Share this content

Will Directors NI be addressed in the next Budget

None/little paid

Didn't find your answer?

With extra NI being the hot topic of the day, does anybody think Directors (lack of) NI for small companies will be addressed?

Appreciate dividend tax on drawings (sorry, elected dividends :-)   ) is paid but that's still lower than an employee paying NI when they're not into the higher rate band.

Replies (43)

Please login or register to join the discussion.

avatar
By David Ex
07th Sep 2021 10:49

I’d say zero chance.

The fact that there is such a huge difference in tax between someone operating as self employed and doing exactly the same activity via a company is beyond ridiculous.

Did it become a thing when Gordon Brown introduced a 0% band for small companies?

Thanks (1)
Replying to David Ex:
avatar
By AdamMurphy
07th Sep 2021 10:57

I think it did. I seem to remember mass incorporations around that time!

Thanks (1)
Replying to David Ex:
avatar
By pauld
07th Sep 2021 11:16

Hardly huge when you factor in tax on dividends.

Thanks (0)
Replying to pauld:
avatar
By David Ex
07th Sep 2021 11:56

pauld wrote:

Hardly huge when you factor in tax on dividends.

The amounts obviously depend on the precise facts but the original question concerned NI which can be easily avoided operating via a company.

Thanks (1)
Replying to David Ex:
avatar
By pauld
07th Sep 2021 12:48

NI/ tax on dividends - it all ends up in the one pot so what's the difference?

Thanks (1)
Replying to pauld:
avatar
By Bobbo
07th Sep 2021 13:16

The difference is that NI has been increased supposedly to help fund health and social care.

Must mean that those on the 'low salary, high dividends' remuneration strategy won't ever need such care?

Thanks (0)
Replying to Bobbo:
RLI
By lionofludesch
07th Sep 2021 13:22

Bobbo wrote:

The difference is that NI has been increased supposedly to help fund health and social care.

Must mean that those on the 'low salary, high dividends' remuneration strategy won't ever need such care?

Surely you can see through the Government spin? It's just sugar to sweeten the medicine.

Thanks (0)
Replying to Bobbo:
avatar
By Mr_awol
07th Sep 2021 18:40

They’ll pay the same additional ‘social care’ tax on their dividends as employees will pay on their NI.

In fact with CT rates rising some businesses will be reviewing their position anyway and salaries might make a comeback in some cases

Thanks (0)
Replying to pauld:
avatar
By AndyC555
07th Sep 2021 12:01

And the costs of running the company.

Thanks (0)
RLI
By lionofludesch
07th Sep 2021 11:01

Bring back some close company rules. Increase tax and NI for director shareholders but not for genuine investors.

Thanks (1)
Replying to lionofludesch:
paddle steamer
By DJKL
07th Sep 2021 11:09

Slippery slope.

I could see NI on rental income as a possibility, nobody apparently likes landlords so sticking it to them likely garners votes.

Thanks (0)
Replying to lionofludesch:
avatar
By pauld
07th Sep 2021 13:21

Is your middle name Boris? You want to increase tax and ni for someone who had the get up and go to start their own business and has probably struggled through the virus with no help and you want investors who have money to burn to get off tax free?

Thanks (0)
Replying to pauld:
RLI
By lionofludesch
07th Sep 2021 13:38

pauld wrote:

Is your middle name Boris? You want to increase tax and ni for someone who had the get up and go to start their own business and has probably struggled through the virus with no help and you want investors who have money to burn to get off tax free?

Director shareholders have had a great tax deal for the last 20 years. Time to bring them back into line with the self employed. Dividend tax was a step along the way but we're not there yet.

Thanks (3)
avatar
By paul.benny
07th Sep 2021 11:05

AdamMurphy wrote:

With extra NI being the hot topic of the day, does anybody think Directors (lack of) NI for small companies will be addressed?

I don't think anyone here has an inside line to the Treasury. So whilst we might have our opinions about both likelihood and desirability of such a change, it's just speculation.

Thanks (0)
avatar
By Paul Crowley
07th Sep 2021 11:05

Forget NI increases, Only workers pay. (directors of course not being workers)
just put up the tax rates 1% across the board
That way every taxpayer pays, not just workers.

