.

Maybe they will realsie the value of a flexible contract workforce that you dont need to pay sick/holiday pay or a pension and reconsider. But for actual small businesses, what else could the government be doing? Low interest loans?

@Changeofname79 Exactly what our accountant has advised. Exactly what we do. And exactly what most of our friends with Ltds do. The hate for directors is bizarre on so many levels!

The reason that people think this is because it’s the truth. Accountants advise this way of doing it to minimise their clients tax bills. Of course it’s avoidance rather than evasion but this doesn’t mean that people don’t think it’s schadenfreude.

I used to have an ltd and have worked with hundreds of people who did/ do. We were all pretty much disguised employees earning between £200 and £1400 per day. The extra pay and lower tax means you can build up a nest egg to cover fallow periods between contracts. This is exactly that kind of situation. Why should the taxman bail you out when you’ve been avoiding paying some of your tax?

If your dh paid 30k in tax, how much did he actually earn?
I'd have thought you'd have savings on that salary.

What about if you were to lose your job because of it? What if your friends or family are losing their jobs because of it? How can you be sure that no one you care about in your life is being impacted by this? Because they probably are!

You haven't addressed my point - why do you think you pay less tax proportionately than employees paid through PAYE? The traditional answer has always been that it's because you are taking on more risks than employees. So why do you expect to get the same protection as employees now?

And no. Still no sympathy from me. Yes, it sucks if your business fails, but that's the risk of setting up a business. I don't think the Government should bail you out any more than it bails out anyone else who sets up a business that fails for whatever reason.

@Findumdum1Ibthink maybe the government could offer something but cap it? You know... just so we don’t have to go totally under!

We might not go under yet. No one knows what’s going to happen but is odd that someone who doesn’t work will be okay but someone who works extremely hard could lose everything. Do they want small companies to go under? There’s a few conspiracy theories around!!

Do you not have reserves you can use during this time? I am only a sole trader but I have build up a pot to cover times when I can't work. Do Ltd companies not do the same?

@Milo2 people just can't get their heads round the fact that not all Sole traders or Ltd company directors are dodgy. People also don't understand the changes in how Ltd companies are taxed and how it is not some huge saving just taking dividends.

If you are getting 80% PAYE then hopefully this goes some way to helping directors personal finances (along with mortgage breaks etc) but I believe that there should be some more help for keeping the business going as everyone will be wary of taking the loans the government are offering as no one knows what trading will be like after all this is over.

There will be some ltd companies/sole traders kicking themselves for being dodgy but dont tar everyone with the same brush. Most of my Ltd company clients are being bloody amazing with their staff and just trying to keep afloat whilst paying them in full.