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pricey73

MadMattUK said:

HartleyHare said:

It really is outdated. The tax advantages of payment by dividends are minimal compared to 20 years ago. 

It really is not, the tax advantages have declined, but they are still fairly hefty, especially at lower levels of income.

HartleyHare said:

For many "micro limited companies" (a relatively new term, I have to admit) and recent startups, payment using a mixture of PAYE salary and dividends is utilised primarily to cope with the peaks and troughs of a variable income stream. 

The term "Micro-entity" largely relates to the type of accounts that they have to submit, micro companies can turnover millions, they only have to meet two of the three requirement which are a turnover of less than £632k, assets of less than £316k or ten or fewer employees. High profit, low asset companies can still be a micro-entity, one of the ways to keep assets low is to distribute the majority of profit via dividend. 
If they wanted to manage a variable income stream it would be far easier to do that using a bonus system, that would have the added benefit of not requiring them to submit a Self Assessment Tax Return.

As an example, below is the profit, for these purposes it is profit, pre-remuneration. I have accounted in the costs for er's NI, ee's NI, IC, CT (where applicable), dividend tax. For dividend I have paid up to the primary, then allocated the rest as dividend. Efficiency is the amount of pre-remuneration profit received after taxation. 

Pre-remuneration profit / PAYE tax paid (efficiency) / Dividend tax paid (efficiency) / Saving from dividend (percentage saving)
£15k / £1,670 (94.98%) / £1,179 (92.13%) / £490 (29.35%)
£25k / £5,905 (76.38%) / £3,636 (85.45%) / £2,268 (38.42%)
£50k / £15,755 (68.49% / £9,905 (80.19%) / £5,580 (37.13%)
£75k / £27,523 (63.3%) / £18,953 (74.75% / £8,596 (31.14%)
£100k / £39,789 (60.21%) / £30,609 (69.39%) / £9,719 (23.07%)
£150k / £68,992 (54.00%) / £56,446 (62.37% / £12,545 (18.18%)
£200k / £95,144 (52.43%) / £79,861 (60.07% / £15,282 (16.06%)

So as you can see at all levels of income the tax saving from dividend is considerable, on an average salary it saves you 37% off of your tax bill, but it especially benefits low and middle earners. It is simply not true that there is little saving to be had from using the dividend route. 

Then add in holiday and benefits from most PAYE salaried jobs and its not far off 
Also the expense of accounts and other bits all add up 
To echo other replies its an outdated view 

[Deleted User]

pricey73 said:

Then add in holiday and benefits from most PAYE salaried jobs and its not far off 
Also the expense of accounts and other bits all add up 

Owner/directors do not get paid holiday on dividend any differently to paid holiday on their PAYE salary so you are conflating two different situations. The "accounts and other bits" do add up a little, but unless the "other bits" includes premises, plant or vehicles they are not big costs. Regardless I have used a post-cost except remuneration figure, as a owner/director the company would incur those costs regardless of if you paid yourself via PAYE or dividend, so your point is irrelevant.

pricey73 said:

To echo other replies its an outdated view 

If you think that recognising that many are choosing a method which results in a nearly 40% saving on their tax bill is "outdated", then you have a very odd understanding of the word outdated. Just because in the past the tax saving for paying via dividend could be as high as 80% does not mean that a nearly 40% saving is not significant when compared to PAYE.

KarenWPod

Thank you for your support Martin. I'm newly self-employed (October 2019) so have been excluded from support for that reason. As a podiatrist I had to stop seeing all but urgent patients under guidance from my professional body. As I don't have businesses premises I've been further excluded from all the grants incl the Discretionary Grant which was suppose to help those excluded from other schemes! With reference to the comments regarding the potential for fraud the current schemes run the same risk - employers furloughing employees and then still expecting them to work has been a widely reported fraud so if you use that logic all support should be withdrawn immediately. That is the only way to prevent any fraud. However it's unethical to punish the many for the (potential) sins of a few. Despite not receiving any support I will continue to pay my taxes as I've done for the last 36 years of my life. However I will never trust this Government on anything.

antonic

HMRC implement the policies set by the Government by via the Treasury.
If you disagree with the policy lobby your MP to try and change the policy, but be aware that it`s most unlikely that any change will be retrospective, but at least you can be satisfied that your lobbying has changed policy for the future !.

pricey73

Most of the people coming here are doing so for support 
Its a horrible situation and something no-one could have predicted
The internet has been full of i told you so's of late unfortunately
Facebook, Twitter and even here has always been a breeding ground for such people 
Their are families that are really struggling ,mentally and financially 
Lets keep this sub forum for them and not the endless debate of right and wrong 

Pollycat

There is a specific board for campaigns here:

https://forums.moneysavingexpert.com/discussion/4832911/campaigns-corner#latest

Can a board guide please move this thread.