Thanks (2)
Replying to Paul Crowley:
By ireallyshouldknowthisbut
07th Sep 2021 11:47

Quite. Income tax is a much broader base, not to mention 55% rather than 45% at the top end wouldn't half help a bit.

But remember rich party donors pay mainly income taxes and CGT, so don't expect to see much action in that department.

Thanks (1)
Replying to ireallyshouldknowthisbut:
paddle steamer
By DJKL
07th Sep 2021 12:05

Remember your Laffer Curve so not sure that 55% rather than 45% increases the take.

Thanks (0)
Replying to paul.benny:
avatar
By AdamMurphy
07th Sep 2021 18:16

Why is why I asked does anybody THINK not does anybody KNOW

Thanks (0)
avatar
By petercooperuk
07th Sep 2021 11:53

I just ran some numbers through one of the "dividend vs salary" calculators out there and for a £120k drawings, it comes out at about 33% total taken in taxes going the dividend route versus 42% with all salary. So there is absolutely a difference there.

But once corporation tax goes up to 25% for all but the least profitable of companies, the situation changes a bit and brings it to about 38% vs 42%. If you then added typical rates of employer and employee NICs on top, directors/shareholders would be paying more than if they just took the money out as a salary.. not something you'd want to see since small profitable companies would be withdrawing money as salary ASAP without leaving a reasonable buffer behind for future cashflow situations.

This is all fun thought experiments since I can't see any of it coming to pass, but.. how, too, would "excessive salary" situations work in some companies if PAYE became cheaper than paying dividends? If a small company with some success paid out salaries of £500k one year to a director and £500k to the director's barely working spouse, say, would HMRC get upset that they didn't declare dividends instead and collect more tax?

Thanks (0)
Replying to petercooperuk:
paddle steamer
By DJKL
07th Sep 2021 12:07

They would most likely challenge the W & E re the salaries.

Thanks (0)
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
07th Sep 2021 13:07

Even as I type, the PM is unveiling his health and social care plan to MPs after getting the Cabinet to submit, sorry agree, to his proposals.

Basic facts so far reflect the pre-announcement leaks: a 1.25% increase in NICs from April 2022 to raise an extra £10bn to fund the health and social care system.

Responding to a snarky question from Labour shadow chancellor Rachel Reeves about imposing a tax on jobs, Rishi Sunak said no NICs were payable by those employing people under the age of 21, nor apprentices up to the age of 25, “nor on people who are going to be employed in new freeports”.

Adam's question about detailed implementation and closing potential loopholes is fascinating. However, from something apparently cooked up while Johnson, Sunak and Javid were on holiday, I suspect we're on track for another unnecessary tax complication.

Whatever happened to the growing consensus to merge income tax and NICs? Or, could we be seeing a U-turn from the same Chancellor who announced at the beginning of the pandemic programme, “It is now much harder to justify the inconsistent contributions between people of different employment statuses. If we all want to benefit equally from state support, we must all pay in equally in future.”
https://www.accountingweb.co.uk/tax/hmrc-policy/help-announced-for-coron...

Richard Hattersley is hammering out a report on the planned increased now. Do comment below if there are any points you would like him to highlight.

Thanks (0)
Replying to John Stokdyk:
RLI
By lionofludesch
07th Sep 2021 13:17

John Stokdyk wrote:

Even as I type, the PM is unveiling his health and social care plan to MPs after getting the Cabinet to submit, sorry agree, to his proposals.

Basic facts so far reflect the pre-announcement leaks: a 1.25% increase in NICs from April 2022 to raise an extra £10bn to fund the health and social care system.

Responding to a snarky question from Labour shadow chancellor Rachel Reeves about imposing a tax on jobs, Rishi Sunak said no NICs were payable by those employing people under the age of 21, nor apprentices up to the age of 25, “nor on people who are going to be employed in new freeports”.

Adam's question about detailed implementation and closing potential loopholes is fascinating. However, from something apparently cooked up while Johnson, Sunak and Javid were on holiday, I suspect we're on track for another unnecessary tax complication.

Whatever happened to the growing consensus to merge income tax and NICs? Or, could we be seeing a U-turn from the same Chancellor who announced at the beginning of the pandemic programme, “It is now much harder to justify the inconsistent contributions between people of different employment statuses. If we all want to benefit equally from state support, we must all pay in equally in future.”
https://www.accountingweb.co.uk/tax/hmrc-policy/help-announced-for-coron...

