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 pretty much all avoid tax, I hope.‘

No, as a family we have a high income coming in and pay our full tax on that money. You might think we’re mugs not to go down the root of ‘avoiding’ paying some of that money on legal schemes that allow you to claw some back, or in the ‘grey’area schemes but to us it’s clear. We’re lucky to earn more and we pay more.
That’s why people have less sympathy for co directors, because they have an advantage that most people will never have and are better off because of it.

What a topic. This has been a real eye opener for me! It’s probably worth remembering that we are talking about small Ltds here. You know ‘shop local’ and all that!

The ignorance is astounding. @LettyBriggs* you are completely wrong!!

Dividends are taxed at 7.5% or 32.5%. And those profits available to declare as dividends have also already been taxed via 19% corporation tax. And completely legal and within the rules!!

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

This! We receive a small salary and top up with a dividend when funds are available. We pay plenty of tax to HMRC (corporation tax, VAT, PAYE, CIS and our personal tax return)
It isn't tax avoidance as all business and personal income is declared. We have employees who receive a regular salary no matter what. It's not the case for us.

I am guessing it is the same as someone who works for a business that gets an annual or monthly bonus? That won't be paid in furlough only the base wage. So in my old job 800ish a month was bonus/commission. I would have lost out on that but got my base pay?

Same for us @Johnbull and when we say small - we mean really small - as advised by most accountants. A small, very un-livable amount!!!

The government have already gone a very long way to support people through this crisis, much further than I ever thought would be possible. They were never going to be able to cover every eventuality.

Taking your income in this way is a way to reduce you or tax bill. People taking dividends instead of salary from their company have paid less tax than they would have done if they taken the salary. They knew this and did it deliberately, even though it was legal. They were better off for all those years, you can't win them all.

If only we got £800 a month @Qwertygert But yes you are right only the base pay is very very low!

” I am guessing it is the same as someone who works for a business that gets an annual or monthly bonus? That won't be paid in furlough only the base wage. So in my old job 800ish a month was bonus/commission. I would have lost out on that but got my base pay?”

Yes. Fees, bonuses and commission are all specifically excluded, so staff who earn a significant portion of their income that way will lose out. Similarly the scheme is capped so that people who are higher earners will get a much smaller percentage of their pay than the 80% advertised.

OP people get angry with directors of small companies as they don't realise:

1. Some industries and some large companies refuse to employ people as sole traders as if things go wrong people can claim employment rights and the company can be left liable for their tax. They also refuse to take people on as employees.
2. Not everyone, especially in creative industries e.g. tv cameramen, earns large sums from being self-employed
3. Accountants and HMRC are well aware of the "pub talk" and know what are typical equipment and costs for particular industries. So a builder trying to put a 4K TV through the books won't get very far, there as a video editor doing it will be allowed to. Even if you are putting things through the books you still have to pay for it first.
4. Dividends are paid after corporation tax and are taxed.
5. In some industries the difference between being self-employed and salaried is very small.

Oh and I currently work for a small company who have employed lots of ex-self employed people. Lots of people have chosen to work for them as they have had a change in life circumstances e.g. caring responsibilities, so don't have the extra time to deal with their own books and look for clients.

@Makeitgoaway it is a way to reduce tax yes, but as people have pointed out that’s because if Ltd company directors paid all their income as salary they would pay significantly more tax than paye employees- it’s a flawed and unfair system. Someone posted a calculation up thread showing that by going down the salary plus dividend route directors actually pay very similar tax rates to employees. Having said that, I’m not advocating for Ltd company directors to be eligible for the same benefits as employees in this scenario (other than those on low incomes), but i find it frustrating that people ignore the double NI hit.

@Milo2 if only i did too! Old job about 5 years ago. But they started capping commision and not reducing work stress so I left. I ended up on aboout 22 grand a year with bonus so the base pay was pretty poor. Now I am in a job that pays well with an annual bonus though that was paid in Feb. I am very lucky to be in the position I am in and my heart goes out for those struggling. We are all human at the end of the day and the lack of empathy and finger pointing is insane. Saying that I thought a Tory Government was going to be horrific and the most vulnerable forgotten yet they are remembered in this mess and are being made as safe as possible (even if possibly not for the right reasons in my eyes) but at least they are not freezing on the streets right now.

Socialism would have avoided all of this though

Re "I have a big VAT bill". That isn't a tax on you, that is tax you collect that your customers pay and you know that damn well. Unless your business is exempt the tax you pay is deducted from the amount you pay over. So I won't be shedding any tears on that account.

The government has done more than enough!

If you have cash reserves (as most viable companies will have) then you are most likely to ride it out. It isn't a permanent situation, but one that is likely to be over in a few months. I am assuming if you were hit by a recession, you may face similar testing times. We are all facing hardship and difficulties, you are not a special case.

The tax payer is not a bottomless pit, the decisions made to date have been good ones. You have both cash reserves and savings, so my sympathy for your particular plight is very, very limited.

If we are going to see extra financial support it should be directed at those using foodbanks, the elderly sitting at home without contact and no food in the house, and some provisions for the worn out NHS staff.

Given you have posted on here blasting away about your (very fortunate) predicament, organising petitions (!) without giving much thought or acknowledgement to those in a far worse situation than you are currently says a great deal about you op.

