Company Director better than Proprietary Director ?

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tony79

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From my reading of documents on revenue.ie and welfare.ie I am unsure of the following, perhaps someone can help;


PRSI Class S is paid by self-employed people such as:
* professional people (for example doctors, dentists, solicitors etc)
* sole traders, people in business on their own or in partnership, farmers, religious, contractors, sub-contractors
* people with income from investments, rents or maintenance payments
* employees who are also self-employed in a trade or profession
* company directors, and others, who pay their tax through the PAYE system but who are not regarded as employees for social insurance purposes
* artists and childminders who have been made exempt from income tax by the Revenue Commissioners
[source: http://www.welfare.ie/EN/OperationalGuidelines/Pages/prsi_selfemp.aspx#3


If I am a Company Director <15% share of company then I receive the PAYE tax credit and I am on PRSI Class S. The company pays no employer PRSI.

If I am a Company Director >15% share of company then I am a Proprietary Director and I do not receive the PAYE tax credit. I am on PRSI Class S and the company pays no employer PRSI. [source: [broken link removed]

For the moment, if we disregard the value of the shares in the company (ie it is not making any profit), is it better to own <15% share so that you retain the €1830 PAYE tax credit ?

Is there any document that says that if you are a Company Director <15% share of company then you must be on Class A ?
 
The PAYE Credit is a valuable tax item allowing one to earn some €9,150 at 20% with no tax. Taking aside totally the potential value or otherwise of a shareholding then a working director with a shareholding of <15% does benefit to the tune of up to €1,830 less tax in a year than does a director with a shareholding > 15%.

However if one ( as invariably one must) factors in the differences different shareholdings might have in the issues of profit sharing, control, untimate sale & gains & soforth then sometimes the keeping of a lower shareholding just to keep the PAYE credit may not always be the best ( or worst) thing.

Regarding PRSI classes The Department of Social & Family Affairs (Scope section) handles insurability of employments. The DoSW have rules regarding what constitutes "control" in the case of limited companies and they differ somewhat from Revenue's simple 15% shareholding rule for purposes of the determining of "proprietory director" status. So you can have a situation where a husband has 49% voting shareholding and his wife has 3% and other shareholders have the remainder, then it may be the case that the wife with only 3% could still be considered by DoSW to be a "controlling" shareholder and PRSIable on Class S since she and her husband can control the company. It very much depends on the individual circumstances of the case and the only way to get a definitive answer would be to contact Scope Section with the facts and they will make a determination.
 
Thanks for the reply Graham_07

If we were to re-introduce the value of the shares could it be assessed like this >

15% shareholding, retain €1,830 PAYE tax credit
16% shareholding, lose €1,830 PAYE tax credit

Therefore, in relation to the individual director, a 'base' value for 1% of the shareholding is €1,830

If the profits from a company are less than €183,000 then it is better to have a 15% shareholding as the PAYE tax credit is worth more than the 1% shareholding.

If the profits from a company are greater than €183,000 then the 1% shareholding is worth more than the PAYE tax credit

Can we also assume that a 1% difference in shareholding is small enough that it would not significantly affect the other factors you mention in your post 'control, untimate sale & gains & soforth...' ?
 
Who is going to own the remaining 86% of the company if you take less than 15% of the share capital? Bear in mind that by doing this you're are effectively handing over control of your company to another person.
 
you're right Jim_Davis, there is an issue with control of the company, however if you were going to be a minority shareholder anyway and the profits are below €183,000 it would appear to be better to have a 15% share rather than a 16% share.
 
I suppose to put it another way;

If there are 6 equal directors of a company then they each have a 16.66% share of the company. This means they are all Proprietary Directors and lose their €1,830 PAYE tax credit.

If there are 7 equal directors of a company then they each have a 14.29% share of the company. This means they are all self-employed Company Directors and retain their €1,830 PAYE tax credit.

Of course this depends on the individual circumstances of each case and as Graham_07 says the Scope Section can be consulted. In principle however as the Directors all have an equal interest and direct control in the company, are they all on Class S rather than Class A ? Would the company then save on employer PRSI and the Directors retain their PAYE tax credit ?
 
tony79 said:
In principle however as the Directors all have an equal interest and direct control in the company, are they all on Class S rather than Class A ? Would the company then save on employer PRSI and the Directors retain their PAYE tax credit ?
Click to expand...

Unfortunately while the issue of Revenue and the PAYE credit is relatively straightforward, Social Welfare's definition of "control" for determining A -v- S classes is largely dependent on the facts of each case as presented to them.
 
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