Richard Hattersley is hammering out a report on the planned increased now. Do comment below if there are any points you would like him to highlight.

And is this 1.25% increase in primary or secondary contributions ? Is there a corresponding increase in Class 4?

Thanks (0)
Replying to lionofludesch:
avatar
By OldParkAcct
07th Sep 2021 13:32

I assume it is going to be a new class of NI, as there is going to be no age restriction on the charge. ie no exemption for working pensioners.

Thanks (0)
Replying to OldParkAcct:
RLI
By lionofludesch
07th Sep 2021 14:11

OldParkAcct wrote:

I assume it is going to be a new class of NI, as there is going to be no age restriction on the charge. ie no exemption for working pensioners.

Why would there be a need for a new class if all workers are in it anyway ?

Thanks (0)
Replying to lionofludesch:
avatar
By DKB-Sheffield
07th Sep 2021 14:33

Agreed.

The easiest option - simply increase every class by 1.25. Letter A becomes 13.25%, Letter C becomes 1.25% etc...

It sounds like this will only be for 12 months (2022/ 23) as the new "levy" will introduced in April 2023 - I can only assume this will be a "new tax".

Clearly, the above is a simplistic approach and there is no question that HMRC will favour a much more confusing, less workable, solution!!!

Thanks (0)
Replying to lionofludesch:
avatar
By Justin Bryant
07th Sep 2021 14:59
Thanks (1)
Replying to Justin Bryant:
RLI
By lionofludesch
07th Sep 2021 15:06

Justin Bryant wrote:

Yes re Class 4. See sections 62 & 80 here: https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

Thanks, Justin. Makes much more sense tham the scattergun posts on this thread.

Thanks (0)
Replying to Justin Bryant:
avatar
By DKB-Sheffield
07th Sep 2021 15:25

Thanks Justin!

That's one of the clearest HMG policy documents I've seen in years. Even better that we've not had to wait days for it!

Thanks (0)
Replying to lionofludesch:
avatar
By Paul Crowley
07th Sep 2021 15:16

both is what I read
And it is not an increase it is a whole new tax

Thanks (0)
Replying to John Stokdyk:
avatar
By AdamMurphy
07th Sep 2021 13:27

It was Sunak’s earlier comment that made me pose this question today. Yet it seems he is doing nothing about it.

Thanks (1)
avatar
By bluebaron
07th Sep 2021 13:34

Dividend tax is going up by 1.25%. I didn't see that one coming..!

Thanks (0)
Replying to bluebaron:
avatar
By DKB-Sheffield
07th Sep 2021 14:00

I expected this as the dividend tax reforms were introduced to close the gap on underpaid NICs.

However, the 1.25% increase in Dividend Tax is currently marginally lower than the combined Eer/ Eee 2.5% increase in Class 1 NIC. Whilst the value gap will reduce from 2023 (CT increase), I don't believe this fits with HMG's plan to further align taxes on earnings.

That said, I am not surprised at all. We were all warned that reforms were coming in March 2020. I'm actually surprised Rishi Sunak hasn't gone deeper - but then, we'll await the Autumn Budget!!!

Incidentally, I'm not saying I agree with the changes (I've not had chance to form an opinion yet). I'm just saying I'm not surprised - or that we haven't had plenty of hints.

Thanks (0)
paddle steamer
By DJKL
07th Sep 2021 14:23

The thing that always surprises me is why politicians keep trying to square the employed/self employed/company differentials with the blunt instruments of income tax rates and NI rates.

The obvious thing to do is to create a new legal beast for say professional providers of services who might previously been more considered employed and then write a tax code for that group which reflects risks/rewards that they take on/enjoy.

Germany has special status professional contractors with their own tax regime, a lot of these issues could readily be resolved by effectively creating a tax entity specially for the way people may operate within the 21st century workplace with tax changes then solely targeted at the particular group rather than catching other unintended victims as collateral damage.

Thanks (0)
RLI
By lionofludesch
07th Sep 2021 14:27

I got out at the right time.

Thanks (0)
Replying to lionofludesch:
paddle steamer
By DJKL
07th Sep 2021 14:38

Catch is even retired you may need to keep up to speed just to plan your own retirement.

