Why are self employed directors not eligible for financial support? Please explain

mobilejo

Jeremy535897 said:

LilElvis said:

fenwick458 said:

well for a one person LTD company the Employer NIC doesn't matter because you get £3000 allowance per year,
and OK employees NIC is 12%, bringing the total paid with the salary method to £4000, so the difference could be £687.50

Of course Employers NIC matters - you have £X in the bank to pay out and this would be part of the cost if the money was distributed via PAYE rather than as a dividend.

Not if your total employer's NIC is below £3,000 for 2019/20. See
https://www.crunch.co.uk/knowledge/employment/employment-allowance-explained/

Except he wouldn't be eligible to claim the allowance being a one man company.

zagfles said:
Well it makes much more sense than saying to the government "please now treat that the income I pretended was unearned in order to avoid paying National Insurance as earned income so I can have my cake and eat it".

Dividends are unearned income, and are not, and should not be covered by this scheme. Even if the dividends are from a company you work for. If someone has saved several thousand in NI over the years through this type of creative accounting then they should use the money they saved to bail themselves out. Instead of effectively trying to claiming on an insurance they didn't pay the premiums for.

Unearned income? Interesting interpretation. So the company has £x in the company bank account - If I tick box A on my tax return (salary), then I earned it with blood, sweat and tears. But if I tick box B (dividends) then all of a sudden that same money just fell on me from the sky and I didn't earn it? 

To call it creative accounting is giving it too much credit - its the least creative and basic accounting advice there is. No one is pretending its a secret or dodgy way of doing things, certainly not HMRC who are well aware of how directors remunerate themselves.

Jeremy535897

Thanks for pointing that out mobilejo. I should have gone back to the OP that makes it clear he's a "one man band".
You other points are well made. In a one man band, all the profits are likely to be from the blood, sweat and tears of the owner director. How you extract them does not alter that fact (the point I was making in the EasyJet example). Creative accounting is all about presenting figures in a misleading light. Choosing to take dividends over salary has nothing to do with creative accounting.

sanch3z_77

very interesting perspectives... Easyjet situation is interesting, cash rich, put all staff on two months furlough, government pays £2500, then when things spin back up they get their full pay. So as to make is easier for them Easyjet are going to give them 50% pay + furlough for two months, then 50% pay for another two months. With that bump and the income tax saving over the year they aren't going to be that worse off and that's pilots earning £12k per month!

So for my company I've had a sports contract cancelled at the start of the year due to the stuff coming out of China and my wife (also a director) who deals with international corporate relocations has had her work stopped for the foreseeable future. We are still getting the occasional email through which we clearly have to action and respond to if there is any hope of retaining clients and salvaging the business. As a couple we earn combined £45k from salaries and dividends... I personally don't feel £2500 per person is necessary but we can't even claim furlough as we have to do the minimal work that comes in. If we could it would be a combined contribution of £1000 per month, whilst clearly not enough it would make a big difference. I don't think that is unfair... 

Jeremy535897

Would it be possible for one of you to be furloughed, with the other doing all the work? Or are your salaries too low (or no payroll at all) to make it worthwhile?

sanch3z_77

i'm not sure how the government can differentiate between company directors earning part of their salary via dividends and shareholders getting dividends but there must be a way? The government haven't thought this through and are hoping ltd company directors take it on the chin and keep quiet... Personally i'm probably going to have to find £9-£12k to see us through, whereas sole-traders, paye and companies get decent assistance.

Where and what can people like me do in a situation like this to get together and pressure the government?

silvercar

sanch3z_77 said:

very interesting perspectives... Easyjet situation is interesting, cash rich, put all staff on two months furlough, government pays £2500, then when things spin back up they get their full pay. So as to make is easier for them Easyjet are going to give them 50% pay + furlough for two months, then 50% pay for another two months. With that bump and the income tax saving over the year they aren't going to be that worse off and that's pilots earning £12k per month!

So for my company I've had a sports contract cancelled at the start of the year due to the stuff coming out of China and my wife (also a director) who deals with international corporate relocations has had her work stopped for the foreseeable future. We are still getting the occasional email through which we clearly have to action and respond to if there is any hope of retaining clients and salvaging the business. As a couple we earn combined £45k from salaries and dividends... I personally don't feel £2500 per person is necessary but we can't even claim furlough as we have to do the minimal work that comes in. If we could it would be a combined contribution of £1000 per month, whilst clearly not enough it would make a big difference. I don't think that is unfair... 

