Director of my own company - do I qualify for the 80 per cent salary?

[cucumber66]

I’m a director of my own limited company and ordinarily earn about 28k per annum. However, since the virus hit business has dried up and I’m facing serious financial difficulties.

From what I gather, I’m also classed as an employee of my company and am paid my monthly salary through the payroll. There are no other directors or employees - it’s just me.

I can’t get hold of my accountant tonight to check whether I’m eligible for the 80% government grant and am feeling anxious as to whether I can claim this. It could be the difference between my business surviving or going under. Does anyone know?

People who tax avoid are vile.

You're sickening. I earn around £28k a year and have worked six/seven day weeks for years to keep everything afloat. I'm hardly some company fat cat. You've reduced me to tears thanks to your disgustingly insensitive posts so thanks for that.

People who tax avoid are vile.
And people who go out of their way to troll threads and insult people in desperate times are not?

All these "directors" who have been ripping the country off by paying sod all tax and then taking dividends for salary - suck it up, bet you don't feel it was such a good idea now! Also suck up paying proper NI in the future too

You do realise limited companies cannot pay “sod all tax” unless they make no profits? Corporation tax applies to all profits. Anything you take out as dividends (above £2k per year) is then taxed further.

The only companies getting away with paying almost no tax are giant corporations, not small businesses with one or two directors.

@deathgrip - yep I'm sure PAYE workers would like to pay 7.5% tax on their salary like directors do on dividends over £2000 (32.5% vs 40% higher rate).

Would they? They’d like to pay 20% on that money and then an additional 7.5%?

Only if they’re in higher tax brackets would that represent a saving. Huge numbers of us are nowhere close to that.

But as the company has already paid 19% tax out of the profits, the effective tax rate is nearly the same
with far less security ....

Interesting that you’ve gone straight to higher rate when the number of higher rate tax payers is so low, and it only applies to earnings over £50k.

Why are you being so disingenuous, I wonder?

I'm going to log off for a while. I'm shaking and in tears thanks to @cohle and @Rosehip10 and it's not good for my physical or mental state continuing to look at this thread, especially as I'm pregnant. I can't believe there are people who get a kick on stamping on people like me - an average earner in serious danger of losing their home. It's sickening.

@cucumber66 xxx please don’t feel despondent. These people are ignorant with no idea how these things work. They’ve been too busy swallowing the jobsworth comments on the Daily Mail I expect. I hope things work out. We’re in the same boat and it’s very scary, you’re not alone

People should be aware that choosing to structure their businesses in certain ways has consequences. Many people seemed delighted to accept the benefits, but are aghast at having to face up to the downsides.

I do actually agree with @Cohle. Why were the original decisions made to structure the company in that way? An owner/director could choose to take a larger salary and a minimal dividend, but they didn't and the only reason must have been that there were tax benefits to doing it the other way around.

There are two fundamental ways to work: be an employee or be self employed/run your own business. Each has huge upsides and huge downsides, but you have to accept that those apply equally to good times and bad.

In my own case I fall outside the definition of the scheme as I freelance alongside a paid job. I probably won't get any freelance work for the next six months, but I have to accept that the scheme is not meant for me. My employed role is looking very rocky too...

the only reason must have been that there were tax benefits to doing it the other way around.

That is absolutely not the only reason. Where income and annual profits are highly variable, it’s much safer to pay a minimal salary, and then take out what you can in dividends at the end of the year. This also means you don’t have to pay an accountant throughout the year to figure out what you have and haven’t got, or to amend payroll on a monthly basis.

I'm sorry you feel like that but I'm not surprised. This whole coronavirus has really showed how many people on this website are absolute arseholes. It's really shocked me.

I think I'm going to leave MN - it's full of spite and bile, with people taking pleasure in other people's misery. Really unpleasant.

OP I'm sorry you're upset. Waiting to receive advice from you accountant in due course rather than strangers on the internet sounds like a sensible plan.

This is an emotive issue though. I think it's perfectly reasonable for the government to have qualms about bailing out those who have deliberately structured their business to pay less tax.

That is absolutely not the only reason. Where income and annual profits are highly variable, it’s much safer to pay a minimal salary, and then take out what you can in dividends at the end of the year. This also means you don’t have to pay an accountant throughout the year to figure out what you have and haven’t got, or to amend payroll on a monthly basis.

I do see that, particularly when a business is getting started, but if it is highly variable then surely a company director will have had the benefit of previous years in which the variation was in their favour and therefore a higher dividend was paid?

The point is that the structure of minimal salary + higher dividend isn't something that company directors only use when they are getting the business established or to get through a rocky patch - this is an ongoing practice that many company owner/directors have used for years for the specific purpose of minimising tax liability.

There really is an awful lot of ignorance about tax out there.

Income tax on dividends is paid on top of 20% corporation tax.

And the 20% corporation tax is on everything. No nil rate band at that stage.

Agree with Hasa. An awful lot of ignorance about taxation. Fortunately I pay myself 3/4s salary and 1/3 dividend so the PAYE element is not as bad. Will also have zero work until Christmas at earliest if then so will definitely apply to be furloughed and will go from there.

Most posters understand the tax system perfectly well. They just disagree with you.

Most posters understand the tax system perfectly well. They just disagree with you.

That's fine you can disagree with me all you like. I couldn't care less since I know I'm right and you are wrong. Corporation tax at 20% is paid prior to income tax being applied.

An awful lot of ignorance about taxation

Why assume people don't understand, when in fact most of us do understand perfectly well, just don't agree?

I couldn't care less since I know I'm right and you are wrong. Corporation tax at 20% is paid prior to income tax being applied.

But absolutely no one has said otherwise

All people have said, correctly, is that most of the posters on the thread complaining about how hard done by they are have deliberately structured their finances to minimise their tax liabilities.

Which is fine, that's perfectly legal. But different corporate structures have their pros and cons, and many here seem very unwilling to accept those cons now they've come around.

Why assume people don't understand, when in fact most of us do understand perfectly well, just don't agree?

Don't agree with what?

I'm lost but hey ho - I'm not here to argue. I've already said that I don't think most directors taking a tax efficient PAYE salary will find furlough a useful thing to do. We need to keep our businesses viable and running.