I don’t get it either.
Dh has small limited company. Does rather well. Pays an utter fortune in corporation tax to begin with. Most of the money he earns is from international work so he is bringing money into the country. He pays himself a salary and dividends like anyone else would. He doesn’t fiddle the books. He downs what his accountant says. If he cant work, he doesn’t earn. He doesn’t have the comfort and extras of a PAYE job, cushy pension, holidays, sick pay, Corporate dos and All expenses trips away etc.
So no should not be expected to pay the same tax as people on PAYE. We won’t be claiming anything as he is still able to work a little bit, not nearly on the scale he was.
But seriously those people on PAYE should try working for themselves for a bit with all the stress and responsibilities And then decide whether they should pay the same level of tax.

I agree with @olivehater. Most employees aren't shouldering anything like the risk that owner managers do. If you make the taxes a level playing field, where's the incentive to take the risk? Why not just become a salaried employee? It comes down to a question of whether this country values its entrepreneurs.

I own a ltd company, pay myself a small wage plus dividends.
Multiple reasons including the cash flow - corp tax paid annually as opposed to PAYE which is monthly. So that savings pot of corporation tax has helped us out in the past.

Thing is, for a new start up business it's really shit, I think we were trading 5 years before we made money the equivalent to my old job. (Not masses but £30k per year)
Now, we have money set aside for VAT and corporation tax plus we have 3 months salary set aside for staff.
The government have said that VAT can be deferred and I am sure there would be some leeway on corporation tax if agreed in advance. That alone should help the majority of directors - combine that with furlough for staff and the £10k grant I can only see 2 loosers in this situation.
1 new businesses still in the early days
2 those who are run month on month with serious cash flow issues the moment someone doesn't pay
Neither of those 2 will stand much chance in a recession, which will come after this pandemic.

I don't believe the Government decision is based on helping people as such but ensuring the economy will bounce back.
A ltd company can go under, all debts written off. It's crap for all involved but does happen all the time.
A sole trader goes under they can lose everything which is why they've been given protection.
An element of business support is there so companies in a stronger position can take it and hopefully weather the storm. The £10k grant, furlough for staff, the VAT deferal should all prop up and support the director. If it's not enough sadly that's a weak company

As I say, I don't believe this comes down to directors deserve the same, they have it but in a different form

Excellent post Johnbull
Quite honestly unless you have run a small Ltd company you have little experience to what is involved
We are used to going it alone without the benefits that being employed holds Used to making our best decisions for our Company and looking after our employees
Used to having no holiday pay and not being off sick for anything
Have never expected the government to bail us out

What Lockheart said. As with most walks of life people enjoy commenting on situations they don’t fully understand.
And yes my company has a small amount of savings which I was hoping to use as a pension contribution (we don’t get any benefits including pension contributions)
I will use those savings to tide me over.
However in this situation if you were PAYE and had savings, you would still get government help. We don’t.

why do you think you pay less tax proportionately than employees paid through PAYE?

You want to pay lower taxes

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

As amply demonstrated by the few people on here who have correctly stated the facts, the overall tax take is similar. In higher earnings it's actually higher than an PAYE employee.

But don't let the facts get in the way of HMRC-inspired vilification.

When this is all over I am going to retire as I am sick of being told what a tax-dodger I am.

Of the three people closest to me (including me) I know who are self employed, to one of us has qualified for a penny. My sister is a sole trader DP is a limited like me. Not a penny.

Fine, we will take care of ourselves, but don't come back later telling us about how we will now have to pay the extra bill for all the "help" we've had.

I don't want my cake and eat it but the government can't tell us all to get to fuck now and then come after us later.

There are so many ill-informed comments - the HMRC lies are working.

Re "I have a big VAT bill". That isn't a tax on you, that is tax you collect that your customers pay and you know that damn well. Unless your business is exempt the tax you pay is deducted from the amount you pay over. So I won't be shedding any tears on that account.

Only if your customers are also VAT registered businesses. If you're, say, a shop or a guest house or a cafe, then you can't charge your customers 20% more than the slightly smaller one next door, so in those cases YOU DO suffer the VAT yourself as you can't charge your customers more. It's exactly why a lot of "small" businesses stay small - why some takeaways close down for a couple of months, etc - so they deliberately reduce their potential to avoid breaching the VAT registration threshold.

The "not fit for purpose" tax system in the UK has an awful lot to answer for.

He doesn’t have the comfort and extras of a PAYE job, cushy pension, holidays, sick pay, Corporate dos and All expenses trips away etc.
So no should not be expected to pay the same tax as people on PAYE.

The proportion of PAYE people being rewarded with cushy pensions, corporate dos and all expenses trips away will be tiny. You are comparing your husband to a very select group of employees and if you feel they are his equivalent he must have a very high income.

For those of you (like me) who are directors of a small ltd company and who don't qualify for the business rates, please do write to you local MP.
I did and they have responded that actually the government is looking at help for those small viable businesses who currently don't meet any of the criteria for help. I was also put in touch with a few very good local contacts who were able to talk about funding and grants from other sources.
I'm not here to respond to those posters who seem to think we deserve some sort of punishment for owning a company, I just wanted to pass on some info to those who are stuck like me.

Ok, if it's right that you pay less tax because you take more risk, isn't this one of those risks?

I hope everyone who needs help gets it.

But, you take salary as dividends to pay less tax on it. Nothing legally wrong with that, but it's a bit cheeky to then cry about less support further down the line when you need it.

I'm absolutely no expert but was wondering, as some of you are incredibly knowledgeable, the legal and moral footing of a scenario I see often with friends who have husbands who are Ltd companies; they have cars / mobile phones / in one case even a brand new touring caravan as a "home office" that are claimed "through the business". If I wanted a 20k car I'd surely have to earn circa 25k in taxed income to buy it. Is this tax avoidance, evasion?