Employed by my own company advice

[Mr D]

Somebody started a petition. Never know, if enough people shout about it, things may change:https://www.change.org/p/uk-parliam...ed_by_id=275e8500-f6ef-11e4-bb68-6b4692b5ae53

Things may change.
We may get hit harder or have more removed.

 

[UKSBD]

Things may change.
We may get hit harder or have more removed.

It may even be retrospective

 

[BerkshireCA]

I don't think that some of the calculations here are accurate. Yes it has been sensible to take small salaries and charge a market rent for premises for instance, rather than take a large salary or a dividend subject to dividend tax. You work through the options and advise accordingly. It's what we do. There's nothing particularly honest or dishonest about playing to the rules.

The fact is that the government is asking directors to furlough employees and go through the whole process of running a company with no trade for as long as it takes for normality to return. If it makes sense to furlough employees then it makes no sense to expect directors to do it all for little or no reward. Directors shouldn't be treated any better or worse than employees or the self-employed during this crisis - whatever tax/NIC they have or haven't paid in the past is irrelevant. If we want companies to survive then leaving Directors in the cold isn't going to help. I thought that it was all about help?

The 'holier than thou' brigade seem to be missing the point. The schemes are flawed in terms of providing help. If a sole trader reached £55k of profits many of those criticising directors here would ask the sole trader if he/she wanted to bring in their partner in life as a partner in business. So the £55k might have become £27.5k each and tax liabilities reduced accordingly. If the sole trader rejected the idea because for example 'she doesn't do anything' then he'd be paying more tax than those who did take the partnership option, but he'd now be totally shafted under the self-employed scheme for Coronavirus.

Food for thought.

 

[Mr D]

I don't think that some of the calculations here are accurate. Yes it has been sensible to take small salaries and charge a market rent for premises for instance, rather than take a large salary or a dividend subject to dividend tax. You work through the options and advise accordingly. It's what we do. There's nothing particularly honest or dishonest about playing to the rules.

The fact is that the government is asking directors to furlough employees and go through the whole process of running a company with no trade for as long as it takes for normality to return. If it makes sense to furlough employees then it makes no sense to expect directors to do it all for little or no reward. Directors shouldn't be treated any better or worse than employees or the self-employed during this crisis - whatever tax/NIC they have or haven't paid in the past is irrelevant. If we want companies to survive then leaving Directors in the cold isn't going to help. I thought that it was all about help?

The 'holier than thou' brigade seem to be missing the point. The schemes are flawed in terms of providing help. If a sole trader reached £55k of profits many of those criticising directors here would ask the sole trader if he/she wanted to bring in their partner in life as a partner in business. So the £55k might have become £27.5k each and tax liabilities reduced accordingly. If the sole trader rejected the idea because for example 'she doesn't do anything' then he'd be paying more tax than those who did take the partnership option, but he'd now be totally shafted under the self-employed scheme for Coronavirus.

Food for thought.

Far as I know we aren't being treated worse than employees or self employed.
Employees treated differently, sure. Not worse.

No one is being holier than thou. We are all tarred with the same brush by the public.

Ever thought that it may simply be the MPs and civil servants coming up with ideas are unaware of how you structure your particular business?

 

[BerkshireCA]

I was referring to the amount that the average director of the average small company might receive under the UK Government's Coronavirus assistance scheme, compared to the assistance given to the average employee of the average small company or the average self-employed person.

As for 'MP's and civil servants', I would have hoped that one or two of them might have understood how small business operates in the UK, if they wanted to provide assistance to small businesses and their employees.

 

[Mr D]

I was referring to the amount that the average director of the average small company might receive under the UK Government's Coronavirus assistance scheme, compared to the assistance given to the average employee of the average small company or the average self-employed person.

As for 'MP's and civil servants', I would have hoped that one or two of them might have understood how small business operates in the UK, if they wanted to provide assistance to small businesses and their employees.

