No PAYE Tax credit for Proprietary Directors

M

milly123

Registered User
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162
Hi,

Can anyone tell me what the reasoning behind this is ? I'm curious :confused: Is it another way of penalising entrepreneurs ?
 
No Employers' PRSI
Mobile phone bills paid by the company
Most motor exps paid by the company
 
Normal employees can have these 'perks' too.

As a director, my expenses are very small simply because I do not incur many expenses. It certainly doesn't come close to the extra PAYE tax credits.
'S' class directors also lose out on most social welfare benefits.


The only reason I can think why this is the case, is that those in charge believe that all directors are fabulously wealthy and enjoy a multitude of tax breaks, and dodgy expense claims. Unfortunately, many directors are on less than minimum wage, and this just represents yet another nail in the coffin.

Over the last few years, entrepreneurs weren't needed as the government relied on bubble property taxes and MNC money. Times are changing.


I'd also love to know how I can 'pocket a few bob' when all money coming into the company is fully recorded and open to Revenue inspection.
 
umop3p!sdn said:
I'd also love to know how I can 'pocket a few bob' when all money coming into the company is fully recorded and open to Revenue inspection.
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We wonder the same thing here, you need to move from the payroll business into a nice cash business or trade.

I could see the government doing away with the PAYE allowance. A nice simple clean cut, no need to bring in messy Water charges/Rates/Pole tax with high admin costs etc. They just need to get the P2Cs/Tax Certs out to employers in time for the first payroll run. No mean feat when many companies run their first payroll for the year mid December.
 
DB74 said:
Mobile phone bills paid by the company
Most motor exps paid by the company
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Note that directors are taxable under BIK for private mobile phone use and (at fairly swingeing levels) for private use of company vehicles. Note also that if a director without a company vehicle reclaims private mileage from the company, then they are subject to serious Revenue penalties and also possible ODCE proceedings.
 
I am fully aware of the tax laws thanks

I have never seen a company director charged BIK for use of a mobile phone while it is next to near impossible for a revenue official to disprove business mileage claimed by a director unless the mileage claimed is greater than the odometer on the car involved.

Nonetheless, being charged BIK is a lot less expensive than paying for the expenses from after-tax income
 
I have never seen a company director charged BIK for use of a mobile phone while it is next to near impossible for a revenue official to disprove business mileage claimed by a director unless the mileage claimed is greater than the odometer on the car involved.
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You are describing tax evasion. Evading taxes is open to everyone, including employees. It has nothing to do with director status.

BTW, I pay BIK on my health insurance, and pay all my mileage and phone personally (after tax). We just don't want any 'red flags' on the books.

Nonetheless, being charged BIK is a lot less expensive than paying for the expenses from after-tax income
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I don't understand this comment. How is BIK less expensive and why would someone pay for expenses from net pay?
Employees and directors can both claim expenses, and both can pay BIK.
 
Any individual whose income is subject to PAYE i.e. Wages, Salaries, Occupational Pensions, Social Welfare Pensions, Benefit in Kind, etc. can claim for this. The PAYE Tax Credit cannot exceed the individual's PAYE income at the Standard Rate. Any restriction which may arise, will be calculated on review at the end of the year.
savingpoint(dot)com
 
The point is that BIK or expense rules are the same for employees as they are for directors, and are not a reason why directors should not get PAYE tax credits.
 
paye credit

If you leave a paye job during the year and become a proprietary director do u lose your paye credit for the whole year?
 
OK, firstly I'm not sure how ye all descended into a debate about mobile phones and mileage expenses when the OP's question was about the PAYE tax credit!

But to answer the OP's question, the reasoning behind this rule is that a proprietary director is effectively self employed. Generally they have opted to trade via a limited company, in order to enjoy the benefits of 1) limited liability, and 2) the lower rate of corporation tax, compared to the marginal rate of income tax. They are able to dictate the terms of their relationship with the company, decide when and how much salary (and, yes expenses, perks etc...) they draw from the company. Seems pretty reasonable to me.

And as regards it being another way to penalise entrepreneurs, it actually only serves to level the field between a sole trader and a proprietary director, as a sole trader is not entitled to a PAYE tax credit either (nor do they have the option, in the event that they are fortunate enough to make a decent profit, to choose how much to have taxed as a salary and how much to shelter in the company at a rate of 12.5%).
 
For kevinc : you use as much of your Paye tax credit as can be absorbed by your previous employment. Just you can't use the Paye tax credit against your proprietary director income.
 
mandelbrot said:
But to answer the OP's question ........... to level the field between a sole trader and a proprietary director, as a sole trader is not entitled to a PAYE tax credit either (nor do they have the option, in the event that they are fortunate enough to make a decent profit, to choose how much to have taxed as a salary and how much to shelter in the company at a rate of 12.5%).
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Such undistributed profits are generally subjected to a close company surcharge for starters, and remember passive income no charged to corporation tax at 12.5%.....

Then there is the issue of income tax on distribution when the proprietary director decides to pay it out.....
 
Indeed, every year we try to minimise any profits so we do not incur corporation tax as well as all the other myriad taxes and charges. We end up taking it out as income.
It terrible really, because I'd love to leave some money in the company to give us a bit of breathing space. (Especially so now that the economy has been destroyed.)
 
Panacea said:
Such undistributed profits are generally subjected to a close company surcharge for starters, and remember passive income no charged to corporation tax at 12.5%.....

Then there is the issue of income tax on distribution when the proprietary director decides to pay it out.....
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The applicability of a surcharge depends on the type of trade being carried on, and passive income is still charged at a more favourable rate than if it were earned in the hands of an individual.

And then there are numerous ways of extracting funds to minimise liabilities further down the line (generous pension provisions for directors, retirement relief etc)
 
And then there are numerous ways of extracting funds to minimise liabilities further down the line (generous pension provisions for directors, retirement relief etc)
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Please do elaborate.

Pensions (which are also taxed, if you're lucky enough to have one and the fund hasn't collapsed) and....
 
umop3p!sdn said:
Please do elaborate.

Pensions (which are also taxed, if you're lucky enough to have one and the fund hasn't collapsed) and....
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OK, maybe "numerous" is an exaggeration..!

But yes, the rules for pension contributions for proprietary directors are infinitely preferable to those for a sole trader. The company can get a tax deduction for an amount that can be a multiple of the director's salary. And obviously all pension income is taxed ultimately (whether it was funded by a sole trade or company), so I don't see how that's relevant.

Then there's the provisions relating to company buyback of shares, which coupled with CGT retirement relief, allow for very tax efficient ways to extract from a company, funds which may have accumulated having been taxed at a rate which is only a fraction of the rate that would have applied if the profits were earned in a sole trade. (Retirement relief, while it may also apply to the disposal of the assets of a sole trade, applies to disposal of assets that have been accumulated subject to profits being taxed at the sole trader's marginal rate).

But this is all way off topic - I reiterate the point that a prorietary director is effectively a self employed person, and that is why they quite rightly don't get a PAYE tax credit.
 
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