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?

We have savings.

@Milo2 thanks. Very very busy, it is year end for me (NHS) which is my full time job, then end of year PAYE work for my private clients. Obv we are doing lots for Covid-19 stuff even in corporate areas of the NHS.

For all of the Covid-19 work for our private clients we have committed to do it for free. I have a feeling we may regret that once your portal is open for the furlough returns

I am a PSC. I don't pay myself any PAYE and only about £5k in dividends.

I live off savings and put company income into my pension, effectively converting taxed savings into tax free pension savings.

And as a result no government help. And I am 100% totally fine with that. It was my choice. I could have paid myself and I have done in some previous years.

I'm also not entitled to any universal credit. That's life. I had my choice and that's the choice I made. Luckily, obviously, I do have savings and I live fairly frugally.

If directors are salaried (other than dividends) can they not get furloughed like the rest of the salaroed staff?

They can if a) there is no work to do (it's to avoid redundancy so there has to genuinely be no work) and b) they totally stop working (they can only perform the statutory duties which is basically filing the annual returns, not much more). Then the govt will pay 80% of their wage up to £2,500pm.

They have to pay themselves and then claim it back, and with no client income they may not even be able to do that

On the whole, you do pay less NI if you take a low salary and dividends, but you typically pay more in tax.

A limited company director will usually take the maximum amount that is not being taxed in the tax year. For example, for the tax year 2019/20 this sum is £12,500. More on tax rates here. Then the remainder of the income is taken through dividends. Dividends are great as you don’t have to pay NIC’s (National Insurance Contributions) on the dividedness. Dividends are also taxed on the lower rate of income tax than self-employment incomes. More on dividends here.

Companies also have to pay the 19% corporation tax on profits, this is opposed to the 20-45% incomes tax that sole traders have to pay on their profits.

Copied and pasted above post. You pay less tax and NI.
Usually you personally benefit from this over us employees, this once you didn't. Tough.

we have savings

I mean the business. Not you personally. You decided to pay dividends instead of setting aside cash reserves.

One time I left the oven on by mistake. My own stupid fault. I'm just lucky my house didn't burn down with everyone and everything in it.

For your lapse it looks like things may burn down.

Sorry for your pain and anxiety.

But the facts are you chose a particular structure to benefit. Cut corners with safeguards, as we all do,now it's going pear shaped.

”you cant expect the government to give you a percentage of variable dividends from variable company profits due to unfavorable or unforseen market conditions”

This. If you want to get into the realms of the government compensating shareholders for their investments being less fruitful than they anticipated that’s a very big can of worms to open.

I speak as an owner director drawing a small salary with the remainder coming in dividends.

YANBU OP. Typical professional advice is to follow this pay structure.

The problem with the ni question is that as a director you end up paying more ni than paye employees if you take salary rather than dividends, as you pay employer contributions too which add (I think - not up on latest rates) about 14% on top of standard tax and ni. I know many people working as contractors via Ltd companies and this is what pushes them down the dividend route- it enables them to end up paying pretty much the same tax as an employee rather than a big chunk more.

I hate to break it to you @SuburbanFraggle but the business has cash reserves. A lot. It is also owed a lot of money which will probably get paid.

We work in GP surgeries, schools, and care homes. So it’s likely that we will get paid.

You come across as very bitter on here and like you want some persons business to fail even though you don’t know them!

Funny considering you are probably someone that goes to the doctors at some point, has a child in school or an elderly parent in a care home. I bet when you want those services to continue running you would want our business to still be there assisting them.

Instead of being so bitter why don’t you try being kind instead? You never know it might feel good!!!

It's more complicated than that actually. Dividends are paid to shareholders, not directors. I could be a Shareholder of any of your companies and receive dividends from your trading without lifting a finger.

It IS about tax "efficiency" (ie paying less). Many people will have their spouse as a shareholder too as it means overall the household will pay less tax, for example. As with self employment, many directors are very creative with the way they include their own expenses in the company's profit and loss (motoring costs, rent on family home, mortgage, school fees, you name it I've seen it done) - meaning their lives are basically as tax free as they can be.