The director and the employee get the same help - 80% of their PAYE wage.
Any dividends the director or employee would normally get aren't covered. Again, treated the same.


Self employed are having to wait until June for their money. With many of them being unable to work in the meantime due to government decision.
Quite how some see this as better than employees get is beyond me. No money for 3 months at all - how many manage?

Yes they likely understood how small businesses operate. Not a portion of those small businesses who quite rightly utilise the ability to set up things to suit own tax affairs.

 

[Splatercash]

The director and the employee get the same help - 80% of their PAYE wage.
Any dividends the director or employee would normally get aren't covered. Again, treated the same.


Self employed are having to wait until June for their money. With many of them being unable to work in the meantime due to government decision.
Quite how some see this as better than employees get is beyond me. No money for 3 months at all - how many manage?

Yes they likely understood how small businesses operate. Not a portion of those small businesses who quite rightly utilise the ability to set up things to suit own tax affairs.

Speaking from my own industry, many of the self-employed guys will qualify for and receive 3 months worth of £2,500 per month and will have the option to knock in stoves and work in the meantime if restrictions are lifted. I, on the other hand, have a choice of £500 odd on Furlough or hope that restrictions are lifted and I can work. The difference is massive. In fact, given we are moving into the quietest 3 months of the year for stove installers I'd probably make more if I was getting £2,500 per month plus some installs than I would in a typical year from just installs alone. Trust me, the self-employed stove installers will be licking their lips*.... I would be.

* Provided they have cash flow to feed themselves until June

 

[Mr D]

Speaking from my own industry, many of the self-employed guys will qualify for and receive 3 months worth of £2,500 per month and will have the option to knock in stoves and work in the meantime if restrictions are lifted. I, on the other hand, have a choice of £500 odd on Furlough or hope that restrictions are lifted and I can work. The difference is massive. In fact, given we are moving into the quietest 3 months of the year for stove installers I'd probably make more if I was getting £2,500 per month plus some installs than I would in a typical year from just installs alone. Trust me, the self-employed stove installers will be licking their lips*.... I would be.

* Provided they have cash flow to feed themselves until June

Would you rather swap places with them?
You would have had considerable savings if getting the same gross income as them by mix of wages and dividend. Were they complaining of the amount extra net you had back then?

You also can get money moving now.
They have to get some work to do or else wait until June for anything from government.
If they don't have any money on hand they have what until they get work?

 

[Splatercash]

Would you rather swap places with them?
You would have had considerable savings if getting the same gross income as them by mix of wages and dividend. Were they complaining of the amount extra net you had back then?

You also can get money moving now.
They have to get some work to do or else wait until June for anything from government.
If they don't have any money on hand they have what until they get work?

Long term no I wouldn't swap with them, but I've only been going 3 years so it would still probably be optimal to have been self-employed if I was playing life in god mode and knew lockdown would happen.

You make a fair argument but you overlook the fact that a sole trader has full control over the choice of how they set up their business and pay themselves. I have no control over how the Governement chooses to set up support for Covid.

 

[Mr D]

Long term no I wouldn't swap with them, but I've only been going 3 years so it would still probably be optimal to have been self-employed if I was playing life in god mode and knew lockdown would happen.

You make a fair argument but you overlook the fact that a sole trader has full control over the choice of how they set up their business and pay themselves. I have no control over how the Governement chooses to set up support for Covid.

True, a sole trader can choose how they pay themselves.
What they don't get to decide is how its taxed.

They pay tax on the profit at whatever personal rate. So can end up paying 40% tax bracket simply from making too much money.

Directors choose first how much to take as PAYE - then how much to leave in the company for later, before deciding how much to take as dividends. With both a small tax free allowance and much lower personal tax rate applied. And companies are taxed at a lower rate than individuals.

As directors we commonly get the better deal. The savings over multiple years can be considerable running a limited business versus being self employed. The big saving being the NI but the tax adding up too.

