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?

Your corporation tax, VAT etc aren't your personal taxes. You're sort of comparing apples with oranges.

My understanding though is that the welfare system is primarily funded through national insurance contributions.

@ LettyBriggs thank you - I have never understood this until you explained it ! My goddaughter’s DG does this and is complaint bitterly about not getting help but now I realise what he has been doing .

So, OP you're saying that you personally won't go under but friends of yours who played close to the line will?

This bears repeating.

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

You say I sound bitter. All I'm doing is pointing out natural consequences.

In the good times they had the benefit of certain decisions. In the bad times they face the impact of certain decisions.

It's never fun to see a business go under. But not everyone who is good at X is also cut out to run x business. If they run on such tight margins without cash reserves that they are going under then that's sad, but you can't expect magic to overcome poor planning.

Mike might be kind and lovely and help his old man and bake lovely cakes, but if he cannot weather the storm then that's sad but there are many many sad things in this world. You don't have to pit employers against employees in the way you seem to be doing.

I don't know why people try to justify that it isn't tax avoidance. What other reason is there to operate on a dividends basis when almost all profit is in that firm but to pay less tax. However much you pay, you still pay less than you otherwise would, something that isn't an option for people on PAYE with the same income.

There's nothing wrong with avoiding tax, but it's a risk

This really sums it up.

Take everything you read on here with a pinch of salt

Its tax avoidance

But perfectly legal

Oh and absolutely no hate for directors here

I’ve got friends who’ve done this and may struggle, hopefully not for long...if at all

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

And user if quite right here

Some people take the piss....lots and lots of people don’t

People are quick to look at the lower dividend tax rate but what they often forget is the huge amount of corporation tax that is also paid on top of the personal tax.

We are a family with an average income. I am on Adoption leave so currently receiving nothing. My husband has a 6k corporation tax bill to pay in August and because he now has no work coming in, he won't be able to pay himself any dividends for a while so he can afford to pay the corporation tax. We are not tax avoiders. The company was set up was set up as a limited company so that my husband has limited liability was he ever sued, which is not uncommon in his industry. Dividends are also more flexible. My husband couldn't pay himself a regular salary as his income fluctuates massively.

We will struggle over these next few months. Luckily we have some savings to see us through but other families won't be in that position.

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?
Unless they are proper business expenses they are taxable. Cars are always taxed at exactly the same rate as a PAYE worker would pay.
If they have dodged any tax on those, it's illegal. The caravan is almost certainly illegal (if true).

Oh sorry

Should also say that if we could do it we absolutely would have done!

@Thatbloodybear There are always going to be people who take the piss and if they were inspected by HMRC those types of things would be picked up on. It's a stupid gamble that some - not all - will make.

Its also worth noting, anything bought as a business expense is owned by the business. If the company goes under then everything they have put through as an expense, the caravan, the phones, the cars will all go when the company is put into liquidation to try and pay off some of the company debts.

Just as a final point, I've spoken in the past to my accountant about having a home office built, or a room fitted out so it works better for what I do. That has implications further down the line as the company owns it not me so all that protection I may have had from being ltd is gone as elements of my home are at risk - therefore I've paid for it myself.

Without a doubt some directors of companies will take the piss and to hell with the consequences, but not every director thinks like that.
The thing is, some employees take the piss as well. That doesn't make every employee bad.

I'll just leave this here.

I think it's disgusting the way people are turning on one another in a time of crisis. It's hard for everyone regardless of circumstances.

Your corporation tax, VAT etc aren't your personal taxes. You're sort of comparing apples with oranges.
Who do you think pays your tax and National Insurance as an employee? Your company.
Its a bill to the company which they deduct from your salary
Corporation tax and VAT are also bills to the company paid for by the company
As a director I am responsible for making sure those bills are paid

• Of course everyone is allowed to avoid paying tax if they possibly can. It is perfectly legitimate - indeed the government encourages us - to save in a tax-free Individual Savings Account (Isa), for example. That means you do not pay any income tax on the interest you receive, or capital gains tax when you come to sell*

There are also tax-saving advantages to putting money into a pension scheme, donating to charity via the gift aid scheme, or claiming capital allowances on things used for business purposes.

Other examples of tax avoidance...or tax planning if people prefer

People are quick to look at the lower dividend tax rate but what they often forget is the huge amount of corporation tax that is also paid on top of the personal tax.
^This

All the people saying "you pay less tax/NI now live with it" WE DON'T - if you look at what the government is getting overall, it's very similar, sometimes slightly less, sometimes more, yes MORE.

So people being peeved the government isn't helping is that crazy - until you factor in the fact that politicians know there are all these lies and half-truths about how dodgy we all are and they can use that to shaft us (again).

chng.it/YFj8Tf7p

isn't that crazy - gah!

It’s not cheeky actually because you are tarring all Ltd companies with the same brush.

We are a very small company that works locally. You know the special needs school that is still operating up the road? It’s us that goes to them so they don’t have to shut down because something needs fixing!
You know the local GP surgery? It was us that went to them when all the medication was going to go off because something went wrong. All those people got the medication that they needed that day or week because we fixed the problem. Another example - the local care home was still able to operate because we fixed a massive problem meaning elderly people’t have to suffer.

We are even classed as key workers which is why we still have to keep working at the moment putting our lives at risk!!!

Ask yourself this - are you happy to see your local gp, school, care home etc get into strife? If the answer is yes then don’t bother supporting companies like us. If the answer is no then get educated. Find some kindness in yourself and sign the petition!

I don't have an issue with it as a rule, especially for employers who employ several different people, but the only person I know who has shared that petition jointly owns a private ltd company with her DH, a consultant. He has been continuously employed, albeit via different contracts, since setting it up about five years ago. He earns £600 a day. Sensibly he has saved a large amount in case of dry spells.

They were very open about setting up the private ltd company to minimise tax payments - he pays his wife (Sahm) through it as a cleaner and administrator. If they go out for lunch as a couple they put it through as business expenses. All completely legal but they have avoided paying some tax in these ways. Also they have hundreds of thousands of pounds in savings built up through his huge salary so it irks me that they think they should be entitled to government support in the same way as my self-employed mobile hairdresser.

Sorry I'm a sole trader so this doesn't apply to me but can someone please confirm what it is LTD directors would like? Is it the 80% including dividends up to £2500 (PAYE) or to claim the 80% of your salary and still be able to work (SE)?

@gingganggooleywotsit thank you, that says it all indeed. We can all justify our choices but we make them for a reason. Sometimes we gain, sometimes we lose.

Corp tax
Vat
Self assessment

All on top of dividend tax and NI for payroll.

Many small company directors need to have this set up for contractual purposes and arent mega rich.

Tax efficiency is not tax evasion.

The key thing is that the business pays corporation tax, it isn't a personal tax. You then draw your salary or dividend payment from what is left.

So when you calculate PAYE v dividend, corporation tax shouldn't even factor into the calculation.

"We are even classed as key workers which is why we still have to keep working at the moment putting our lives at risk!!!"

Sorry I just read this... how are you going to be able to claim anything if you can still work as a LTD business? I thought you had to prove your business wasn't affected?