Personally I intend to try to ISA everything I can and just have the remaining pensions as my unsheltered income streams, however there will certainly be about 9 years where I will need to keep on top of everything as I endeavor to loot my SIPP whilst trying to stay within my basic rate band. (which is lower than yours because Nicky does not like people keeping hold of what they earn)

Thanks (0)
Replying to DJKL:
RLI
By lionofludesch
08th Sep 2021 07:15

Yes, but you have a lovely 19% starting rate.

Higher rate tax isn't likely to bother me or Mrs Lion in the future. Our needs are modest.

Thanks (0)
Replying to lionofludesch:
paddle steamer
By DJKL
08th Sep 2021 09:58

The band is pretty small, barely worth having in fact, think it is worth about £21 per year, can't even get three fish suppers for that at my local chippie.

They also more than make up for it with the wider width of the 21% band and the reduced higher rate threshold and 1% extra higher rate.

Personal Allowance Up to £12,570 0%
Starter rate £12,571 to £14,667 19%
Basic rate £14,668 to £25,296 20%
Intermediate rate £25,297 to £43,662 21%
Higher rate £43,663 to £150,000 41%
Top rate over £150,000 46%

Thanks (0)
Replying to DJKL:
RLI
By lionofludesch
08th Sep 2021 12:52

DJKL wrote:

The band is pretty small, barely worth having in fact, think it is worth about £21 per year, can't even get three fish suppers for that at my local chippie.

£21 is £21.

https://www.bbc.co.uk/news/av/uk-58478076

Thanks (0)
Melchett
By thestudyman
08th Sep 2021 09:37

Why are politicians not looking at actual vote winners:

Closing loopholes which encourage tax evasion

Potentially another tier of CGT on residential property for additional rate payers (i.e. more than 28%)

Thanks (1)
Replying to thestudyman:
RLI
By lionofludesch
08th Sep 2021 09:53

thestudyman wrote:

Why are politicians not looking at actual vote winners:

Closing loopholes which encourage tax evasion

If it's evasion, it's not a loophole.

But if you mean avoidance, it's probably because ministers are using the loopholes themselves.

Thanks (0)
Replying to thestudyman:
paddle steamer
By DJKL
08th Sep 2021 10:05

Close one loophole another opens, the tax legislation gets even more vast , it is likely a waste of time.

When you are building something mistakes happen, a joint is weak, whatever, you can add bracing, repair plates, etc but eventually it is simpler to go back to the drawing board and plan a brand new creation rather than repair the one that has evolved as one repair patched over another repair.

Extra rates all over the shop is not the answer, it is crude, in fact it is basic lazy thinking, if politicians want to govern us (as they seem to) maybe applying a bit more original thought to issues like tax, redesigning the whole structure to fit the 21st century, might be a good start

Thanks (1)
By SteveHa
10th Sep 2021 10:19

I think, as the outcry against a very clear manifesto promise gets louder, the whole issue of NI will be taken off the table again, and Boris and Rishi will find another way to have the poorest fund the lifestyles of their rich buddies.

Thanks (0)
avatar
By ArianBloodwood
10th Sep 2021 15:12

I get really annoyed with this "the self employed pay less NI" thing. Nearly all my clients are micro sole operators i.e. T/O < £100k. At this scale there is simply no comparison at all between PAYE wages and S-E drawings. PAYE ppl have access to holiday pay, sick pay, employer liability insurance cover, as well as a tranche of other employer obligations and legal liabilities. S-E ppl are just individuals. To get any stability at all they need to be constantly marketing themselves, paying for income insurance and often PI insurance, etc. And even then Self Employment is commonly more precarious than PAYE employment.

On top of that all an employee has to do it turn up and do the job and then go home. A S-E person not only has to do the job. They have to in addition be au fait about a huge range of other skills around admin, tax, marketing, sector regulation etc. Usually all this stuff is done after they go home.

You can argue that all the costs involved are deductible. But that only reduces their tax bill (and NI ). It doesn't reduce the actual amount of money they need to generate before they can buy food and pay the rent.

It's true that SEISS was quite generous for ppl actually drawing a living wage i.e. £20k or more. But that was really very much a one-off for a sector which is chronically under-serviced by govt.

Thanks (0)
Share this content