Oh and no one else had any choice about how government set up support for Covid. You, me, the head of local bakery, the shoe repair man, the bookshop - no one.
The policies they have come up with so far help some businesses, far from all.
A number of us are not helped at all by the help on offer. We don't qualify.

 

[UKD]

Not a raw deal - we choose to have our pay the way it is. And now have to deal with the fact our choice isn't an optimal one any more.

Can hardly complain now that we should have been paying more to government previously.

You forget the fact that we pay corporation tax, where the self employed don't, so when you add it all up, we do not pay that much less at all to self employed businesses.

 

[UKD]

The public may not know the ins and outs of taxation for a company director but what they do know is that for a given salary on Paye an owner director will pay less tax on the same income otherwise why would we do it.

If you are paying 50% of your turnover in tax then there is something seriously wrong with your company

I have been in business as a LTD for over 20 years, turning over countless millions in that time, and a subsequent 7 figure net worth, so nothing 'seriously wrong' with anything.

BUT, we have always been VAT registered, and I consider VAT as a tax - I know the argument against that stance - but if I added VAT to the products/services we supply to the public, instead of absorbing them, we would have been non-competitive; so no, with other costs, etc. it is not far off 50% - depending how you view taxes/VAT.

 

[Ian J]

we have always been VAT registered, and I consider VAT as a tax - I know the argument against that stance - but if I added VAT to the products/services we supply to the public, instead of absorbing them, we would have been non-competitive; so no, with other costs, etc. it is not far off 50% - depending how you view taxes/VAT.

What an odd way of looking at it. Just because you have kept your prices competitive by lowering them you can't count that as a tax

 

[Mr D]

You forget the fact that we pay corporation tax, where the self employed don't, so when you add it all up, we do not pay that much less at all to self employed businesses.

No we don't pay corporation tax.
Our companies do - we pay taxes only based on our personal income.

You may be a one man band where you see the company and you as the same person. Luckily for some they are not - company goes under owing £100k in corporation tax then nothing to do with you - the debt isn't yours.

Plenty of other people have multiple directors. We don't each pay a percentage of corporation tax, the company does.
Or in some instances, doesn't. There are methods of reducing that tax.

 

[Stas Lawicki]

Why are folk so hung up on vat?! COs don't pay it, they collect it.

Why people don't bung all the vat they collect into a separate account and ignore it until somebody has to pay the bill is a mystery.

I just don't get it. Perhaps Ive never paid attention but that's what I do.

 

[Mr D]

I have been in business as a LTD for over 20 years, turning over countless millions in that time, and a subsequent 7 figure net worth, so nothing 'seriously wrong' with anything.

BUT, we have always been VAT registered, and I consider VAT as a tax - I know the argument against that stance - but if I added VAT to the products/services we supply to the public, instead of absorbing them, we would have been non-competitive; so no, with other costs, etc. it is not far off 50% - depending how you view taxes/VAT.

Indeed VAT is a tax.
One that many companies collect on behalf of government.

Just don't pay it. What is paid out is claimed back against the sums collected.

Your choice to increase prices or not. You will presumably over the decades have increased prices anyway as costs have risen?
Could have done that with VAT.

Plenty of other businesses have considerably lower taxes than 50%. With a mere 6 figure turnover my company was paying less than 10% - and that's only if you count the VAT!

 

[Mr D]

Why are folk so hung up on vat?! COs don't pay it, they collect it.

Why people don't bung all the vat they collect into a separate account and ignore it until somebody has to pay the bill is a mystery.

I just don't get it. Perhaps Ive never paid attention but that's what I do.

Its a good method.
Also means the company has some savings for negative events. Had a car go off the road (literally). Money in the bank meant could hire a car for a month until insurance sorted.

 

[UKD]

What an odd way of looking at it. Just because you have kept your prices competitive by lowering them you can't count that as a tax

Well, when you consider those who are under the VAT threshold, or purposely keep under so they don't have to absorb/increase this 'government take', then there is nothing odd about it really; it is called a tax after all.