I think it would be outrageous of the govt to pay anything based on dividends, because of the way limited companies work. It isn't the same as self employment or PAYE at all.

Exactly @NamasteAtHome I think some people don’t get how it works. One person did ask so they can learn so I take my hat off to them!

I find it really bizarre that there are people who judge the situation based on untrue facts.

Take everything you read on here with a pinch of salt.

There are some that claim they are knowledgable in a subject when the stats or facts they are giving are totally wrong.

Op, but why are you petitioning for gov help is you have a lot of cash in reserve??

If only there was a way to stop people posting utter shite
Absolutely

If not is

I’m intrigued as to how anyone is able to claim school fees or the rent or mortgage on their family home as business expenses? I’m aware you might be able to pay school fees as a benefit in kind in some cases but this would be taxable as it would for someone on paye surely?

What posters are missing is that sole trader self employed are getting 80% of their total profits (of prior years) even if they're carrying on working at some level. Limited company "self employed" may get nothing at all if they're not paid themselves wages or want to carry on working at a lower level. It's apples & pears and completely unfair to have two such different compensation schemes for people in very similar circumstances.

The paye/dividend thing is entirely down to a sole trader only liable for 9% NIC, but a limited company director is liable for ~25% nic because they'd have to pay BOTH employee and employer NIC. Now do people see the difference and why company directors pay dividends instead? Successive governments have had 25 years to deal with that anomaly and have failed miserably. Gordon Brown was told the answer 20 years ago by accountancy/tax professional bodies, which was to have a special NIC class (like pensioners do), where only one lot of NIC was deducted, i.e. employee NIC only - but he chose to ignore that advice and 20 years of chaos with IR35 was the result.

Not only that, but successive governments have facilitated and encouraged the use of small private limited companies instead of sole traders. The onerous statutory audit was abolised in the 90s. Gordon Brown himself wanted people to start trading via limited companies and wanted sole traders to convert to limited companies - he purposely introduced small business tax reliefs that ONLY applied to limited companies, such as the 0% tax rate for the first £10,000 of profits - unless he was a complete idiot, why would he do that only for limited companies unless it was his master plan for businesses to be limited companies.

You CAN'T lay this all down to the fault of company directors and/or their accountants. Look at the history, especially Gordon Brown's role in creating hundreds of thousands of new limited companies over his tenure, whilst he was encouraging people to start limited companies by his own decisions and actions!!!

@Isleepinahedgefund Another very misleading post. I agree that it’s complicated but you are painting some picture that all Ltd companies are stinking rich paying out shares left, right and centre! There are ways it could be done where they offer the bare minimum to families that need it. It’s not like the company accounts aren’t all filled legally for everyone to see!

I’m intrigued as to how anyone is able to claim school fees or the rent or mortgage on their family home as business expenses? I’m aware you might be able to pay school fees as a benefit in kind in some cases but this would be taxable as it would for someone on paye surely?

You're not misunderstanding anything. There's a lot of nonsense being said on this thread. Typical "pub talk" with little substance. I'm sure "some" people get away with that kind of thing, but that's what it is - getting away with it, rather than it actually being allowed. HMRC can't audit everyone and some are bound to slip through the net, just in the same way, there are employees doing cash in hand jobs at the weekend and some employees pay cash in hand to their staff without declaration etc.

Tough really isn't it. Pay in less, get less out

Op, but why are you petitioning for gov help is you have a lot of cash in reserve??

Maybe because employees and sole traders are getting the 80% whether they need it or not? How about a level playing field? A company's reserves may be ring fenced for other reasons, such as paying the tax bill, deposit for premises, buying equipment, etc., in just the same way an individual may have reserves but is, for some unfathomable reason, entitled to the 80%. If it's not "means tested" for person A, why should it be means tested for person B?

@ssd Because I have a lot of friends who might go bankrupt because of it. Because I don’t believe that lockdown is going to be over as quickly as some might believe so there needs to be something in place just in case. Unless people want to see the companies go under? But that doesn’t make sense to me. Why would you want these companies to go under? Then in your time of need they won’t be there to assist you.