My understanding was that furloughing comes in bands of 3 weeks. So could you do no work for 3 weeks, work for a week, then rinse and repeat?

zagfles

mobilejo said:

Jeremy535897 said:

LilElvis said:

fenwick458 said:

well for a one person LTD company the Employer NIC doesn't matter because you get £3000 allowance per year,
and OK employees NIC is 12%, bringing the total paid with the salary method to £4000, so the difference could be £687.50

Of course Employers NIC matters - you have £X in the bank to pay out and this would be part of the cost if the money was distributed via PAYE rather than as a dividend.

Not if your total employer's NIC is below £3,000 for 2019/20. See
https://www.crunch.co.uk/knowledge/employment/employment-allowance-explained/

Except he wouldn't be eligible to claim the allowance being a one man company.

zagfles said:
Well it makes much more sense than saying to the government "please now treat that the income I pretended was unearned in order to avoid paying National Insurance as earned income so I can have my cake and eat it".

Dividends are unearned income, and are not, and should not be covered by this scheme. Even if the dividends are from a company you work for. If someone has saved several thousand in NI over the years through this type of creative accounting then they should use the money they saved to bail themselves out. Instead of effectively trying to claiming on an insurance they didn't pay the premiums for.

Unearned income? Interesting interpretation. So the company has £x in the company bank account - If I tick box A on my tax return (salary), then I earned it with blood, sweat and tears. But if I tick box B (dividends) then all of a sudden that same money just fell on me from the sky and I didn't earn it? 

To call it creative accounting is giving it too much credit - its the least creative and basic accounting advice there is. No one is pretending its a secret or dodgy way of doing things, certainly not HMRC who are well aware of how directors remunerate themselves.

Exactly. If you want earnings, then pay national insurance on your earnings like everyone else. If you want dividends from a company you own, then if that company is unable to pay those dividends for whatever reason, you're no different to someone who owns shares in a publicly listed company which is unable to pay dividends. I don't see the govt bailing out shareholders.

The hypocrisy of those who've benefitted for years by pretending earned income is unearned and now suddenly want to claim their dividends are in fact wages even though they paid no NI on them is unbelievable.

Castle

fenwick458 said:

LilElvis said:

Yes you have benefited by this arrangement - to the tune of several thousand pounds per year. For decades it has worked entirely in the favour of sole directors - this is the "once in a lifetime" event where it doesn't. 

I'm not sure theres as a big of a difference as everyone thinks, there used to be, but a dividend tax was brought in about 4-5 years ago.  If I'm reading the OP correctly they say "small salary & dividends equaling 25k", in no way will that save several thousands of pounds per year.
comparing the 2 side by side, (numbers might not be spot on to make the maths easier...)
both get £12500 tax free, so that leaves £12500
salary way: 20% income tax plus 11% NI £3875 to pay
dividends way: 19% corporation tax and 7.5% dividend tax £3312.50
so thats a difference of £562.50... 

You missed out Employer's NIC at 13.8% on the £12,500 which comes to £1,725.

sanch3z_77

Jeremy535897 said:

Would it be possible for one of you to be furloughed, with the other doing all the work? Or are your salaries too low (or no payroll at all) to make it worthwhile?

tricky as the emails from clients very are sporadic. The small amount of hours are chargeable but the government is almost forcing me to turn clients away and close my business which I clearly don't want to do and they need all the help they can get right now.

Problem is I can't do my wife's job and she can't do mine otherwise we could combine roles and contacts.

sanch3z_77

silvercar said:

sanch3z_77 said:

very interesting perspectives... Easyjet situation is interesting, cash rich, put all staff on two months furlough, government pays £2500, then when things spin back up they get their full pay. So as to make is easier for them Easyjet are going to give them 50% pay + furlough for two months, then 50% pay for another two months. With that bump and the income tax saving over the year they aren't going to be that worse off and that's pilots earning £12k per month!

So for my company I've had a sports contract cancelled at the start of the year due to the stuff coming out of China and my wife (also a director) who deals with international corporate relocations has had her work stopped for the foreseeable future. We are still getting the occasional email through which we clearly have to action and respond to if there is any hope of retaining clients and salvaging the business. As a couple we earn combined £45k from salaries and dividends... I personally don't feel £2500 per person is necessary but we can't even claim furlough as we have to do the minimal work that comes in. If we could it would be a combined contribution of £1000 per month, whilst clearly not enough it would make a big difference. I don't think that is unfair... 

My understanding was that furloughing comes in bands of 3 weeks. So could you do no work for 3 weeks, work for a week, then rinse and repeat?

we've been in this situation now for the last couple of months, before the UK decided to close down. I could go out and freelance at companies but i'm not meant to travel and lots of places have scaled back. I can see this impacting six months of our trading... might be no coming back from it. If it's done in three blocks can I claim back from the beginning of March? We're really only getting 3-4 days of work each a month, problem is it's spread a few hours here and there. Such a difficult situation