Business-to-business, fine, business to consumer, where there are competitors who are under the threshold, or as mentioned keep themselves there, it is not a level playing field, so many view it as a tax of some sort.

 

[UKD]

No we don't pay corporation tax.
Our companies do - we pay taxes only based on our personal income.

This is what always surprises me with people who own companies, and who then moan when they have literally not got a pot to p*ss in.

The way I look at it, and always have, is that I have always (and I have owned 7 companies in the last 20+ years) tried to save as much tax, or 'government take' as humanly possible. It has served me well.

Anything saved, is money that would have been going to director funds. Compared to just being 'self-employed' the old feeling was that we get away with lower salary and bumped up with dividends because we pay corporation tax on the same money we bring in, where a SE would not pay that.

I have had companies with almost a million in VAT/Corp-tax-paid shareholder funds, and never once did I take more than allowed under the 20% tax bracket (I have never paid more than 20% tax). I simply exhausted them over the years with minimum tax.

I remember with the financial crash in 2007/2008, my accountant said: "well, you did the right thing, as most lived a champagne lifestyle, whilst you built up the pot".... I paid my mortgage off after three years the same year as the financial crash.

I became financially independent, and mortgage free by 36 years old using the same principles that have been called 'odd' and 'wrong' on this same thread.

The conclusion? You can be as self-righteous as you like when discussing business, but at the end of the day, it does not mean a great deal if you have not gained the benefit.

 

[Gordon - Commercial Finance]

VAT is a tax, just not one that you pay. You collect it.

The most surprising thing about everything here is that you’ve been “in business” for so long and with so many outfits and yet you still have such a skewed understanding of VAT.

 

[adam thompson1981]

The director and the employee get the same help - 80% of their PAYE wage.
Any dividends the director or employee would normally get aren't covered. Again, treated the same.

Self employed are having to wait until June for their money. With many of them being unable to work in the meantime due to government decision.
Quite how some see this as better than employees get is beyond me. No money for 3 months at all - how many manage?

Yes they likely understood how small businesses operate. Not a portion of those small businesses who quite rightly utilise the ability to set up things to suit own tax affairs.

Self employed have got the best deal. They have to wait whilst June, but will get 3 months pay backdated and on top of that are allowed to trade in the mean time.

Employees will get 80% of salary for doing naff all.

Meanwhile directors will get 80% of their PAYE which for most won't be anywhere near what they usually take home. On top of that if a director furlough they can't do any work to keep the business profitable.

So yes directors are getting the raw deal here.

 

[Mr D]

Self employed have got the best deal. They have to wait whilst June, but will get 3 months pay backdated and on top of that are allowed to trade in the mean time.

Employees will get 80% of salary for doing naff all.

Meanwhile directors will get 80% of their PAYE which for most won't be anywhere near what they usually take home. On top of that if a director furlough they can't do any work to keep the business profitable.

So yes directors are getting the raw deal here.

Employees as you say will get 80% of salary for doing naff all.
Directors will get 80% of salary for doing naff all. How are we different? We aren't.

The fact that directors choose to set up their pay such that they pay less to government and keep more money as shareholders - if they so choose - doesn't make a difference. Employees can do the same - employees can be shareholders. Think there are a lot of employees expecting much by way of dividends this year from their shares?

We choose what to do with our income, we now get exactly the same benefit the employees get - and just like employees our income as shareholders is ignored for government help.

You don't have to like it. However you and I are being treated exactly like other employees. Which appears to really annoy you.

Not into equal treatment?

 

[Maxwell83]

There might be a few directors out there who come out on top - £37.5k in salary, and then dividends which took their total income over £50k. As a director they can get the 80% furlough on the salary giving them the max £2,500 per month. If that same person was self employed, they would simply get nothing as they would have earned over £50k.

That might just be the way to structure things going forwards for anyone worried about any future crises'...

