Self Employed -Director of a Company

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    This is a query from someone who has dealt with few self employed cases!.
    I have a claim from a Director of a Company, and I do understand we have to treat them as employed earners under the normal rules. However, I am not sure how to treat the dividends they receive from their shares in the company. Are these treated as income or capital. If they are capital – how do we value them?


    I would say monies rec’d from Share Dividends should be treated as part of the persons income.

    DWP’s self-employed training manual makes reference to monies being rec’d from share dividends as income, this would seem to confirm how it should be treated.


    I had thought dividends from shares should be treated as capital.

    Willing to be corrected, though.

    Do I know what I'm doing? The jury's out on that........................


    I agree with Mark. Share dividends are treated as capital, just as the interest on a bank account would be. Moreover, the shares themselves are capital too.

    Directors of limited companies, public or private, are not self-employed; they are employees of the company. Too often, the fact that they usually have shares in the company is overlooked.

    I once saw a case where a bloke was on HB/CTB while working part time as a waiter in a restaurant. He then got a new job in a different restaurant. After a little digging, it emerged that he was one of the directors of the private limited company that [i:45014711cc]owned [/i:45014711cc]the new business. How did he fund this? By selling his share of the company that owned the the restaurant he used to “work” in……



    [quote:421db8bed5]You have asked for answers on the following –

    1 How to treat dividends?
    You are correct when you say that reg 40(4) applies i.e. income from capital treated as capital.
    You say that it has been suggested that dividends should be treated as income as the IR now treat these as income for tax purposes. The rules relating to the calculation of HB/CTB are different to the rules for calculating income tax for obvious reasons – social security benefits are payments out and tax is collection of revenue. There have been no changes to the HB/CTB rules so the current situation stands – income from capital treated as capital.

    2 Irregular drawings
    If the person is the director of a company he is an employed earner not self employed. I can appreciate that it may sometimes be difficult to decide what income to take into account if the person says that they only take occasional drawings. You could consider notional earnings under reg 35 (5) of the HB Regs, if you were satisfied that the employer i.e. the company, could afford to pay a regular salary.

    3 Sizeable profits but low drawings
    You could consider notional earnings as in 2.

    I fully sympathise with your comments when you say that staff are not qualified accountants etc. but hope this helps.

    Elsian Linsell

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