Thanks.

ComicGeek

Given that the news stories this morning are about more than a third of furlough payments potentially being fraudulent, with employers getting furloughed employees to still work, I can't see how there will be ANY increase in the current support levels. The Treasury will be spending their time clawing back money, not handing it out.

Put your energy into something constructive, this particular fight is a waste of time. 

pricey73

ComicGeek said:

Given that the news stories this morning are about more than a third of furlough payments potentially being fraudulent, with employers getting furloughed employees to still work, I can't see how there will be ANY increase in the current support levels. The Treasury will be spending their time clawing back money, not handing it out.

Put your energy into something constructive, this particular fight is a waste of time. 

Your right the fraud seems rife 
Also lots were the self employed are claiming the grant when their has been no impact on them 
The reason millions that missed out was due to a fraud risk 
Some irony to be had it seems 

[Deleted User]

jimkelly said:

The problem is these forgotten people need help now, not in the longer term.

Then, when it is obvious that this will not be coming from the government, why continue a pointless expenditure of energy, rather than redirecting it to something productive which might actually help them?

jimkelly said:

You have completely ignored my point that your rationale is illogical.

My position is not illogical, HarleyHare claimed that owner/directors paid virtually the same tax when remunerating themselves via dividend as via PAYE, that was provably false, that is not able to be an illogical position, because it is a fact. 

If you are referring to not supporting the differentiation between investment income and earned income then I do not agree, dividend is investment income, salary, or self-employed income are earned income, the value and yield on investments may fall as well as rise. The data to allow HMRC to differentiate between dividend by owner/directors and investors does not exist, it is not possible to differentiate between many directors who take dividend in lieu of PAYE and investor directors who take a return on their investment, HMRC does not even have the data to tell if someone's dividend is connected with any form of employment, that data is not collected or stored.

jimkelly said:

Why support any self employed person when they have, up to now, been paying less tax and NI than someone in an employed capacity?

Being self-employed vs employed is not a direct choice, using dividend as a method to reduce tax paid is. I support earned income being supported, not investment income. So I agree that there should be measures to help the newly self-employed, I fully agree that once the initial batch had been completed there should have been allowance for the 19/20 tax year submission, but with increased fraud auditing. I do not support a blanket handing out of taxpayer cash, because it will have to be repaid.

jimkelly said:

I know the Chancellor has said he is going to address this "anomaly" in the tax system, but on the basis of your "pay lower tax/NI = no support" theory, then why have self employed people been helped?  They also made a conscious decision to do something which reduced their tax/NI.

It is not "pay lower tax/NI = no support", it is earned income vs investment income (at least that is the point I have presented, I agree that the newly self-employed should be helped). I believe that the government have made the decision in relation to investment come because they will normalise the tax/NI paid for employed vs self employed and will use the SEISS and CRJS handouts to justify this, I also believe that they will use not making handouts for investment income so that they do not have to raise the taxes on dividend. 

jimkelly said:

Also the wording of "proper job" is a well known off-the-cuff comment that self employed people use to refer to those in "normal" employment.  You already knew that though and are just being pedantic.

I was not being pedantic, I disagree with the term "proper job" in relation to owner/directors or the self-employed, it is a condescending term often used to attempt to dismiss the work we do, despite in some cases running businesses turning over millions per year. 

jimkelly

MadMattUK said:

jimkelly said:

The problem is these forgotten people need help now, not in the longer term.

Then, when it is obvious that this will not be coming from the government, why continue a pointless expenditure of energy, rather than redirecting it to something productive which might actually help them?

It's a good job Marcus Rashford didn't take that advice re school meals then, isn't it?  What about those returning from maternity leave re furlough?  Or army reservists?  Should all of them have stopped campaigning when it was obvious the government wouldn't u turn?

The report from the Treasury select committee said that "The Government must find a practical solution to supporting hundreds of thousands of limited company directors who are missing out on support because they pay themselves in dividends. IPSE has presented the Treasury with a ready-made solution whereby HMRC would request additional information about the proportion of dividends that have come from company profits and from other sources and require self-certification by the applicant. HMRC would reserve the right to investigate claims and, if it was later found that applicants had inflated their figures, HMRC would reclaim the support with penalties. While we recognise that this approach may require significant resources, we urge the Government to accept and implement this proposal. While it will have immediate cost implications, it could mitigate future economic scarring and safeguard future tax revenues."

That is from a cross party group of MP's and their conclusions were unanimous.

We can argue over earned income versus investment income, and the rights and wrongs of it, until we're blue in the face.  The fact of the matter is a large number of people require immediate help.  You might not, but your peers do.