 

[UKD]

VAT is a tax, just not one that you pay. You collect it.

The most surprising thing about everything here is that you’ve been “in business” for so long and with so many outfits and yet you still have such a skewed understanding of VAT.

I am really not sure why it is so difficult for you to understand. Take your 'business' head off, and put your profit head on.

Trade A turns over 85K selling the a retail product.

Trader B turns over 80K selling the same retail product.

Trader A gets penalised and forced to go VAT registered.

Trader A either has to add 20% to his prices and become non-competitive (to maintain the same profit margin), or he absorbs the 20% he is now forced to pay (reducing his profit margin), so that trader B does not take all the business/market share.

Nothing 'skewed' about it, it is fact.

 

[Mr D]

I am really not sure why it is so difficult for you to understand. Take your 'business' head off, and put your profit head on.

Trade A turns over 85K selling the a retail product.

Trader B turns over 80K selling the same retail product.

Trader A gets penalised and forced to go VAT registered.

Trader A either has to add 20% to his prices and become non-competitive (to maintain the same profit margin), or he absorbs the 20% he is now forced to pay (reducing his profit margin), so that trader B does not take all the business/market share.

Nothing 'skewed' about it, it is fact.

Trader A can increase his business - Trader B cannot unless he wants to register.

VAT registration isn't that bad.

And no one suggests adding 20% to your pricing. Few will raise prices that much - there isn't a need.

Back when I first registered for VAT I increased prices by 7.5%. And grew the business thereafter - my biggest competition wasn't the tiny sellers who were under the threshold, it was the big businesses with a hundred or a thousand times the buying power.

Someone who stays just above VAT threshold is in the worst place to be. Someone who doubles the turnover above threshold is making what profit, achieving what volume benefits etc compared to the business who turns away work, who shuts down for a month or more at a time etc - just to stay below threshold!

Be pretty easy for the chancellor to drop the threshold down. Say to £20k or so.

 

[UKD]

Get it signed:

https://www.change.org/p/uk-parliam...t-support-like-the-employed-and-self-employed

 

[Mr D]

Get it signed:

https://www.change.org/p/uk-parliam...t-support-like-the-employed-and-self-employed

These usually work for getting changes made?

 

[Stas Lawicki]

https://petition.parliament.uk/peti...PQyOiIAJMpQnnaEXiCjzbkVBXg9_tlYwhaL7HjCTBi3OA

FYI it seems there may be something being considered, or perhaps consideration of considering!

Maybe some on here will want to sign this themselves....

 

[Stas Lawicki]

Fairly definitive from the chancellor - companies that we 'don't have information on' will get nothing.

If you were hoping you may get some support as a Co director and not paye, I would say the glimmer has been all but extinguished.

 

[jimbof]

Fairly definitive from the chancellor - companies that we 'don't have information on' will get nothing.

If you were hoping you may get some support as a Co director and not paye, I would say the glimmer has been all but extinguished.

While I agree there likely isn't going to be anything for directors taking dividends, I'm pretty sure that's not what that comment from chancellor was aimed at. That comment I believe originated with discussion of folk who had become recently self employed (not limited) and didn't have any kind tax return filed yet. They're the ones with the lack of information.

The question of limited companies is about not underwriting company profits for businesses of any size (as of yet).

Nothing really stops limited co directors taking sensible salary levels. I've chosen not to as my income is lumpy and it makes having automated payroll difficult, but that's a decision I'll have to live with if my work dries up. I might look into changing that once this is all done...

 

[Stas Lawicki]

@Mr James Finnie you might be entirely correct - I was listening to the radio whilst the kids were having their dinner and may as well have been a party for 100 people with the amount of noise.... I heard the tail end of director and support and rishi say 5% won't get support due to their lack of info and yearly return. Maybe I misheard that too. The net result is unlikely to change however and that is that a bail out for a group of company dirs paid below ni threshold and with dividends is almost certainly not going to happen.

I am repeating what folk already know of course....